Services Provided By EY India To Overseas EY Entities Not “Intermediary Services”: Delhi High Court Directs IGST Refund To EY India

The Court thus set aside the orders passed by the GST Authorities where it had rejected Ernst and Young’s application seeking refund of input tax credit (ITC) with respect to the services exported by it, on the ground that it was an intermediary.

The bench of Justices Vibhu Bakhru and Amit Mahajan observed that the Adjudicating Authority had concluded that since Ernst and Young had provided services on behalf of its UK based head office, it was an intermediary. The Court held that the said reasoning adopted by the Adjudicating Authority was fundamentally flawed.

The Court remarked that a person who provides services, as opposed to arranging or facilitating the supply from another supplier, is not an ‘intermediary’ within the definition of Section 2(13) of the Integrated Goods and Services Tax Act, 2017 (IGST Act).

Thus, it concluded that even if Ernst and Young had rendered services on behalf of a third party, it would not fall within the definition of an ‘intermediary’ under Section 2(13) of the IGST Act. This is so because Ernst and Young was the actual supplier of the professional services and had not arranged or facilitated the supply from any third party, the Court said.

The assessee, M/s Ernst and Young Limited (India), applied for refund of ITC in respect of the services exported by it in the relevant period.

The Adjudicating Authority, the Assistant Commissioner (CGST), rejected the said refund application on the ground that the assessee was an ‘intermediary’. It observed that in terms of Section 13(8)(b) of the IGST Act, the location of supply of intermediary services is the location of the supplier of those services. Thus, it concluded that the place of service was the assessee’s place of business, i.e., India.

In an appeal filed by the assessee, the Appellate Authority, the Additional Commissioner of CGST, upheld the decision of the Adjudicating Authority.

The assessee/ petitioner, Ernest and Young, filed a writ petition before the Delhi High Court challenging the order of the Appellate Authority.

Ernest and Young pleaded before the High Court that it had provided various professional services to overseas EY Entities in terms of the agreements entered into between its UK based Head Office, E&Y Limited, and certain overseas EY Entities.

It contended that the said services were in the nature of “management consultancy/professional consultancy services” and the same were provided directly to the concerned EY Entities located outside India.

Th High Court referred to the term ‘intermediary’, as defined under Section 2(13) of the IGST Act.

As per Section 2(13) of the IGST Act, an “intermediary” means a broker, an agent or any other person who arranges or facilitates the supply of goods or services or both, between two or more persons, but does not include a person who supplies such goods or services on his own account.

Referring to the facts of the case, the Court concluded that Ernst and Young did not arrange or facilitate services to overseas EY entities from third parties; it rendered the services to them. The assessee had not arranged the said supply from any third party, the Court said.

The Court observed, “In the present case, the petitioner has provided professional services in terms of the service agreements to overseas entities (EY Entities). It had issued the invoices for the said services directly to EY Entities and had received the invoiced consideration from EY Entities, in foreign convertible exchange.” The Court thus concluded that there was no dispute that the professional services were, in fact, rendered by the assessee, Ernst and Young.

The bench reckoned that the Adjudicating Authority had opined that since the assessee, Ernst and Young, had provided services on behalf of E&Y Limited (assessee’s UK based head office), it was an intermediary. The Court concluded that the said reasoning adopted by the Adjudicating Authority was fundamentally flawed.

“The Adjudicating Authority has misunderstood the expression ‘intermediary’ as defined under Section 2(13) of the IGST Act. A person who provides services, as opposed to arranging or facilitating of goods from another supplier, is not an intermediary within the definition of Section 2(13) of the IGST Act,” the Court said.

The Court held, “It is apparent that the Adjudicating Authority has interpreted the last limb of the definition of ‘intermediary’ under Section 2(13) of the IGST Act as controlling the definition of the term. We are unable to agree with this interpretation. The limb of Section 2(13) of the IGST Act reads as “but does not include a person who supplies such goods or services or both or securities on his own account” but this does not control the definition of the term ‘intermediary’; it merely restricts the main definition.”

The bench ruled that even if it is accepted that the assessee/ petitioner, Ernest and Young, had rendered services on behalf of a third party, the same would not result in the assessee falling within the definition of ‘intermediary’ under Section 2(13) of the IGST Act. This is so because the assessee was the actual supplier of the professional services and had not arranged or facilitated the supply from any third party, said the Court.

The Court thus concluded that since the services were not rendered by Ernst and Young as an intermediary, the place of supply of the services was required to be determined on basis of the location of the recipient of services, in view of Section 13(8) of the IGST Act.

“There is no dispute that the recipient of Services – that is EY Entities – are located outside India. Thus, indisputably, the Services provided by the petitioner would fall within the scope of the definition of the term ‘export of service’ under Section 2(6) of the IGST Act,” the bench remarked.

The Court thus allowed the petition and set aside the orders passed by the Appellate and the Adjudicating Authority. The bench directed the Adjudicating Authority to process the refund application of Ernest and Young.

Case Title: M/s Ernst and Young Ltd vs. Additional Commissioner, CGST Appeals & Anr.

Citation: 2023 LiveLaw (Del) 288

Counsel for the Petitioner: Mr Kamal Sawhney, Ms Anishka Gupta, Mr Krishna Rao and Ms Aakansha Wadhwani, Advocates

Counsel for the Respondents: Mr Zoheb Hossain, Senior Standing Counsel with Mr Vivek Gurnani, Mr KavishGarach and Mr Kalp S., Advocates.

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