Sundyne Pumps And Compressors India ... vs Union Of India And Ors on 16 June, 2025

Outcome**
The Writ Petition was allowed. The High Court quashed the two Orders-in-Appeal dated 10.08.2023, ruling that the Petitioner is eligible for the refund of unutilized Input Tax Credit (ITC) arising from zero-rated supplies (exports) of goods and services. The refund, along with statutory interest under Section 56 of the CGST Act, must be granted within four weeks.

2. Core Issue
The core issue was whether the services supplied by Sundyne Pumps And Compressors India Pvt Ltd (an Indian subsidiary) to its foreign group companies qualified as "export of services" under Section 2(6) of the IGST Act, specifically challenging the Revenue's contention that the Petitioner was merely an "establishment of a distinct person" acting as an "agent" for the foreign recipient, thereby violating condition (v) of Section 2(6) IGST Act and disentitling the Petitioner to a refund of unutilized ITC under Section 54(3) of the CGST/MGST Act.

3. Key Facts
* Petitioner: Sundyne Pumps And Compressors India Pvt Ltd (formerly HMD Seal/Less Pumps Industrial Pvt Ltd), an Indian company.
* Business: Supplies engineering services, specialized office support, management consulting, maintenance/repair services, and goods exclusively to its group companies/related persons located outside India. No Domestic Tariff Area (DTA) supplies.
* Disputed Period: July to September 2021 and October to December 2021, for which refund applications of unutilized ITC totaling Rs. 13,75,244/- and Rs. 25,88,634/- respectively were filed.
* Rejection Ground: The Revenue (State Tax Officer and Appellate Authority) rejected the refunds, asserting that the foreign recipients carried on business through the Petitioner as an "agency" in India. Consequently, the Petitioner was deemed a "mere establishment of a distinct person," failing condition (v) of Section 2(6) of the IGST Act, thus not providing zero-rated supplies.
* Contractual Terms: The agreement between the Petitioner and its foreign recipients explicitly stated the Petitioner was an "independent contractor" and not an "agent, servant, or employee" of the recipient. The Petitioner was remunerated on a cost-plus basis (10% mark-up for services, 5% for goods).
* Prior Refunds: For identical services during April 2020-March 2021 and April-June 2021, the Petitioner's refund applications were allowed, and these orders had attained finality.

4. Arguments (Taxpayer vs Revenue)

• Taxpayer (Sundyne Pumps And Compressors India Pvt Ltd):

  • The supplies met all conditions for "export of goods" and "export of services" under Section 2(5) and 2(6) of the IGST Act, making them zero-rated under Section 16 of the IGST Act.
  • The foreign recipients are independent legal entities; the Petitioner is not a "mere establishment of a distinct person."
  • The agreement explicitly defines the Petitioner as an "independent contractor," not an "agent," and the Petitioner provides services on a principal-to-principal basis using its own resources.
  • The cost-plus remuneration and audit rights are standard commercial practices (e.g., for transfer pricing) and do not create an agency relationship or imply a "commission."
  • The definition of "agent" under Section 2(5) of the CGST/MGST Act requires supplying or receiving goods/services "on behalf of another," implying a third party. In this case, there are only two parties.
  • Reliance on general definitions of "agent" by the Revenue is misplaced; statutory definitions must prevail.
  • CBIC Circular No. 161/2017/2021 dated 20.09.2021 (adopted by the State) clarifies that supplies between an Indian incorporated subsidiary/group company and its foreign incorporated parent/group company are not supplies between "merely establishments of a distinct person," as they are separate legal entities.
  • The department's prior approval of identical refund claims for earlier periods, which attained finality, creates an estoppel.

• Revenue (Union of India & Ors.):

  • The Petitioner violated condition (v) of Section 2(6) of the IGST Act because the foreign recipient operates in India through the Petitioner as an "agency."
  • Factors indicating agency included: foreign party's control over the Petitioner (as a subsidiary), managerial control by the foreign recipient, reimbursement of expenses, cost-plus remuneration implying a "fixed commission," availability of Petitioner's books for foreign recipient's inspection, and the fiduciary relationship between group companies.
  • The Revenue relied on general definitions of "agent" from legal dictionaries (e.g., Black's Law Dictionary) and treatises (e.g., Bowstead on Agency, Halsbury's Laws of England).
  • The facts did not align with the CBIC Circular's clarifications, and the reference to Section 15 of the CGST/MGST Act (related persons) was relevant. The requirement of a third party for the definition of "agent" was irrelevant.

