Delhi HC in the case of Xilinx India technology Services pvt ltd (WP 11413/2023) dated 01.09.2023, while allowing Refund to the EOU, also expresses displeasure with the Department for rejecting refunds to the Taxpayers ignoring settled position of law and the Circular issued by the Department itself.
Brief Fact of the Case
The petitioner is a company incorporated under the Companies Act, 2013. It has its registered office in Hyderabad, Telangana and branch office in New Delhi. The petitioner is a subsidiary of Xilinx Inc., USA, a company registered in the United States of America.
It is primarily engaged in exporting information technology software services to entities located overseas.
The petitioner entered into an Intercompany Service Agreement (hereafter ‘the Agreement’) dated 10.06.2016 with its holding company (Xilinx USA) for export of information technology services. In terms of the Agreement, it was agreed that the petitioner would be remunerated on costs plus 15% mark-up basis.
Accordingly, Petitioner claimed Refund of IGST of Rs.₹1,83,34,289 from the Department in respect of said Export of Service. However, Department rejected the Refund to the Taxpayer.
Ground of Rejection
Taxpayer did not satisfy the condition as laid down in condition (v) of Section 2(6) of the Integrated Goods & Service Tax Act, 2017 (hereafter ‘the IGST Act’), namely, (For information: Section 2(6) defines Export of Service".)
“that the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8”.
Explanation I to Section 8 of the IGST Act, which is reproduced below:
“Explanation 1. ––For the purposes of this Act, where a person has, ––
(i) an establishment in India and any other establishment outside India;
(ii) an establishment in a State or Union territory and any other establishment outside that State or Union territory; or
(iii) an establishment in a State or Union territory and any other establishment registered within that State or Union territory,
then such establishments shall be treated as establishments of distinct persons.”
Department alleged that petitioner and its holding company are establishments of a single person and therefore the services provided by the petitioner to its holding company did not constitute as export of services within the meaning of Section 2(6) of the IGST Act.
Basis of Decision (Based on our Interpretation)
Circular No. 161/17/2021-GST issued by the Department expressly and specifically clarified that that supply of services by a subsidiary/sister concern/group concern of a foreign company, which is incorporated in India under the Companies Act, 2013 by the establishments of the said foreign company located outside India would not be barred by condition (v) of Section 2(6) of the IGST Act.
The petitioner is a separate entity and it is settled law that identity of an incorporated company is separate from that of its shareholders. This fundamental proposition was reiterated by the Constitution Bench of the Supreme Court in Bacha F. Guzdar v. Commissioner of Income-Tax: AIR 1955 SC 74.
Judgement & Remarks Against the Department
It is clear that the impugned order (Refund Rejection Order) has been passed without application of mind and in disregard of the provisions of law.
Direct the Department to forthwith process the petitioner’s claim for refund along with interest
We also express our displeasure in respect to the cavalier manner in which respondent no.1 has passed the impugned order without considering the settled law and the Circular dated 20.09.2021 issued by the department despite the same being brought to its notice. Such orders, apart from unnecessarily increasing the burden of tax litigation, have a debilitating effect on the confidence of taxpayers in the tax department.
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Disclaimer: We did interpretation of Hon’ble High Court Decision for purely academic purpose. In case, there is any mistake in understanding of the order, we are apologised to the High Court.