Refund of IGST on Service Provided to Overseas Entity is not Allowable to Intermediary, Department Failed to Give Opportunity to Assessee: Delhi HC Sets Aside Order Rejecting Refund Claim 

In a significant case, the Delhi High Court ( HC ) has held that refund of Integrated Goods and Service Tax ( IGST )on service provided to the overseas entity is not allowable for the intermediary and set aside the order rejecting the refund claim since the department failed to give the opportunity to assessee.

D L Support Services India Private Limited, the petitioner challenged an order dated 19.04.2022 which was passed beyond jurisdiction since it deny the petitioner refund of integrated tax paid in respect of services provided to an entity located overseas, on the ground that the petitioner is an ‘intermediary’; therefore, the place of services performed by the petitioner is necessary to be considered as located in India.

The petitioner claimed that it was involved in the export of services and had sought a refund of ₹13,10,508/- paid on the export of services for the period of April 2020. The petitioner’s application dated 31.05.2021 was accepted on 01.06.2021 without issuing the deficiency memo. The Adjudicating Authority issued a show cause notice dated 20.07.2021 proposing to deny a refund of Integrated Tax to the petitioner on the ground that the petitioner and the service recipient(s) were not distinct persons. 

It was contended by the petitioner that the overseas service recipient were not separate tax entities. The Adjudicating Authority had rejected the petitioner’s claim for refund was found to be untenable, the Appellate Authority proceeded to deny the refund on the new ground that the petitioner was an intermediary under Section 2(13) of the Integrated Goods and Services Tax Act, 2017 (IGST Act). Therefore, the services rendered by the petitioner did not qualify to be considered as an export of services.  

The petitioner contends that the Appellate Authority under Section 107 of the CGST Act have the power to make such an inquiry as it considers necessary and pass such orders as it thinks just and proper including confirming, modifying or annulling the decision appealed against; however the power of modifying the order appealed against does not extend to setting up a new case altogether.

The petitioner also contended that in terms of the second proviso to Section 107(11) of the CGST Act, the Appellate Authority has the power to direct the assessee to pay tax, if it finds that the same is not paid, short paid, erroneously refunded or that the input tax has been wrongly availed, as the case may be.

The Coram comprising of Justice Vibhu Bakhru and Justice Amit Mahajan observed that the petitioner was not allowed to meet the case and that it was not entitled to a refund as the services provided by it were as an intermediary.

Since the impugned order has been passed in violation of the principles of natural justice, the Court set aside the impugned order and remanded the matter to the Appellate Authority to decide the petitioner’s appeal afresh following the law after affording the petitioner an opportunity to be heard.

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