McDonalds India Pvt Ltd Vs Additional Commissioner, CGST Appeals – II, Delhi & Anr. (Delhi High Court)
Delhi High Court, in the case of M/s McDonalds India Pvt Ltd. v. Additional Commissioner, CGST Appeals – II, Delhi & Anr. [W.P.C No. 11430 of 2022 dated May 18, 2023], has overturned the order that denied the refund of tax paid on inputs. The court based its decision on the fact that the taxpayer was providing services to its holding company, rather than acting as a mediator between the holding company and franchisees in India, as alleged. The court held that the Appellate Authority could not raise additional grounds to reject the taxpayer’s claim for refund on its own initiative in an appeal filed by the taxpayer.
Facts:
M/s. McDonald’s India Pvt. Ltd. (“the Petitioner”) is a subsidiary of McDonald’s Corporation, USA (“the foreign counterpart”). The Petitioner and foreign counterpart entered into 2 agreements namely, Master License Agreement (“MLA”) and Service Agreement. As per MLA the petitioner has non-exclusive rights to certain intellectual property of the foreign counterpart including the right to sub-license and by exercising such right the Petitioner had entered into franchisee agreements with various parties in India.
As per Service Agreement, the Petitioner is bound to perform the certain activities viz, conduct research on subjects including consumer attitudes, demographics, marketing and advertising strategy, investigate the timing and location of Restaurant openings and other strategic matters etc.
The Petitioner filed refund of tax paid on inputs for the period April 2018 to March 2019 by claiming services rendered under the Service Agreement as ‘zero-rated supplies’ as per Section 16 of the Integrated Goods and Services Tax Act, 2017 (“the IGST Act”).
However, the Adjudicating Authority issued a Show Cause Notice dated August 14, 2020 (“the SCN”), proposing to reject the refund of tax paid on inputs amounting to INR 9,26,34,542/-.
The Petitioner filed the reply to the SCN vide letter dated August 27, 2020. The Adjudicating Authority considered the reply but rejected the refund claim of the Petitioner vide an Order dated August 31, 2020 (“the Order in Original”).
Being aggrieved, the Petitioner filed an appeal before the Appellate Authority, which rejected the refund claim of the Petitioner vide Order dated February 14, 2022 (“the Impugned Order”). Consequently, this petition has been filed.
Issue:
Whether the Petitioner is an intermediary within the meaning of Section 2(13) of the IGST Act in respect of services given under the Service Agreement?
Held:
The Hon’ble Delhi High Court W.P.(C) No. 11430/2022 held as under:
