No Findings on Nature of Export of Services: Bombay HC Sets Aside IGST Refund Rejection, Orders Fresh Hearing [Read Order]

In a recent ruling, the Bombay High Court held that an IGST refund claim cannot be rejected without recording findings on whether the services qualify as “export of services,” and set aside the rejection orders where the authorities failed to examine the nature of services under the relevant agreement.

V Ships India Pvt. Ltd., the petitioner, filed multiple writ petitions challenging orders passed by the adjudicating and appellate authorities rejecting its refund claims of IGST paid on services provided to its foreign client, V. Group Manpower Services, United Kingdom, under an agreement dated 15 January 2013. The dispute related to the period from January 2022 to June 2023 under the GST regime.

The petitioner had claimed that the services provided by it qualified as “export of services” under Section 2(6) of the IGST Act and were zero-rated supplies underSection 16, making it eligible for refund of IGST paid. It had accordingly filed refund applications, which were rejected by the department on the ground that the petitioner was acting as an intermediary and not on a principal-to-principal basis.

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The petitioner’s counsel argued that the nature of services was governed by the agreement dated 15 January 2013 and that similar services had been treated as export of services even under the pre-GST regime, where refunds were granted. They further argued that the appellate authority failed to examine the terms of the agreement and did not record any findings on whether the services qualified as export of services.

The department’s counsel argued that the services were in the nature of intermediary services and hence did not qualify as export of services, leading to rejection of the refund claims. However, they also accepted that the agreement had not been properly considered while passing the impugned orders.

The Division Bench of Justices G. S. Kulkarni and Aarti Sathe observed that the impugned orders did not contain any findings on the nature of the services or on the terms of the agreement which was central to determining whether the transactions qualified as export of services. The court explained that such determination requires a proper examination of the contractual arrangement and the actual nature of the services rendered.

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The court further pointed out that in similar matters including decisions such as Sundyne Pumps, Magna Automotive, and Vistex Asia Pacific, the issue had been remanded for fresh consideration where the authorities had failed to properly analyze the agreements and apply the law.

The court held that the rejection of refund claims without examining the agreement and without recording findings on the nature of services rendered made the impugned orders unsustainable in law.

The court quashed the orders passed by the appellate authority and remanded the matter for de novo consideration. The appellate authority was directed to pass fresh orders after hearing the parties and properly examining the agreement within a period of three months. All contentions were kept open and the petitions were disposed of.

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