The concept of intermediary under GST has been a frequent subject of litigation, particularly in cases involving cross-border service arrangements between Indian entities and their foreign affiliates. One of the major consequences of classification as an intermediary is the denial of export benefits, including refund of accumulated input tax credit (ITC).
In this context, the Karnataka High Court, in [2026] 182 taxmann.com 92, examined whether an Indian company providing R&D services directly to its foreign parent company could be treated as an intermediary. The Court clarified the scope of intermediary services under the IGST Act and reaffirmed that services rendered on a principal-to-principal basis, without arranging or facilitating supply between two parties, qualify as export of services, thereby entitling the assessee to refund of accumulated/unutilised ITC.
Facts
- The assessee was an Indian company providing Research & Development (R&D) services exclusively to its foreign parent company.
- Services were rendered under a service agreement and consideration was received in foreign exchange.
- The assessee treated the supply as export of services under section 2(6) of the IGST Act and exported services without payment of IGST under LUT.
- Accumulated unutilised Input Tax Credit (ITC) arose, and the assessee filed a refund claim under section 54 of the CGST Act.
- The Department rejected the refund, alleging that the assessee was an “intermediary” under section 2(13) of the IGST Act, making the place of supply India and disqualifying the transaction as export of services.
Issue
Whether the assessee providing R&D services to its foreign parent company could be treated as an ‘intermediary’, thereby disentitling it from refund of accumulated ITC.
Held
The Karnataka High Court held in favour of the assessee and directed the Revenue to grant refund of accumulated/unutilised ITC.
Key Observations of the Court
- An intermediary is a person who arranges or facilitates the supply of goods or services between two parties.
- In the present case:
- The assessee was providing services on its own account.
- There was no third-party customer involved.
- The assessee was not facilitating or arranging services between two persons.
- R&D services were provided directly to the foreign parent, and consideration was received for the same.
- Merely because the recipient was a related party, the assessee does not become an intermediary.
- The services satisfied all conditions of “export of services” under section 2(6) of the IGST Act.
- Denial of refund was therefore contrary to law.
Ratio Decidendi
Providing services on principal-to-principal basis to a foreign entity, without arranging or facilitating supply between two parties, does not amount to intermediary services under section 2(13) of the IGST Act.
Decision
- Refund rejection order set aside.
- Revenue directed to sanction refund of accumulated/unutilised ITC.
Relevant Provisions
- Section 2(6), IGST Act – Export of services
- Section 2(13), IGST Act – Intermediary
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Section 54, CGST Act – Refund of ITC