Facts of the Case

Genpact India Pvt. Ltd., an India-based Business Process Outsourcing service provider registered with the Haryana GST authorities, provided a range of BPO and IT-enabled services to customers in India and abroad. Its activities included maintaining vendor and customer master data, processing invoices, bookkeeping, preparation and finalisation of accounts, ledger reconciliation, receivables management, software development and maintenance, technical IT support, data analysis, demand forecasting and supply-chain-related support.

The petitioner entered into a Master Services Sub-Contracting Agreement dated 1 January 2013 with Genpact International Incorporated (GI), an overseas entity. Under the arrangement, GI sub-contracted the actual performance of BPO and IT services to the petitioner. The petitioner maintained that it performed substantive services on its own account, on a principal-to-principal basis, using its own infrastructure and workforce, rather than merely arranging or facilitating a supply between GI and another service provider.

For the period July 2017 to March 2018, the petitioner filed a refund application for ₹27,26,27,276 of unutilised ITC relating to zero-rated supplies made without payment of IGST under a Letter of Undertaking. The claim was filed under Section 16 of the IGST Act read with Section 54 of the CGST Act and Rule 89 of the CGST Rules.

By Order-in-Original dated 14 March 2019, the Deputy Commissioner sanctioned refund of ₹26,34,61,625, holding that the services qualified as export of services, while partially rejecting the balance claim concerning allegedly ineligible inputs and input services.

Subsequently, the departmental authorities reviewed the matter and contended that the petitioner’s services were “intermediary services”. The appellate proceedings ultimately resulted in the impugned order dated 15 February 2021, which held that the petitioner was an intermediary under Section 2(13) of the IGST Act, denied export status under Section 2(6), rejected the previously sanctioned refund of ₹26,34,61,625 and denied further refund relief.

The petitioner therefore approached the High Court challenging the appellate order and also sought the benefit of refund for subsequent periods.

Issues Involved

  1. Whether the BPO and IT-enabled services actually performed by the petitioner under the MSA constituted “intermediary services” under Section 2(13) of the IGST Act.
  2. Whether the petitioner was merely arranging or facilitating the supply of services between GI and GI’s overseas customers, or was itself actually performing the substantive services on its own account.
  3. Whether a principal-agent relationship existed between Genpact India and GI.
  4. Whether the services could qualify as “export of services” under Section 2(6) of the IGST Act.
  5. Whether the petitioner was entitled to refund of unutilised ITC in relation to zero-rated supplies under Section 16 of the IGST Act read with Section 54 of the CGST Act and Rule 89 of the CGST Rules.
  6. Whether there had been any material change in the definition and scope of “intermediary” between the pre-GST Service Tax regime and the GST regime.
  7. Whether the Department could depart from its earlier accepted position concerning the same substantive service arrangement when there was no material change in facts or law.

Petitioner’s Arguments

The petitioner argued that the impugned appellate order travelled beyond the grounds of appeal and beyond the scope of the earlier remand.

It was submitted that Section 2(13) of the IGST Act expressly excludes a person who supplies goods or services, or both, on his own account. Since the petitioner itself actually performed the BPO and IT-enabled services, it could not be treated as an intermediary.

The petitioner emphasised that there was no third-party service provider whose services it arranged or facilitated. It was itself responsible for actual service performance and delivery under the sub-contracting arrangement.

The MSA was stated to operate on a principal-to-principal basis, and not as an agency arrangement. There was no separate agreement between the petitioner and GI’s customers that transformed the petitioner into a broker, agent or intermediary.

The petitioner further argued that the entire consideration represented charges for the substantive services actually performed, unlike a conventional intermediary who ordinarily earns a commission or facilitation fee.

It challenged the Appellate Authority’s use of the expression “on behalf of GI”, contending that such wording did not automatically create a principal-agent relationship contrary to the substantive terms of the MSA.

The petitioner also highlighted alleged contradictions in the appellate order concerning whether its actions could bind GI.

Reliance was placed on Infinera India (P.) Ltd., In re [2020] 112 taxmann.com 500, with the contention that the authority had misread that ruling. According to the petitioner, Infinera India supported the proposition that there was no material difference in the intermediary concept under the pre-GST and GST regimes. The petitioner also referred to Vservglobal (P.) Ltd., In re [2018] 19 GSTL 173, which had featured in the intermediary-classification discussion.

The petitioner further relied upon the fact that, under the earlier Service Tax regime, the Department had examined the same MSA and treated the BPO services as main services rather than intermediary services. It invoked the principle of consistency where the material facts and legal framework remained substantially unchanged.

The petitioner also relied upon CBIC Circular No. 159/15/2021-GST dated 20 September 2021, particularly the clarification concerning the scope of intermediary services and sub-contracting arrangements.

Respondents’ Arguments

The Revenue defended the impugned appellate order and argued that the contractual structure disclosed two distinguishable categories of supply:

  • the principal or main supply by GI to its customers; and
  • ancillary or supportive services supplied by the petitioner to facilitate GI’s main supply.

