Case Law Details
Boks Business Services Pvt Ltd Vs Commissioner of Central Goods And Services Tax Delhi South And Anr (Delhi High Court)
Appellant is not intermediary if is neither facilitating provision of services by a third entity nor acting as a middleman for procuring such services for its affiliate
Introduction: In a pivotal judgment, the Delhi High Court recently delved into the definition of an “intermediary” under the Integrated Goods and Services Tax Act, 2017 (IGST Act). This decision has notable implications for businesses engaged in providing services to foreign affiliates.
Defining the Issue: Boks Business Services Pvt Ltd challenged the denial of their refund claim for unutilized input tax credit concerning zero-rated supplies. The crux of the contention was whether Boks Business acted as an “intermediary” while providing services to its UK affiliate.
Nature of Services Rendered: Boks Business provides bookkeeping, payroll, and accounting services using cloud technology to its affiliated UK entity, TC Outsourcing Limited. For this, they filed for a refund of unutilized input tax credit from April 2018 to December 2019.
Rejection on ‘Intermediary’ Grounds: Authorities initially declined the refund, proposing the services appeared to be “intermediary services”. This would mean the place of supply was within India, making the services non-exportable under the IGST Act.
Appellate Authority’s Viewpoint: On appeal, it was noted that an agreement labeled Boks Business as an “agent” to its foreign affiliate. The Appellate Authority thus inferred that Boks wasn’t providing principal services to its foreign clients.
Court’s Observation: The High Court delved into the core of the agreement between the entities. It concluded that while Boks Business might be termed an “agent”, it wasn’t facilitating a third party’s services or acting as a broker. Instead, Boks Business was directly providing the main services of bookkeeping, payroll, and accounting using cloud technology.
Citing Precedents: The court supported its conclusion by referencing two previous judgments that addressed similar issues, further solidifying its stance.
Conclusion: The Delhi High Court’s judgment clarifies the role and definition of an “intermediary” under the IGST Act. Boks Business, in this case, was not acting as an intermediary but as the principal service provider. The decision underscores the importance of assessing the nature of services rather than mere terminologies in contracts or agreements. The Court’s directive to expedite the refund claim within four weeks reaffirms the significance of justice being both fair and swift.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The petitioner has filed the present petition being aggrieved by the denial of refund of unutilized input tax credit in respect of “zero rated supplies”, in accordance with Section 16 of the Integrated Goods and Services Tax Act, 2017 (hereafter ‘the IGST Act’).
2. The petitioner is engaged in the business of providing book keeping, payroll, and accounting services through the use of cloud technology to its affiliated entity (TC Outsourcing Limited, previously known as Boks Business Services Limited) incorporated in the United Kingdom.
3. The petitioner made an application for refund of unutilized input tax credit in respect of the export of services for the tax periods, April 2018 to March 2019 and April 2019 to December 2019, in the requisite form (Form RFD 01).
4. The petitioner received a show cause notice dated 24.06.2020 proposing to reject the petitioner’s claim for the refund on the ground that the services rendered by the petitioner to its foreign client appeared to fall in the category of “intermediary services” and, therefore, the place of supply of services was within the territory of India.
5. The petitioner responded to the said show cause notice by explaining the nature of its services. The petitioner’s explanation was not accepted. Its claims for refund of input tax credit for the aforementioned tax periods were rejected by respective orders dated 23.07.2020, passed in similar terms. The said orders indicate that the concerned officer had noted that the petitioner had charged 500 GBP per workstation and, therefore, concluded that the petitioner was not the principal service provider, providing services through those workstations. On the basis of aforesaid reasoning, the concerned officer held that the petitioner was an “intermediary”, in terms of Section 2(13) of the IGST Act, in respect of the services rendered by it. Thus, the services rendered by the petitioner did not qualify as export of services under Section 2(6) of the IGST Act.
