While entertaining the petition filed by the McDonald’s India Pvt. Ltd., the bench of Justice Bibhu Bakhru and Justice Amit Mahajan of Delhi High Court observed that the Appellate Authority did not consider the Master License Agreement (MLA) and thus set aside the order.
The bench observed that there is no basis for the Appellate Authority to have concluded that the petitioner acts as a mediator between joint ventures/ franchisees and McDonald’s USA. Also noted that the appellate authority has proceeded on the basis that providing services on behalf of another party amounts to acting as an intermediary.
The petitioner, M/S McDonalds India Pvt. Ltd is a company incorporated in India and is a subsidiary of McDonald’s Corporation, USA (‘McDonald’s USA’) had entered into a service agreement dated 01.01.1996, whereby the petitioner had agreed to perform certain services.
The petitioner is entitled to a consideration on cost plus 10% mark-up basis for the services rendered under the Service Agreement. Further, the petitioner claimed that the services rendered by it to McDonald’s USA are ‘zero rated supplies’ under Section 16 of the Integrated Goods and Services Tax Act, 2017 (IGST).
The appellant claimed that during the period of April 2018 to March 2019, it had provided services under the said Service Agreement without payment of Integrated Goods and Services Tax and thus, is entitled to refund of tax paid on inputs.
The petitioner filed an application dated 04.08.2020 for refund of goods and service tax paid on the inputs used for the services rendered to McDonald’s USA, its holding company, under the Service Agreement. However, the adjudicating authority rejected the petitioner’s claim for refund of ITC of ₹9,26,34,542 as claimed by the petitioner.
The authority held that the services rendered by the petitioner could not be considered as export of services as the services rendered by the petitioner were intermediary services and therefore, the place of supply of the said service was in India. Also, the appellate authority upheld the same.
Mr Gulati, counsel of the petitioner asserted that the Adjudicating Authority as well as the Appellate Authority has misconstrued the services rendered by the petitioner in terms of the Service Agreement. He claimed that the authorities had confused the MLA with the services provided under the Service Agreement.
The Delhi High Court also observed that Appellate Authority had reasoned that since the petitioner is required to “consult with and make periodic visits to existing and prospective suppliers concerning all matters related to procurement of supplies” on behalf of McDonald’s USA, Section 13(3)(b) of the IGST Act was applicable.
In order to examine whether Section 13(3)(b) of the IGST Act is applicable, it is necessary to identify the service provider and the service recipient. In the present case, under the Service Agreement, the service recipient is McDonald’s USA and the petitioner is the service provider. The supply of services by the petitioner to McDonald’s USA does not require the physical presence of McDonald’s USA.
It was also noted that the Show Cause Notice issued by respondent no. 2 did not specifically set out any reason in detail for denial of refund of ITC as claimed by the petitioner.
Furthermore, no additional grounds for rejecting the petitioner’s claim for refund could be raised Suo motu by the Appellate Authority, in an appeal preferred by the petitioner. Thus the impugned order of the appellate authority is liable to be set aside. Also directed the adjudicating authority to re-adjudicate the matter.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
