M/S Ohmi Industries Asia Private ... vs Assistant Commissioner, Cgst on 29 March, 2023
AI Legal Insights
This GST case law from the Delhi High Court addresses the denial of an IGST refund on Market Research Services, focusing on the definition of "intermediary" under Section 2(13) of the IGST Act. M/S Ohmi Industries Asia Private Limited challenged the classification of their services as intermediary, which led to the rejection of their refund claim. The core issue was whether providing Market Research Services to a foreign affiliate constitutes an intermediary service, thus disqualifying it from being a zero-rated supply. The High Court overturned the earlier decision, allowing the IGST refund.
This case clarifies the scope of 'intermediary' services under GST, specifically concerning Market Research Services. Taxpayers providing such services to foreign affiliates may now be eligible for IGST refunds on zero-rated supplies, while the department's interpretation is narrowed.
- Market Research Services provided to foreign affiliates are not automatically classified as intermediary services.
- The 'intermediary' definition under Section 2(13) of the IGST Act must be strictly construed.
- Taxpayers can claim IGST refunds on zero-rated supplies of Market Research Services if they are not intermediaries.
- The recipient of the service must be the primary target, not merely facilitated by the Indian entity.
- Demonstrate that the service adds independent value to the foreign client, not just acting as a conduit.
QWhat is the definition of intermediary under GST?
Under Section 2(13) of the IGST Act, an intermediary facilitates the supply of goods or services between two or more persons. They arrange or facilitate the supply, but provide services on their own account.
QHow to claim IGST refund on export of services under GST?
To claim an IGST refund on export of services, the supply must qualify as a zero-rated supply. This means the services must be provided to a recipient outside India, the payment must be received in convertible foreign exchange, and the supplier should not be treated as an intermediary.
Ruling Summary
Outcome**
The petition was allowed. The impugned order of the Appellate Authority, which upheld the denial of integrated tax refund, was set aside. The respondent (Assistant Commissioner, CGST) was directed to process the petitioner's claim for refund of integrated tax amounting to ₹3,71,767/- relating to Market Research Services, along with interest in accordance with the law.
2. Core Issue
The core issue was whether the petitioner, M/S Ohmi Industries Asia Private Limited, was incorrectly classified as an "intermediary" under Section 2(13) of the Integrated Goods and Services Tax Act, 2017 (IGST Act), thereby leading to the unjustified denial of a refund of integrated tax on its "Market Research Services" rendered to an affiliated entity in Japan (OHMI Industries Ltd., Japan) as zero-rated supply.
3. Key Facts
* The petitioner, an Indian company, provided "Business Support Services" and "Market Research Services" to its Japanese affiliate, OHMI Industries Ltd. (Japan), under separate agreements.
* The petitioner sought a refund of integrated tax (₹14,14,604/-) paid on two invoices for services provided, claiming they were zero-rated supplies.
* The Adjudicating Authority rejected the refund application, holding that the petitioner was engaged in "providing support to customer directly," which it deemed "intermediary services," thus not a zero-rated supply. No show-cause notice was issued prior to this rejection.
* The petitioner appealed, specifically confining its challenge to the denial of refund for "Market Research Services" only, for which the integrated tax paid was ₹3,71,767/-. The denial of refund for "Business Support Services" was not contested in appeal.
* The Appellate Authority upheld the Adjudicating Authority's order, but failed to acknowledge that the appeal was limited to Market Research Services and incorrectly referred to the original higher refund amount.
* The scope of Market Research Services involved research and analysis of product requirements, business agreement trends, competitor situations, steel product price trends, and information production of major steel mills in India.
* Due to the non-constitution of the Appellate Tribunal, the petitioner approached the High Court.
4. Arguments
* Taxpayer (Petitioner):
* The Appellate Authority's order was made without proper application of mind, as it failed to note that the appeal was confined solely to the refund relating to Market Research Services.
* The Market Research Services were rendered by the petitioner on its own account directly to OHMI, Japan, and the petitioner did not act as an intermediary between OHMI, Japan, and any third party.
* The issue is covered by the Delhi High Court's previous decision in M/s Ernst And Young Limited v. Additional Commissioner, CGST Appeals-II, Delhi and Anr.
* Revenue (Respondent):
* Contended that the Market Research Services facilitated the supply of services between OHMI, Japan, and its customers in India.
* Therefore, the petitioner was an "intermediary" and the place of supply was the petitioner's location, making the services not zero-rated.
5. Court’s Reasoning
* The Court found that the Appellate Authority's order clearly demonstrated a lack of application of mind by not addressing the petitioner's confined appeal regarding Market Research Services and by incorrectly referring to the original, larger refund claim.
* The Adjudicating Authority's initial finding that the petitioner was providing support to customers directly, thereby acting as an intermediary, related to "Business Support Services," which the petitioner had deliberately not challenged in the appeal for refund.
* Referring to the definition of "intermediary" under Section 2(13) of the IGST Act, the Court highlighted that it explicitly excludes "a person who supplies such goods or services or both or securities on his own account."
* The Market Research Services, as detailed in the respondent's own counter-affidavit, involved research and analysis carried out by the petitioner itself for OHMI, Japan. There was no evidence or allegation that the petitioner arranged or facilitated services from a third party.
* The Court relied on Circular No.159/15/2021-GST issued by the Central Board of Indirect Taxes, which clarifies that an intermediary arrangement requires a minimum of three parties: two transacting a main supply, and one arranging or facilitating that main supply. An activity between only two parties cannot be an intermediary service.
* Since the petitioner was rendering Market Research Services directly to OHMI, Japan, and on its own account, it could not be considered an intermediary.
* The Court concluded that the issue was squarely covered by its prior decision in M/s Ernst And Young Limited v. Additional Commissioner, CGST.
6. Statutory References
* Integrated Goods and Services Tax Act, 2017 (IGST Act, 2017)
* Section 2(13) of the IGST Act (Definition of "Intermediary")
* Circular No.159/15/2021-GST dated 20.09.2021 issued by the Central Board of Indirect Taxes (clarifying the concept of intermediary services).
7. Precedents Cited
* M/s Ernst And Young Limited v. Additional Commissioner, CGST Appeals-II, Delhi and Anr.; W.P.(C) No.8600/2022 decided on 23.03.2023 (Delhi High Court).