5. Court’s Reasoning
* Statutory Definition of "Agent": The Court held that when a term is defined in an Act (e.g., "agent" in Section 2(5) CGST/MGST Act), that specific statutory definition must be applied, overriding any general or dictionary meanings. Section 2(5) defines "agent" as someone who acts "on behalf of another," implying a third-party transaction. As the Petitioner supplied services directly to the foreign recipients (two parties), there was no "agency" relationship as per the statutory definition.
* Contractual Autonomy: The Court emphasized reading the agreement as a whole, noting that it explicitly stated the Petitioner was an "independent contractor" and not an "agent." The intention of the parties, as documented, was paramount.
* Commercial Practice: The Court found the Revenue's arguments regarding foreign control, cost-plus remuneration, and audit rights unsustainable. These are common features in inter-company transactions, consistent with transfer pricing norms, and do not automatically establish an agency or negate the Petitioner's status as an independent service provider. The mark-up was consideration for services, not a commission.
* Binding Circular: The Court found the CBIC Circular No. 161/2017/2021 dated 20.09.2021 (and its adoption by the State via Trade Circular No. 26T of 2021) to be binding on the Revenue. This Circular explicitly clarifies that a company incorporated in India (like the Petitioner) and a foreign company (recipient), being separate legal entities, are not considered "merely establishments of a distinct person" under Explanation 1 to Section 8 IGST Act, even if they are subsidiary/group concerns. Therefore, supplies between them can qualify as "export of services." The impugned orders, by refusing to follow this circular, were deemed contrary to law.
* Inconsistency and Estoppel: The Court observed that the department had previously granted refunds for identical services and agreements for earlier periods, which orders had attained finality. It was not open for the Revenue to reject subsequent claims on the same facts.
* Conclusion: The Petitioner satisfied all conditions of Section 2(6) of the IGST Act, including condition (v), and thus the services qualified as export and zero-rated supplies, entitling them to the refund of unutilized ITC.

6. Statutory References
* Constitution of India: Article 226
* Central Goods and Services Tax Act, 2017 (CGST Act): Section 2(5) (Definition of "agent"), Section 2(84) (Definition of "person"), Section 15 (Value of supply - related persons), Section 54(3) (Refund of unutilized ITC), Section 56 (Interest on delayed refunds).
* Maharashtra Goods and Services Tax Act, 2017 (MGST Act): Section 2(5), Section 15, Section 54(3).
* Central Goods and Services Rules, 2017 (CGST Rules): Rule 89(4) (Application for refund).
* Maharashtra Goods and Services Tax Rules, 2017 (MGST Rules): Rule 89(4).
* Integrated Goods and Services Tax Act, 2017 (IGST Act): Section 2(5) ("Export of goods"), Section 2(6) ("Export of services", particularly sub-clause (v)), Section 8 (Intra-State Supplies, Explanation 1 & 2), Section 16 (Zero Rated Supply).
* Companies Act, 2013: Section 2 (Definitions of "company" and "foreign company").
* Wealth Tax Act, 1957: Section 2(m).
* Tea Act: Section 3(n), Section 25.
* Prevention of Food Adulteration Rules, 1955
* Tea Waste (Control) Order, 1959

7. Precedents Cited
* United Bank Ltd vs DRT & Ors (1999) 4 SCC 69: Cited for the principle that a specific statutory definition of an expression takes precedence over its general meaning.
* CCE Cochin vs Tata Tea Ltd, (2002) 9 SCC 17: Reaffirmed the principle that statutory definitions are binding and reference to other enactments for construction is unwarranted.
* Webb v. Stenton: Definition of "debt" (cited within United Bank Ltd).
* Xilinx India Technology Services (P.) Ltd. Vs. Special Commissioner Zone VIII, 2023 (78) G.S.T.L. 24 (Del.): A Delhi High Court judgment on identical facts, relying on the CBIC Circular and affirming that services by a subsidiary to a holding company are not covered by Section 2(6)(v) IGST Act.
* Bacha F. Guzdar, Bombay Vs Commissioner of Income Tax, Bombay, 1954 (10) TMI 2 (SC) / AIR 1955 S.C. 74 = [1955] 27 ITR 1: Cited for the fundamental proposition of law that the identity of an incorporated company is separate from its shareholders.
* CBIC Circular No. 161/2017/2021 dated 20.09.2021: A crucial circular clarifying the interpretation of condition (v) of Section 2(6) IGST Act for services between related legal entities.
* Trade Circular No. 26T of 2021 dated 28.09.2021: Maharashtra State's circular adopting the CBIC Circular No. 161/2017/2021.