Marketing & Technical Support Services to Foreign Group Company Qualify as Export of Services, Not ‘Intermediary Services’: Karnataka HC [Read Order]

In a recent ruling, the Karnataka High Court held that marketing support services and technical support services provided by an Indian company to its foreign group company qualify as export of services under the Goods and Services Act (GST) and do not amount to intermediary services.

Excelpoint Systems (India) Pvt. Ltd., the petitioner, filed a writ petition challenging the order passed by the Assistant Commissioner of Central Tax rejecting its refund claim and the appellate order passed by the Joint Commissioner of Central Tax (Appeals) which upheld the rejection.

The petitioner is engaged in providing marketing support services and technical support services to its foreign group company, Excelpoint Systems Pte. Ltd., Singapore, under a service agreement dated 1 April 2021. For the period from April 2021 to March 2022, the petitioner filed a refund application on 5 January 2023 seeking refund of Rs. 18,92,697 towards unutilised input tax credit, claiming that the services provided were zero-rated export of services.

The refund claim was rejected by the department on the grounds that the services rendered by the petitioner were intermediary services under Section 2(13) of the IGST Act. The appellate authority confirmed this view which led the petitioner to approach the High Court.

The petitioner’s counsel argued that the petitioner was providing services on its own account and was not arranging or facilitating any supply between the foreign entity and its customers. It was explained that the petitioner did not act as an agent or broker and that the services were rendered on a principal-to-principal basis.

They relied on several Karnataka High Court judgments such as Amazon Development Centre India Pvt. Ltd. v. Commissioner of Central Tax (Appeals), Columbia Sportswear India Sourcing Pvt. Ltd. v. Union of India arguing that similar services were not intermediary services.

The petitioner also pointed out that in its own case under the pre-GST regime, the CESTAT had held that the petitioner was not an intermediary and there was no change in the nature of activities after GST.

The department’s counsel argued that the services provided by the petitioner supported and facilitated the supply of goods and services by the foreign entity to its customers. They argued that the arrangement involved three parties and two distinct supplies, and the petitioner was acting as an intermediary.

The department’s counsel submitted that the earlier CESTAT decision was based on a different agreement and a different legal regime and could not apply to the GST period.

JusticeS.R. Krishna Kumar observed that a careful reading of the service agreement and the material on record showed that the petitioner was not supplying the main goods or services of the foreign entity, but was providing support services on its own account.

The court observed that the services rendered by the petitioner could not be treated as intermediary services merely because they supported the business of the foreign entity. The court also observed that the judgments relied upon by the petitioner squarely applied to the facts of the case and supported the claim that the services qualified as export of services.

The court held that the orders passed by the adjudicating authority and the appellate authority were not sustainable in law. The court allowed the writ petition, set aside both the impugned orders and directed the respondents to refund Rs. 18,92,697 along with applicable interest to the petitioner within three months.

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