According to the Revenue, the petitioner acted on behalf of GI and provided support services enabling GI to perform its obligations towards overseas customers.

The Revenue relied on various clauses of the MSA dealing with customer relationships, account representatives, invoicing, personal data processing, data protection, disaster recovery, reporting, records retention and service levels.

It was argued that GI retained control over customer relationships and overall coordination. The role of GI account representatives and GI’s authority in relation to service management allegedly demonstrated a principal-agent relationship.

The Department also contended that GI was responsible for customer invoicing and disputes, which allegedly showed that the petitioner did not provide the services on its own account.

The Revenue relied upon the Transfer Pricing Report to contend that the petitioner performed supportive functions for GI.

On the earlier refunds granted under the pre-GST regime, the Revenue argued that res judicata does not strictly apply to tax proceedings for different assessment periods, because each tax period constitutes a separate unit.

Court Order / Findings

The High Court undertook a detailed examination of the MSA and rejected the conclusion that the petitioner was an intermediary.

1. Actual Performance of Main Services

The Court found that GI had sub-contracted the execution of BPO services to the petitioner and that the petitioner actually executed and delivered those services to GI’s customers.

The contractual arrangement was, in substance:

  • GI had agreements for BPO services with its global customers;
  • GI sub-contracted execution of those services to the petitioner;
  • the petitioner executed the delivery of BPO services under the MSA; and
  • the petitioner invoiced GI and received payment in convertible foreign exchange.

2. Essential Requirements of “Intermediary” Not Satisfied

The Court explained that, for intermediary classification under Section 2(13), the relevant arrangement must involve the characteristics of mediation, arrangement or facilitation between parties, while excluding a person who actually provides the main service on his own account.

The Court found that the MSA did not establish that the petitioner arranged or facilitated a third party to provide the substantive service. Rather, the petitioner itself actually performed the contracted BPO and IT services.

3. No Sustainable Principal-Agent Relationship

The Court rejected the finding that the petitioner acted as GI’s agent. The contractual provisions relied upon by the Department principally regulated the manner of performance, service levels, reporting, data protection, invoicing support and other operational aspects of the sub-contracting arrangement.

Such contractual controls and operational mechanisms did not, by themselves, establish that the petitioner was an intermediary.

4. Sub-Contracting Is Distinct from Intermediary Facilitation

The Court treated the MSA as a genuine sub-contracting arrangement. The fact that GI had contracts with overseas customers and sub-contracted actual service performance to Genpact India did not automatically make Genpact India an intermediary.

The decisive distinction was that the petitioner itself performed the substantive service instead of merely bringing together, arranging or facilitating supply between other persons.

5. Earlier Departmental Treatment Was Material

The Court noted that, under an earlier Order-in-Original dated 25 January 2018, the Department had examined the MSA and held that Genpact India could not be treated as an intermediary. That earlier order had attained finality.

The High Court considered the Department’s subsequent departure from its earlier position significant where the essential facts and contractual arrangement had not materially changed.

6. No Material Change in Intermediary Concept

The Court rejected the proposition that introduction of GST had brought about a material change in the definition of intermediary sufficient to justify a contrary classification.

The discussion of Infinera India was important because the petitioner contended—and the Court’s reasoning accepted the broader continuity of the intermediary concept—that the GST regime had not materially transformed the essential nature of intermediary services merely for purposes of reclassifying the same substantive arrangement.

7. Impugned Order Could Not Be Supplemented by Fresh Reasons

The Court referred to Mohinder Singh Gill and Another vs Chief Election Commissioner, New Delhi and Others, (1978) 1 SCC 405, reiterating that when a statutory authority makes an order on specified grounds, its validity must be judged on the reasons stated in that order and cannot later be supplemented through fresh reasons in an affidavit or otherwise.

Final Order

The High Court held that the order dated 15 February 2021, treating the petitioner as an intermediary under Section 2(13) of the IGST Act, could not be sustained.

Accordingly:

  • the impugned order dated 15 February 2021 was quashed;
  • the Order-in-Original dated 14 March 2019 granting refund of ₹26,34,61,625 was restored;
  • the benefit of the judgment was directed to extend to the petitioner for subsequent refunds as well; and
  • the writ petition was allowed.

Sections Involved

  • Section 2(13), IGST Act, 2017 – Definition of “intermediary”
  • Section 2(6), IGST Act, 2017 – Definition of “export of services”
  • Section 13(2), IGST Act, 2017 – General rule for place of supply of services
  • Section 13(8)(b), IGST Act, 2017 – Place of supply for intermediary services
  • Section 16, IGST Act, 2017 – Zero-rated supply
  • Section 54, CGST Act, 2017 – Refund of tax and unutilised ITC
  • Section 2(5), CGST Act, 2017 – Definition of “agent”
  • Section 107(2), CGST Act, 2017 – Departmental review and appeal
  • Rule 89, CGST Rules, 2017 – Refund application procedure

Link to Download the Order  https://mytaxexpert.co.in/uploads/1783319149_1055compressed.pdf 

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