6. Aggrieved by the said order, the petitioner preferred appeals before the Appellate Authority, which were disposed of by a common order: Order-in-Appeal no.133/20-21 dated 22.04.2021. The said Order-in-Appeal indicates that the Appellate Authority had examined the copy of an agreement executed between the petitioner and its foreign affiliate and had noted that in terms of the said agreement, the petitioner had agreed to act as an agent.
7. In view of the above, the Appellate Authority concluded that the petitioner was not a principal service provider to the foreign clients.
8. The principal question to be considered is whether the petitioner can be considered as an “intermediary” within the meaning of Section 2(13) of the IGST Act in the context of the services rendered by it.
9. Undisputedly, the petitioner has rendered services to its foreign affiliate, Boks Business Services Limited, in terms of the agreement dated 12.05.2017. The recitals and clauses 1, 2 and 5 are relevant. The same are set out below:
“This Agreement is made on this 12 day of May, 2017 between. M/s. BOKS BUSINESS SERVICES LIMITED incorporated in England and Wales with company identification number 10551877 under the Laws of the United Kingdom and having its registered office at 3 Acorn Business Centre, Northarbour Road, Cosham, Portsmouth, United Kingdom, PO6 3TH represented by its duly authorised signatory Mr. Stuart Burns hereinafter referred to as ‘the Foreign Company’ of the One Part
and
M/s. BOKS BUSINESS SERVICES PRIVATE LIMITED a Company registered under the Indian Companies Act, 2013, and having its registered office at 204, Corporate Towers, 85A, Zamrudpur, Greater Kailash New Delhi-110048 represented by Mr. Ramesh Dhar s/o Mr. Moti Lal Dhar resident of F-123, sector -41, Noida -201301 hereinafter referred to as: ‘Indian Company’ of the Other Part.
Whereas the Foreign Company is carrying on the business of providing outsourcing services of a technical nature to its various clients located across the globe.
xxxx xxxx xxxx
1. That the foreign Company shall engage the Indian company for executing Bookkeeping, Payroll, and accounts, through the use of cloud technology for our UK/Europian based clients.
2. That the Indian company shall devote whole time for the work assigned by the foreign company and shall maintain all work-related ethics. It is expected that work will be accomplished efficiently and intelligently.
xxxx xxxx xxxx
5. That the foreign company shall pay a monthly fee for the services rendered by the Indian company as follows : –
a. GBP 3250/- (Fixed) to be paid every month till the period of engagement.
b. GBP 500/- per Workstation engaged by the Indian company for completion the work assigned.
c. The above fees is subject to review and change with mutual consent from time to time.”
10. It is clear from the aforesaid terms, that the petitioner is not an intermediary, inasmuch, as the petitioner is neither facilitating the provision of services by a third entity nor acting as a middleman for procuring such services for its affiliate. The petitioner is, in fact, contracted to provide the services, and is the principal service provider in the context of the services provided by it – book keeping, payrolls, and accounts through the use of cloud technology.
11. In case of intermediary services, there are three entities – one providing the principal service, one receiving the principal service, and an intermediary who acts as an agent or a broker for facilitating or arranging such services for the service recipient.
12. In the present case, although the agreement does use the word ‘agent’ but is clear that the petitioner is not acting as an agent for procurement of services for the service recipient. It is, in fact, providing the principal service of “Bookkeeping, Payroll, and accounts, through the use of cloud technology”. The fact that such services may be for the clients of the petitioner’s affiliate, Boks Business Services Limited, does not make the petitioner an “intermediary”.
13. The issue, whether the petitioner can be considered as an intermediary, is squarely covered by the decision of this Court in M/s Ernst And Young Limited v. Additional Commissioner, CGST Appeals-II, Delhi And Anr.: 2023:DHC:2116-DB and M/s Cube Highways and Transportation Assets Advisor Private Limited v. Assistant Commissioner CGST Division & Ors.: 2023:DHC:5822-DB.
14. In view of the above, the impugned orders cannot be sustained. The same are set aside.
15. The respondents are directed to process the petitioner’s claim for refund as expeditiously as possible and preferably within a period of four weeks from today.
16. The petition is disposed of in the aforesaid terms.
