Genpact India Pvt. Ltd vs Union Of India And Others on 11 November, 2022

Here's a summary of the judgment:

1. Outcome
   The High Court quashed the Appellate Authority's order dated 15.02.2021, which held the petitioner's services as "intermediary services" and rejected the refund claim. Consequently, the original order dated 14.03.2019, sanctioning a refund of Rs.26,34,61,625/- to the petitioner, was restored. The court further directed that the benefit of this order would also apply to the petitioner's subsequent refund claims. The writ petition was allowed.

2. Core Issue
   The central issue was whether the Business Process Outsourcing (BPO) services provided by Genpact India Pvt. Ltd. (petitioner) to Genpact International Incorporated (GI), an overseas entity, under a Master Services Sub-Contracting Agreement, qualify as "intermediary services" under Section 2(13) of the IGST Act, 2017, and thus fail to meet the definition of "export of services" under Section 2(6) of the IGST Act. This determination directly impacted the petitioner's eligibility for a refund of un-utilized Input Tax Credit (ITC) on zero-rated supplies.

3. Key Facts

   • Petitioner: Genpact India Pvt. Ltd., an India-based BPO Service Provider.
   • Services: Provides a range of BPO services (e.g., data management, software, IT support, data analysis) from India to customers globally, using its own infrastructure and workforce.
   • Agreement: Master Services Sub-Contracting Agreement (MSA) dated 01.01.2013 with Genpact International Incorporated (GI), a foreign entity. The petitioner was sub-contracted by GI to perform BPO services directly for GI's overseas clients on a "principal to principal" basis.
   • Refund Claim: Petitioner applied for a refund of un-utilized ITC amounting to Rs.27,26,27,276/- for July 2017 - March 2018, claiming its services were "export of services" (zero-rated supplies).
   • Initial Adjudication: The Deputy Commissioner (CGST) initially sanctioned a refund of Rs.26,34,61,625/- (Order-in-Original dated 14.03.2019), holding the services as "export of services."
   • Departmental Appeal: The Principal Commissioner (CGST) reviewed this order and directed an appeal. The department subsequently appealed, contesting the refund, arguing the services were "intermediary services" based on a circular (later withdrawn).
   • First Appellate Order: The Joint Commissioner (CGST Appeals) upheld the department's appeal, holding the services as "intermediary services" (Order dated 27.05.2020).
   • High Court Remand: The petitioner challenged this, and the High Court set aside the appellate order, remanding the matter for a fresh decision (Order dated 29.01.2021).
   • Impugned Order: The Appellate Authority (Additional Commissioner CGST Appeals) again ruled against the petitioner, rejecting the refund claim and affirming that the services were "intermediary services" (Order dated 15.02.2021).
   • Consistency: The petitioner had previously been granted refunds for similar BPO services under the pre-GST Service Tax regime, with the department explicitly confirming these were not "intermediary services."

4. Arguments (Taxpayer vs Revenue)

   • Taxpayer (Genpact India Pvt. Ltd.):

     • The impugned order exceeded the scope of remand and the original appeal grounds by analyzing new clauses of the MSA.
     • The petitioner provides services "on its own account," directly to the end customers as sub-contracted by GI, and does not merely facilitate or arrange services from a third party.
     • The MSA established a "principal to principal" relationship, not an agency. There is no separate agreement between the petitioner and GI's customers.
     • Petitioner's turnover is the entire service charge, not a commission or facilitation fee.
     • The definition of "intermediary" under the GST regime (Section 2(13) IGST Act) is broadly similar to the pre-GST regime (Rule 2(f) POPS Rules, 2012), and previous consistent rulings holding the services as "export of services" should apply.
     • The Appellate Authority misread the Infinera India ruling and failed to apply the principle of consistency in tax matters where facts and law remain unchanged.
     • A recent circular dated 20.09.2021 by CBIC clarifies that sub-contracting arrangements do not constitute "intermediary services."

