Isabella Mariam

The High Court of Judicature at Bombay Division Bench of Justice B. P. Colabawalla and Justice Firdosh P. Pooniwalla held that the petitioner was entitled to a refund of unutilised Input Tax Credit (ITC) for services exported to its overseas group entities. The court set aside the orders of the Deputy Commissioner of State Tax and the Appellate Authority which had earlier denied the refund on the grounds that the petitioner was an "agency" of the foreign recipients, thereby failing to qualify under the definition of "export of services" under Section 2(6)(v) of the Integrated Goods and Services Tax Act, 2017 (IGST Act).

The court stated that the petitioner was not a mere establishment of a distinct person under Explanation 1 to Section 8 of the IGST Act and concluded that the petitioner and the foreign recipients were separate legal entities. The court further directed that the refund be processed and disbursed along with statutory interest under Section 56 of the Central Goods and Services Tax Act, 2017 (CGST Act) within four weeks of the date of the judgment.

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The petitioner, a private limited company engaged in the supply of engineering services and goods to overseas group entities, filed two refund applications under Section 54(3) of the CGST Act and the Maharashtra Goods and Services Tax Act, 2017 (MGST Act), read with Rule 89(4) of the CGST Rules and MGST Rules. The refund claims pertained to unutilised ITC on zero-rated supplies made during the quarters July to September 2021 and October to December 2021.

The original authority, i.e., the State Tax Officer (Respondent No. 5), rejected both applications by invoking clause (v) of Section 2(6) of the IGST Act. This decision was upheld by the Appellate Authority (Respondent No. 4), the Deputy Commissioner of State Tax, who concluded that the petitioner was acting as an "agency" of the foreign recipients and therefore, the supplies did not qualify as exports under the IGST Act.

The petitioner argued that it had previously filed refund claims for earlier periods (April 2020 to March 2021 and April to June 2021) on identical grounds, which had been allowed and attained finality. It was contended that the supplies made were to independent legal entities incorporated under foreign laws and that the services were rendered on a principal-to-principal basis, supported by agreements confirming the independent contractor status of the petitioner.

The petitioner relied on the terms of its agreement with SISA International S.A., a French company, which stated that the petitioner was an independent contractor and not an agent, employee, or servant of the foreign recipient. The agreement also specified a fixed markup for services and goods rendered, as per a fee schedule.

According to the respondents, the petitioner was an "agency" due to various factors including managerial control by the foreign entity, reimbursement of expenses, fixed profit margins, and the right of the foreign entity to audit the petitioner’s books of accounts. It was asserted that the petitioner, being a subsidiary of a foreign company, had a fiduciary relationship with the recipient, thereby constituting an agency.

The petitioner challenged this finding, maintaining that a third-party relationship is essential for the application of the term "agent" as defined under Section 2(5) of the CGST Act. Since there were only two parties involved, namely the petitioner and the foreign recipient, the agency relationship did not exist.

The Division Bench stated "In terms of Section 2(5) of the CGST/ MGST Act a person shall qualify as an agent only when the said person carries on the business of supply or receipt of goods or services or both on behalf of another."

It recorded that "the impugned orders hold that the foreign recipient of goods and services are Principal and the Petitioner is their Agent in India and thus, according to Respondent No. 4, the overseas recipient of services are carrying on business in India through 'agency' of the Petitioner. Consequently, Petitioner is a mere establishment of the foreign recipients."

However, the court found that the impugned orders failed to consider the agreement terms which expressly clarified that "HMD India is an independent contractor, and that neither HMD India nor its officers, directors, employees or subcontractors are servants, agents or employees of SISA."

The Bench also stated, "The Petitioner provides design and engineering services to its customers on principal-to-principal basis by employing its own manpower and other resources."

Addressing the issue of fixed markup, the court observed, "Merely because consideration is fixed and the Petitioner receives a fixed mark-up, the same does not become commission paid to the Petitioner as an agent."

It was further recorded that "the clause for inspection of books of account is to facilitate the verification of the actual costs charged by the Petitioner for services rendered by them and to determine that such costs are true and fair."

The court considered Circular No. 161/2017/2021 issued by the Central Board of Indirect Taxes and Customs (CBIC) dated 20.09.2021, which clarified that a company incorporated in India and a foreign company incorporated outside India are separate legal persons under the CGST Act.

The court quoted from the circular, stating "these two separate persons would not be considered as 'merely establishments of a distinct person in accordance with Explanation 1 in section 8'."

It also relied on the decision in Xilinx India Technology Services (P.) Ltd. vs. Special Commissioner, wherein the Delhi High Court held that a subsidiary and its foreign parent company are separate legal entities and the subsidiary cannot be considered a mere establishment of the foreign parent.

The court recorded, "It is now well settled that once an expression in any Act has been defined, the said expression will have same meaning and is not necessary to find out what is the general meaning of the said expression."

It found that Respondent No. 4’s reliance on definitions from Black’s Law Dictionary, Halsbury’s Laws of England, and judicial pronouncements outside the statute was misplaced, given the specific statutory definition under Section 2(5).

The High Court directed that "the Petitioner is eligible for refund of unutilized ITC on account of zero-rated supplies in terms of Section 54 of the CGST Act and the same shall be granted to them along with statutory interest under Section 56 of the CGST Act."

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The court further ordered, "This exercise shall be done within a period of 4 weeks from the date of uploading of this order on the High Court website."

It concluded, "Rule is made absolute in the aforesaid terms and the Petition is also disposed of in terms thereof. However, there shall be no order as to costs."

To ensure compliance, the court stated, "Though we have disposed of the above Petition, we place it on board for reporting compliance on 16th July 2025."

Advocates Representing the Parties:

For the Petitioners: Mr. Prakash Shah, Senior Advocate with Mr. Jas Sanghavi, Mohit Raval, Vikas Poojary i/b PDS Legal, Advocates

For the Respondents: Ms. S. D. Vyas, Additional Government Pleader with Mr. Aditya Deolekar, Assistant Government Pleader

Case Title: Sundyne Pumps and Compressors India Pvt Ltd vs. Union of India & Ors.

Neutral Citation: 2025: BHC-AS:23503-DB

Case Number: Writ Petition No.15228 of 2023

Bench: Justice B. P. Colabawalla and Justice Firdosh P. Pooniwalla

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