Pankaj 
16 October 2023 
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Hearing a petition contesting rejection of application seeking refund of IGST duty, the High Court of Delhi clarified that services rendered by a subsidiary of a foreign company to its holding company were not covered under the purview of Section 2(6)(v) of the IGST Act.
A Division Bench of Justice Vibhu Bhakru and Justice Amit Mahajan, noted it to be settled position in law that identity of an incorporated company was separate from the identity of its shareholders or holding company. Thus the Bench rejected the Revenue’s contention that the Assessee’s refund application was liable to be rejected since the Assessee and its holding company were not distinct establishments.
The Petitioner-Assessee was represented by Ms. Ashwini Chandrasekaran, Advocate, whereas the Respondent-Revenue was represented by Mr. Rajeev Aggarwal, Advocate.
The Assessee-company is the Indian arm of M/s Xilinx Inc., a company registered in the USA. The Assessee is an Export Oriented Unit registered with the Software Technology Parks of India, and is primarily engaged in exporting information technology software services to entities located overseas.
The Assessee entered into an Intercompany Service Agreement with its holding company for export of Information Technology Services. As per the agreement, the Assessee would be remunerated on cost plus 15% mark-up basis.
In the relevant period, the Assessee filed an application seeking refund of IGST. However, the same was proposed to be rejected by the Revenue, on grounds that the conditions laid down as in sub-clause (v) of sub-section (6) of Section 2of the IGST Act, 2017, had not been satisfied. The condition stated therein was that the supplier of service and the recipient of service must not be establishments of a distinct person as per Explanation 1 to Section 8 of the Act.
Hence it was alleged that the activities of the Assessee did not satisfy the definition of ‘export of services’ so as to enable the Assessee to claim refund on IGST paid, on account of the Assessee and its holding company being part of the same entity.
On considering the contentions of both parties, the Bench noted that the Assessee is a separate entity and clarified that as per settled law, identity of an incorporated company was separate from the identity of its shareholders.
The Bench then observed that the services rendered by a subsidiary of a foreign company to its holding company were not covered under the purview of Section 2(6)(v) of the IGST Act. In this regard, the Bench referred to the CBIC Circular dated 20.09.2021.
It thus appeared to the Bench that the order had been passed without due application of mind and without regard for the law, since the relevant Circular dated 20.09.2021 had been brought to the notice of the Revenue but the same had been ignored when passing the order.
Moreover, the Bench found no grounds to hold that the Assessee-company was an intermediary. Considering the terms of the Agreement between the Assessee and its holding company, the Assessee found them to be unambiguous. The Bench noted that the Assessee provided services on principal-to-principal basis and the services were on their own count and were not facilitated by provision of services from any third party service provider.
The Bench also reprimanded the Revenue for the cavalier manner in which the order had been passed without considering the settled position in law, despite the relevant Circular being brought to the Revenue’s notice. The Bench observed that orders such as the one at hand had the effect of unnecessarily increasing the burden of litigation and also negatively impacted the confidence that taxpayers had in the Tax Department.
With these observations, the Bench directed the Revenue to process the Assessee’s refund application.
Cause Title: Xilinx India Technology vs Special Commissioner Zone [W.P (C) 11413/2023 / 2023-Enterslice-21-HC-Del-GST]
Click here to read/download the order
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