   • Revenue (Union of India and Others):

     • Justified the impugned order, asserting that the petitioner's services were "intermediary" in nature.
     • There were two distinct supplies: main supply by GI to its customers, and ancillary/supportive supply by the petitioner to GI.
     • The petitioner acted "on behalf of" GI by providing support services (e.g., maintaining customer relationships, providing financial data for invoicing), enabling GI to provide the main services.
     • GI's appointment of account representatives, overall responsibility for managing service delivery, and handling customer disputes indicated a principal-agent relationship.
     • The petitioner does not provide services "on its own account."
     • The principle of res judicata does not apply to tax proceedings for different assessment years, as each year is a separate unit.
     • There was a material change in the definition of "intermediary" under the GST regime compared to the previous Service Tax regime.
     • The Transfer Pricing Report also suggested the petitioner performed supporting functions for GI.

5. Court’s Reasoning

   • Definition of Intermediary: The court outlined three conditions for a service provider to be an "intermediary" under Section 2(13) IGST Act: (i) principal-agency relationship, (ii) arrangement or facilitation of services by a 3rd party to the principal, and (iii) not performing the main service "on his own account." It emphasized that the scope of an "intermediary" excludes persons providing the main service on their own account.
   • Analysis of MSA: Upon in-depth examination of the MSA, the court found no indication that the petitioner acted as an "intermediary." The MSA clearly showed GI sub-contracted the petitioner for actual performance of BPO services to GI's customers. The petitioner bore responsibility for service performance, akin to rendering services "on its own account." Clauses relied upon by the department merely outlined operational modalities for carrying out the work and sharing information, not establishing facilitation of services by a third party.
   • Consistency Principle: The court noted that a prior Order-in-Original dated 25.01.2018 (under the pre-GST regime), after a detailed analysis of the same MSA, had concluded that the petitioner was not an "intermediary," and this order had become final.
   • No Change in Law: The court explicitly rejected the department's argument of a material change in the definition of "intermediary" under GST. It compared Rule 2(f) of the 2012 Place of Provision of Service Rules and Section 2(13) of the IGST Act, concluding that the definitions were broadly similar. It also cited the CBIC Circular dated 20.09.2021, which affirmed no significant change in the scope of "intermediary" services between the two regimes. The court further pointed out that the Appellate Authority had misread the Infinera India ruling, which actually stated the definitions were similar. Applying the principle of consistency, as held in M/s Radhasoami Satsang Soami Bagh, Agra and Bharat Sanchar Nigam Ltd. Vs. Union of India, the court stated that authorities should not deviate from a prior view when facts and law are the same, in the absence of new grounds or material changes.
   • No Principal-Agent Relationship: The court found the department's conclusion of a principal-agent relationship erroneous. It highlighted Clause 21.6 of the MSA which expressly disclaimed any agency relationship. Furthermore, the court noted that the department, in its own written statement in a previous litigation round, had expressly averred that "the test of agency... which is not the case in the present case." The petitioner had no direct contract with GI's customers, and its role was that of a sub-contractor providing the main service.
   • New Grounds in Written Statement: The court disregarded new grounds and references (e.g., Transfer Pricing Report, main vs. ancillary supply distinction) raised by the department in its written statement that were not part of the impugned order, citing Mohinder Singh Gill and another Vs. The Chief Election Commissioner.

6. Statutory References

   • Integrated Goods and Services Tax Act, 2017 (IGST Act):
     • Section 2(6) (Definition of "export of services")
     • Section 2(13) (Definition of "intermediary")
     • Section 13 (Place of supply of services where location of supplier or recipient is outside India), specifically 13(2), 13(8)(b)
     • Section 16 (Zero rated supply), specifically 16(1)(a), 16(2), 16(3)
   • Central Goods and Services Tax Act, 2017 (CGST Act):
     • Section 2(5) (Definition of "agent")
     • Section 54 (Refund of tax), specifically 54(3)
   • Place of Provision of Service Rules, 2012:
     • Rule 2(f) (Definition of "intermediary")
   • Foreign Exchange Management Act, 1999 (FEMA)
   • Reserve Bank of India Act, 1934

7. Precedents Cited

   • Infinera India (P.) Ltd., In re [2020] 112 taxmann.com 500 (AAAR- Karnataka)
   • Vservglobal (P.) Ltd., In re [2018] 19 GSTL 173 (AAR- Maharashtra)
   • M/s Radhasoami Satsang Soami Bagh, Agra Versus Commissioner of Income Tax (1992) 1 SCC 659
   • Bharat Sanchar Nigam Ltd. Vs. Union of India (2006) 3 SCC 1
   • Mohinder Singh Gill and another Vs. The Chief Election Commissioner, New Delhi and others (1978) 1 SCC 405