Facts of the Case

  • The petitioner, M/s McDonald’s India Pvt. Ltd., entered into a Service Agreement dated 01.01.1996 with its holding company McDonald’s USA.
  • Services were rendered on a cost + 10% markup basis.
  • The petitioner treated such services as zero-rated supplies under Section 16 of IGST Act and claimed refund of ITC for the period April 2018–March 2019.
  • Refund application dated 04.08.2020 was filed.
  • A Show Cause Notice proposed rejection of ITC refund of ₹9.26 crores.
  • The Adjudicating Authority rejected the refund holding services to be intermediary services, thus place of supply in India.
  • Appeal was dismissed by Appellate Authority affirming the same findings.

Issues Involved

  1. Whether services rendered by the petitioner qualify as intermediary services under Section 2(13) of IGST Act?
  2. Whether such services constitute export of services under Section 2(6)?
  3. Whether Sections 13(3)(b), 13(5), and 13(8)(b) apply for determining place of supply?
  4. Whether denial of ITC refund was legally sustainable?

Petitioner’s Arguments

  • Services rendered were independent services and not intermediary in nature.
  • Authorities incorrectly mixed Service Agreement with Master License Agreement (MLA).
  • No third-party facilitation existed; hence intermediary classification was incorrect.
  • Impugned order exceeded scope of Show Cause Notice.
  • Reliance placed on precedents:
    • M/s Ernst and Young Limited v. Additional Commissioner, CGST Appeals-II
    • M/s Ohmi Industries Asia Private Limited v. Assistant Commissioner, CGST

Respondent’s Arguments

  • Petitioner was acting on behalf of McDonald’s USA, facilitating franchise and supplier-related activities.
  • Services amounted to intermediary services, making place of supply in India.
  • ITC refund was therefore not admissible.

Court Findings / Judgment

  • Rendering services “on behalf of” another does not automatically qualify as intermediary services.
  • For intermediary classification, there must be:
    • A principal supply
    • A third-party supplier
    • Facilitation or arrangement of such supply
  • Authorities failed to properly analyze the Service Agreement on this test.
  • Appellate Authority wrongly introduced new grounds beyond Show Cause Notice, which is impermissible.
  • Sections 13(3)(b) and 13(5) were incorrectly applied:
    • No requirement of physical presence of recipient (McDonald’s USA) in India
    • Services did not relate to events covered under Section 13(5)
  • The conclusion that petitioner acted as mediator lacked evidentiary basis.

Final Order:

  • Impugned orders set aside
  • Matter remanded to Adjudicating Authority for fresh consideration

Important Clarifications by Court

  • “Intermediary” requires actual facilitation between two parties, not mere service provision.
  • Separate agreements (MLA vs Service Agreement) must be independently evaluated.
  • Appellate authority cannot travel beyond Show Cause Notice grounds.
  • Place of supply provisions must be applied strictly based on statutory conditions.

 Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/VIB18052023CW114302022_121051.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.