Delhi High Court Grants Ernst and Young Refund of Input Tax Credit, Rejects 'Intermediary' Classification

Delhi High Court Grants Ernst and Young Refund of Input Tax Credit, Rejects 'Intermediary' Classification

In a favourable ruling, the Delhi High Court has declared that M/s Ernst and Young Limited (the petitioner) should not be considered an intermediary. The Court determined that since the services provided by the petitioner (EY Entities) were received by entities outside of India, they qualify as an export of service under Section 2(6) of the Integrated Goods and Services Tax Act (IGST Act). As a result, the Court directed the Adjudicating Authority to expedite the processing of the petitioner's refund application for Input Tax Credit.

The case involves the petitioner, M/s Ernst and Young Limited, which is the Indian Branch Office of Ernst & Young Limited, a company incorporated in the United Kingdom. Ernst & Young Limited had entered into service agreements to provide professional consultancy services to different entities within the Ernst & Young group, referred to as EY Entities. Under these service agreements, the overseas EY Entities engaged the petitioner (the Indian Branch) to provide specific professional services. The petitioner fulfilled its obligations by delivering various professional services to the overseas EY Entities as per the agreements. Subsequently, the petitioner applied for a refund of the Input Tax Credit (ITC) claimed for the period between December 2017 and March 2020, relating to the provision of its professional services.

The Adjudicating Authority, in its decision, rejected the petitioner's applications for the refund of the Input Tax Credit (ITC). They deemed the petitioner to be an intermediary and concluded that the place of services was in India, where the petitioner's business was situated, instead of considering the location of the service recipient. This decision was subsequently upheld by the Appellate Authority.

The Division Bench consisting of Justices Vibhu Bakhru and Amit Mahajan examined the definition of 'intermediary' as per Section 2(13) of the IGST Act. They noted that an intermediary's role involved arranging or facilitating the supply of goods or services between multiple parties. In the case at hand, it was undisputed that the petitioner did not act as an intermediary by arranging or facilitating services from third parties to EY entities. Instead, the petitioner directly provided services to the EY entities. The Bench concluded that the Adjudicating Authority had misconstrued the meaning of 'intermediary' and clarified that a person who provides services, rather than arranging or facilitating goods or services from another supplier, cannot be classified as an intermediary.

The Division Bench also made an observation regarding Clause (b) of Sub-section (8) of Section 13 of the IGST Act. They noted that this clause stipulated that the place of supply for intermediary services should be determined based on the location of the supplier of services. However, since the petitioner's services were not classified as intermediary services, the place of supply for their services provided to overseas entities should be determined based on the location of the recipients of the services. In this case, as the recipients (EY Entities) were situated outside India, the professional services rendered by the petitioner would qualify as an export of services as per the provisions outlined in Section 2(6) of the IGST Act.

“The petition is, accordingly, allowed. The impugned order as well as the impugned orders-in-original are set aside,” held the Division Bench.