In a recent case the Bombay High Court no Goods and Service Tax (GST) applicable to Services rendered abroad since it amount to export services.
Jar Productions Private Limited, the petitioner challenged the order of the Additional Commissioner and against the order passed by the Additional Commissioner whereby the claims of the GST preferred by the petitioner have been rejected.
The petitioner is engaged in providing production services to ‘A Suitable Company Ltd ’ located in London United Kingdom (U.K.) (ASCL). To provide the said services, the petitioner has entered into an agreement dated 12th September 2019 with ASCL effective from 28th March 2018.
It was stated that Clause 4.10 of the agreement provides that if any refund of tax component is received by the petitioner, such amount shall be reduced from the production expenses i.e. while computing the consideration towards production services, the said amount of tax component received as refund will be deducted from the production expenses.
The petitioner received and utilised various inputs/ input services on which appropriate CGST/MGST/IGST services were paid as charged by the vendors. In cases, where the services were received from a service provider/ vendor located outside India, CGST+MGST or IGST on such supplies was paid by the petitioner.
The petitioner filed its first refund application for the period from April to July 2019 on 31st March 2020. The said claim was allowed by respondent no 4 The Assistant Commissioner. The Petitioner filed another refund claim of Rs. 1,43,56,999/-for the subsequent period of August 2019 to October 2019.
Respondent no 4 rejected the claim of the petitioner on the ground that the incidence of tax has been passed on to the client i.e. ASCL resulting in unjust enrichment of the petitioner. On appeal, the Appellate Authority confirmed the order of respondent 4 and held that the burden of the GST has been shifted to the service recipient, and the petitioner cannot be a beneficiary, as any refund to the petitioner would amount to unjust enrichment.
It was submitted by the appellant that the principle of unjust enrichment does not apply to export services. Being a zero-rated supply, the principle of unjust enrichment does not apply to the services rendered by the petitioner.
It was evident from the provision of the Goods and Service Act, 2017, a refund of the unutilised tax credit shall be allowed in cases of zero-rated supply. Zero-rated supply has been defined in Section 16 of the Integrated Goods and Services Tax Act, 2017 where in defined that it includes any of the following supplies of goods or services or both, namely:- (a)export of goods or services or both or (b)Supply of goods or services or both to a Special Economic Zone developer or Special Economic Zone unit
Section 54(8)(e) of the CGST Act states refund cannot be claimed when the incidence of tax has been passed on to the recipient or any other person.
The applicant is entitled to a refund of the amount if the incidence of tax has not been passed on to the recipient of the services. If the incidence of tax has been passed on, the petitioner is not entitled to the refund.
It was viewed that the agreement executed between the petitioner and the ASCL shows that the approved production budget includes all costs in connection with the production services including the amount of Indian Goods and Services Tax Act.
A division bench comprising Justice S V Gangapurwala & Justice M G Sewlikar held that “the recipient petitioner has rendered services to the ASCL abroad i.e. in U.K. Therefore, GST does not apply to the services rendered abroad as they amount to the export of services.”
While allowing the appeal, the Court set aside the orders. Shri Prasad Paranjape appeared for the Petitioner and Shri Pradeep Jetly, appeared for the Respondent.
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