Introduction

The case of M/S Ernst and Young Limited v. Additional Commissioner, CGST Appeals-II, Delhi and Anr. (2023 DHC 2116) adjudicated by the Delhi High Court on March 23, 2023, marks a significant development in the interpretation of the term 'intermediary' under the Integrated Goods and Services Tax Act, 2017 (IGST Act). The petitioner, an Indian Branch Office of M/s. Ernst & Young Limited (E&Y Limited), challenged the rejection of its refund applications for Input Tax Credit (ITC) related to export of services for the period from December 2017 to March 2020.

The core issue revolved around whether the petitioner qualified as an 'intermediary' as per Section 2(13) of the IGST Act, which would determine the place of supply of services and, consequently, the eligibility for ITC refunds.

Summary of the Judgment

The Delhi High Court overturned the decisions of both the Adjudicating Authority and the Appellate Authority, which had classified the petitioner as an 'intermediary.' The court held that the petitioner was not an intermediary under the IGST Act, thereby affirming that the place of supply of services was the location of the recipient, which is outside India. Consequently, the services rendered constituted 'export of services,' making the petitioner eligible for the refund of ITC.

The judgment emphasized a correct interpretation of the term 'intermediary,' distinguishing between entities that merely facilitate the supply of services and those that supply services on their own account.

Analysis

Precedents Cited

The petitioner referenced an order dated May 8, 2018, from the Service Tax Authorities under the Finance Act, 1994, which had previously held that the petitioner was not an intermediary. However, the Adjudicating and Appellate Authorities dismissed this precedent, arguing that the definition under the IGST Act must be independently assessed. The High Court upheld the petitioner’s stance, aligning with the Circular No. 159/15/2021-GST issued by the Central Board of Indirect Taxes and Customs, which maintains consistency in the definition of 'intermediary' from the Service Tax regime to the GST regime.

Legal Reasoning

The court meticulously dissected the definition of 'intermediary' under Section 2(13) of the IGST Act, emphasizing that an intermediary is someone who “arranges or facilitates the supply of goods or services or both, or securities, between two or more persons” but does not include a person supplying on their own account. The High Court found that the petitioner was the actual supplier of professional services directly to EY Entities located outside India and did not merely arrange or facilitate services from a third party. Therefore, the petitioner did not fit within the 'intermediary' category.

The court also addressed the Adjudicating Authority’s misinterpretation, clarifying that the exclusion clause (“does not include a person who supplies such goods or services... on his own account”) does not redefine the term but merely limits its scope. The High Court asserted that providing services directly, even if on behalf of a parent company, does not inherently classify one as an intermediary.

Impact

This judgment sets a clear precedent clarifying the definition of 'intermediary' under the IGST Act. It underscores the importance of actual service provision over mere facilitation or representation. The decision facilitates greater transparency and confidence among service providers regarding their eligibility for ITC refunds when exporting services. Future cases involving similar disputes will likely reference this judgment to delineate the boundaries of what constitutes an intermediary, thus potentially influencing GST compliance and refund claims in the service sector.

Complex Concepts Simplified

Conclusion

The Delhi High Court’s decision in M/S Ernst and Young Limited v. Additional Commissioner, CGST Appeals-II, Delhi and Anr. serves as a pivotal reference for interpreting the definition of 'intermediary' under the IGST Act. By affirming that the petitioner was not an intermediary, the court reinforced the principle that direct service providers are eligible for ITC refunds on exported services. This judgment not only rectifies the misinterpretation by the lower authorities but also provides clarity for similar future disputes, ensuring that service providers can better navigate GST regulations with increased certainty.