Facts of the Case

LTI Mindtree Limited, a Bengaluru-headquartered IT/ITES company with STPI and SEZ units, delivers services to overseas customers jointly through its Indian offices and its foreign branches (in the USA, France and elsewhere), invoicing arrangements being routed for administrative convenience through the overseas branch, which collects consideration in convertible foreign exchange and, in turn, remits its share to the Indian office. The company had consistently treated such supplies as zero-rated export of services under Section 16 of the IGST Act, and had been granted refunds of unutilised input tax credit accordingly since the service-tax regime and through most of the GST period up to January 2023. The Department, examining a Statement of Work between the petitioner, its US branch and client Schneider Electric, took the view that the overseas branch — not the ultimate overseas customer — was the actual recipient of the petitioner's services, so that the petitioner and its branch, being merely establishments of a distinct person under Section 2(6)(v) of the IGST Act, could not claim export-of-service benefit. Two show cause notices (dated 08.03.2024 and 03.08.2024) invoking Section 74 (alleging wilful suppression) and one adjudication order dated 18.09.2024 re-determining and demanding excess refund were accordingly issued, and were challenged in three connected writ petitions.

Issues Involved

  1. Whether services jointly rendered by an Indian company and its overseas branch to an ultimate overseas customer qualify as export of service under Section 2(6) of the IGST Act, or fall foul of the distinct-person bar in clause (v) read with Explanation 1 to Section 8.
  2. Whether invocation of Section 74 of the CGST Act (fraud/wilful suppression) was jurisdictionally sustainable absent any positive act of suppression.
  3. Whether the Department could reopen and demand refund already sanctioned and unchallenged in appeal.

Petitioner's Arguments

  • All conditions of Section 2(6) IGST Act, except the distinct-person condition, were undisputedly satisfied; the true recipient of the services was the ultimate overseas customer, not the branch, as shown by the Master Service Agreement, Statement of Work and invoices read together.
  • The overseas branch acted only as a collection conduit for consideration on behalf of the petitioner's India office; the same services were treated as export under the erstwhile service-tax regime and under GST until January 2023, and the Maharashtra Appellate Authority had held identical services to be export of service.
  • Section 74 could not be invoked absent any positive act of wilful suppression, since all facts were disclosed in GSTR-1, 3B, 9/9C and LUT filings, and refunds already sanctioned for earlier periods had attained finality, not having been appealed by the Department.

Respondent's Arguments

  • Documentary evidence showed the overseas customer placed orders on the foreign branch, which then sub-contracted part of the work to the petitioner and paid it consideration; the petitioner and its branch being distinct persons, the condition in Section 2(6)(v) was not satisfied.
  • The scheme was a well-planned arrangement to evade tax and fraudulently claim export benefit, falling within Explanation 2 to Section 74, warranting full adjudication rather than writ interference at the show-cause stage.

Court Order / Findings

  • Applying the general test of substance over form and examining the MSA, Statement of Work, staffing and invoicing patterns in detail, the Court held that the work was jointly executed by the petitioner's India office and its overseas branch for one and the same ultimate overseas customer, who alone was the true recipient of the composite services.
  • The Court held that the petitioner had satisfied all conditions of Section 2(6) of the IGST Act, that the services qualified as export of service, and that the impugned show cause notices and the adjudication order were illegal, arbitrary and without jurisdiction.
  • Section 74 could not be invoked absent a positive act of wilful suppression; the petitioner had made full disclosures, and the principle of consistency barred the Department from taking a different view for the same kind of transaction across different periods, especially where earlier refund orders had attained finality unchallenged.
  • All three writ petitions were allowed; the two impugned show cause notices and the impugned Order-in-Original dated 18.09.2024, along with all further proceedings pursuant thereto, were quashed.

Important Clarification

  • Where an Indian company and its overseas branch jointly execute a single contract for an ultimate foreign customer — the branch merely collecting consideration and coordinating on-site work — the distinct-person bar in Section 2(6)(v) of the IGST Act does not apply, since the true recipient remains the foreign customer and not the branch itself.
  • Section 74 of the CGST Act cannot be invoked merely because the Department later takes a different view of a long-standing, consistently disclosed arrangement; wilful suppression requires a positive act of concealment, and the principle of consistency binds tax authorities across assessment periods absent a material change in facts or law.

Sections Involved

  • Section 2(6), IGST Act, 2017 — definition of export of services, including the distinct-person condition in clause (v).
  • Explanation 1, Section 8, IGST Act, 2017 — establishments of distinct persons.
  • Section 16, IGST Act, 2017 — zero-rated supply.
  • Section 74, CGST Act, 2017 — determination of tax involving fraud or wilful suppression, and Explanation 2 thereto.
  • Section 54, CGST Act, 2017 read with Rule 89, CGST Rules, 2017 — refund of unutilised input tax credit.

Decision – In Favour of

Assessee. All three writ petitions allowed; show cause notices and the adjudication order quashed.

Case Details

High Court of Karnataka at Bengaluru; WP No. 10149 of 2024 c/w WP No. 22994 of 2024 and WP No. 34009 of 2024 (T-RES); Neutral Citation: 2025:KHC:50759; Coram: Hon'ble Mr. Justice S.R. Krishna Kumar; Order dated 03.12.2025.

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