16-June-2025 GST >> Tax Laws  

In a significant decision, the High Court of Judicature at Bombay has ruled in favor of Sundyne Pumps & Compressors India Pvt Ltd (formerly HMD Seal/Less Pumps Industrial Pvt Ltd), upholding the company's claim for a refund of unutilized Input Tax Credit (ITC) related to zero-rated supplies (exports) of goods and services. The judgment, delivered on June 16, 2025, by the Honourable Mr. Justice B.P. Colabawalla and the Honourable Mr. Justice Firdosh P. Pooniwalla, dismissed the contention that Sundyne Pumps acted as an "agent" of its foreign recipients, which would have disqualified its services as "export of services" under the Integrated Goods and Services Tax (IGST) Act, 2017.

The case, Writ Petition No. 15228 of 2023, centered on two Orders-in-Appeal dated August 10, 2023, which had upheld the rejection of ITC refunds for the periods of July to September 2021 and October to December 2021. The Deputy Commissioner of State Tax had rejected the refund applications on the grounds that the foreign recipients of services were carrying on business in India through the Petitioner as an "agency," thus qualifying the Petitioner as a "mere establishment of distinct person" and not providing zero-rated supplies. This interpretation meant the Petitioner would not be entitled to a refund of unutilized ITC under Section 54(3) of the Central Goods and Services Act, 2017 (CGST Act) / Maharashtra Goods and Services Tax Act, 2017 (MGST Act).

Sundyne Pumps, which supplies engineering and other services, as well as goods, exclusively to its group companies/related persons located outside India, argued that its supplies qualified as "Exports of Goods" and "Export of Services" under Sections 2(5) and 2(6) of the IGST Act, respectively, making them zero-rated supplies under Section 16 of the IGST Act. The Petitioner highlighted that previous refund applications for similar supplies had been allowed and had attained finality.

The core of the dispute revolved around condition (v) of Section 2(6) of the IGST Act, which states that for a supply to be considered an "export of services," "the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8." The Respondent contended that Sundyne Pumps acted as an agent of its foreign recipients, citing factors such as foreign control over the Petitioner, managerial decisions vesting with the foreign recipient, reimbursement of expenses on a cost-plus basis, and the Petitioner's books of accounts being available for inspection by the foreign recipient.

However, the High Court observed that the agreement between Sundyne Pumps and Sundyne International, S.A. (SISA) in France explicitly stated that the Petitioner is an independent contractor and not an agent or employee of SISA. The Court emphasized that for a person to qualify as an "agent" under Section 2(5) of the CGST/MGST Act, they must carry on the business of supply or receipt of goods or services on behalf of another. The Court found no evidence that Sundyne Pumps was acting on behalf of or representing the foreign recipient, but rather providing services on a principal-to-principal basis.

Crucially, the judgment highlighted Circular No. 161/2017/2021 dated September 20, 2021, issued by the Central Board of Indirect Taxes and Customs (CBIC), which clarifies that a company incorporated in India and a foreign company incorporated outside India are separate legal entities under the CGST Act. Therefore, such entities would not be considered "merely establishments of a distinct person." The Circular explicitly states that supplies between a subsidiary/sister concern/group concern in India and its related establishments outside India, which are incorporated under foreign laws, would qualify as "export of services," provided other conditions of Section 2(6) of the IGST Act are met.

The High Court deemed the reliance by the Respondent on external definitions of "agent" (from dictionaries, judicial pronouncements, etc.) as misplaced, stressing that the department is bound by the definition provided in Section 2(5) of the CGST/MGST Act. The Court also noted the absurdity of the "agent" finding given that there were only two parties involved in the transaction (the Petitioner and its foreign recipient), thus precluding the Petitioner from qualifying as an agent acting on behalf of a third party.

In light of these findings, the High Court concluded that Sundyne Pumps & Compressors India Pvt Ltd is not an agency of the foreign recipient, and both are independent and distinct persons. As such, condition (v) of Section 2(6) of the IGST Act has not been violated. The Court directed that Sundyne Pumps is eligible for the refund of unutilized ITC along with statutory interest, and this exercise is to be completed within four weeks from the date of uploading the order on the High Court website. 

Section 16, INTEGRATED GOODS AND SERVICES TAX ACT - 2017  

INTEGRATED GOODS AND SERVICES TAX ACT, 2017  

MAHARASHTRA GOODS AND SERVICES TAX ACT, 2017  

Section 2, Wealth-tax Act - 1957  

Wealth-tax Act, 1957  

Section 54, CENTRAL GOODS AND SERVICES TAX ACT - 2017  

CENTRAL GOODS AND SERVICES TAX ACT, 2017