Subsidiary Supplying To Parent Company In Independent Capacity Cannot Be Considered 'Intermediary Service' U/S 2(13) IGST Act: Gujarat HC

The Gujarat High Court has made it clear that where a subsidiary company provides goods or services to its parent company in its independent capacity, it cannot be said that such services fall under 'intermediary service' under Section 2(13) of the Integrated Goods and Service Tax Act, 2017. The provision defines “intermediary” as 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. In the case at hand, Petitioner's refund applications for input tax credit were rejected on the ground that Software Consultancy Services purportedly rendered by the petitioner was not an 'export of service' under Section 2(6) of IGST Act. The division bench of Justices Bhargav D. Karia and DN Ray however directed the Department to process the refunds upon observing that the petitioner, though a subsidiary, was providing services to its parent company in the US in an “independent capacity”. It said, “it is apparent that the petitioner is required to assist the US entity in carrying on the business of providing information and consultancy in business of software development and for that purpose, the petitioner is required to set up consultations and meetings between globally based experts and globally based clients and to participate in any business of consultants, agents, sub-agents, liaison agents/liaison sub-agents for its parent company and foreign clients for such activities. The petitioner is also to provide advisory services for expansion of business, marketing, advertisement, publicity, personnel accounting to its parent company. Therefore, on conjoint reading of the scope of services to be provided by the petitioner, it cannot be said that the petitioner is only to work as an agent or a broker between parent company and its customers without supplying any goods or services on its own account.” The Petitioner, a wholly owned subsidiary of InfoDesk. Inc., was established exclusively for the purpose of servicing its parent organizations' technical requirements. As part of its operations, the Petitioner developed products and services for InfoDesk and managed IT infrastructure, content creation, customer support, etc. for its parent company. Petitioner contended that it was providing services to its parent company on principal to principal basis and therefore, the same cannot be considered as intermediary service. The Department on the other hand contended that the Petitioner was working as an intermediary for hiring export of service for the benefit of its parent company. The High Court was of the view that Petitioner is an independent company and the service provided by the petitioner to its parent company was not in the capacity of either agent or broker. It also noted that the Petitioner generated profits, indicating independence in the services provided to its parent company. It also relied on M/s. Ernst and Young Limited vs. Additional Commissioner, CGST Appeals-II, Delhi and another (2023) where the Delhi High Court held that since the recipient of the Services is outside India, the professional services rendered by the petitioner would fall within the scope of definition of 'export of services' as defined under Section 2(6) of the IGST Act. As such, the petition was allowed. Appearance: Mr Anand Nainawati for Petitioner; Mr Ankit Shah for Respondent No. 1; Mr Nikunt K Raval for Respondent No. 2,3 Case Title: Infodesk India Pvt. Limited Versus The Union Of India & Ors Case no.: R/SPECIAL CIVIL APPLICATION NO. 25609 of 2022Case Citation: 2025 LiveLaw (Guj) 6 Click Here To Read/Download The Order

Subsidiary Supplying To Parent Company In Independent Capacity Cannot Be Considered 'Intermediary Service' U/S 2(13) IGST Act: Gujarat HC

Kapil Dhyani

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