Facts of the Case

Infinera India Private Limited, a wholly owned subsidiary of Infinera Corporation, USA, incorporated under the Companies Act, 2013 with its registered office at Bengaluru, sought an advance ruling on whether the pre-sale and marketing support services it rendered to Infinera USA under an agreement dated 1.4.2011 qualified as “intermediary” services under Section 2(13) of the Integrated Goods and Services Tax Act, 2017. The Authority for Advance Ruling, Karnataka, by ruling dated 12.9.2019, held that the petitioner's activities rendered it an intermediary, attracting GST. The Karnataka Appellate Authority for Advance Ruling, by order dated 20.1.2020, upheld this ruling. Aggrieved, the petitioner approached the Karnataka High Court under Articles 226 and 227 challenging the appellate order.

Issues Involved

  1. Whether the petitioner's activities under its agreement with Infinera USA constitute “intermediary” services within Section 2(13) of the IGST Act, 2017.
  2. Whether the CBIC's clarificatory circular dated 20.9.2021, issued after the impugned rulings, required reconsideration of the advance ruling.
  3. Whether the AAR and AAAR correctly appreciated the agreement in holding the petitioner an intermediary.

Petitioner's Arguments

  • To qualify as an “intermediary,” three ingredients must be satisfied: a broker or agent; who arranges or facilitates a supply between two or more persons; and does not itself supply on a principal-to-principal basis.
  • Under Clause 2.3 of the agreement, the petitioner's relationship with Infinera USA is that of an independent contractor, not an agent; it has no authority to contract with, or bind, Infinera USA or its customers.
  • The petitioner's role is confined to sales promotion, market research, and informational support in India — it does not itself facilitate a supply between two other parties.
  • Heavy reliance was placed on the CBIC circular dated 20.9.2021 on the scope of “intermediary” services, contending that departmental circulars bind the authorities, relying on Dhiren Chemical Industries and Canon India.

Respondent's Arguments

  • The petitioner is compensated on a “cost-plus” basis regardless of whether its activities culminate in a sale of Infinera's products, per its own appeal memorandum and Clause 4 of the agreement.
  • Infinera India functions merely as a communication and coordination channel between Indian customers and the US marketing team, which the AAR and AAAR had correctly analysed.
  • Reliance was placed on Material Recycling Association of India v. Union of India and M/s Puri Investments v. M/s Young Friends and Co.

Court Order/Findings

  • The Court examined the “intermediary” definition and the CBIC circular's primary requirements — a minimum of three parties and two distinct supplies (a main supply and an ancillary facilitation supply).
  • Clauses 1.2, 1.3 and 2.3 of the agreement showed the petitioner had no authority to contract on behalf of, or bind, Infinera USA.
  • The revenue's “cost-plus” compensation argument could not, by itself, determine whether the petitioner fell within the definition of “intermediary.”
  • The precedents cited by the revenue were held inapplicable to the facts.
  • Since the CBIC's clarificatory circular was not available when the AAR and AAAR ruled, the matter required reconsideration by the Authority for Advance Ruling in its light.
  • The impugned AAAR and AAR orders were set aside and the matter remanded for a fresh, expeditious decision after hearing the petitioner.

Important Clarification

  • A CBIC circular issued after an advance ruling, clarifying a statutory definition, is a supervening development that can justify setting the ruling aside and remanding it, without deciding the underlying question on merits.
  • The “intermediary” test under Section 2(13) IGST Act requires a minimum of three parties and two distinct supplies — a main supply between principals and a separate ancillary facilitation supply; compensation structure is not, by itself, determinative.
  • A person contractually barred from concluding agreements or binding the principal is a relevant indicator against “intermediary” status.

Sections Involved

  • Section 2(13), IGST Act, 2017 — defines “intermediary” as a broker, agent or other person who arranges or facilitates a supply between two or more persons, excluding one who supplies on its own account.
  • Section 13(8)(b), IGST Act, 2017 — fixes the place of supply for intermediary services at the location of the supplier.
  • Section 98, CGST Act, 2017 — procedure for advance ruling by the Authority for Advance Ruling.
  • Articles 226 and 227, Constitution of India — writ jurisdiction invoked to challenge the appellate authority's order.

Decision – In Favour of

Disposed of with directions — writ allowed in part. The Court did not finally decide whether the petitioner is an “intermediary”; it set aside both the AAR and AAAR orders and remanded the matter for fresh consideration in light of the CBIC circular, with a fresh opportunity of hearing to the petitioner. This is procedurally favourable to the Assessee, though the substantive question remains open.

Related Case Laws

No related case laws are available on this site at present for cross-reference on this specific point.

Case Details

Court: High Court of Karnataka at Bengaluru
Case No.: W.P.No.1899/2021 (T-RES)
Coram: Hon'ble Mrs. Justice S. Sujatha and Hon'ble Mr. Justice Shivashankar Amarannavar
Date of Order: 24 March 2022
CNR: Not available in the extracted record.

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