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Hon'ble Judges:

S.V. GANGAPURWALA
M.G. SEWLIKAR
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Prasad Paranjape
Mohit Raval
COUNSEL
Pradeep Jetly

Principle of unjust enrichment does not apply on export services being zero rated services under GST: High Court

Refund application cannot be rejected because incidence of tax has not been passed on by the petitioner to the foreign company: Says High Court

Facts:

The petitioner is engaged in providing production services to a company located in London United Kingdom. The petitioner has entered into an agreement. 

Agreement executed between the petitioner and the foreign company shows that the approved production budget includes all costs in connection with the production services including the amount of Indian GST. This shows that GST is included in all costs in connection with production services. Petitioner is a service provider and foreign company is the service recipient.

Clause 4.10 of the agreement provides that if any refund of tax component is received by the petitioner, such amount shall be reduced from the production expenses i.e. while computing the consideration towards production services, the said amount of tax component received as refund will be deducted from the production expenses.

The Petitioner filed refund claim of Rs. 1,43,56,999/-. Thereafter, the Petitioner received a show cause notice. The petitioner replied to the said notice. After hearing the petitioner, the respondent no 4 rejected the claim of the petitioner on the ground that the incidence of tax has been passed on to the client i.e. foreign company resulting into unjust enrichment of the petitioner. Having held so, respondent no 4 rejected the claim of the refund of the GST. This order was passed.

Being aggrieved by this order, the petitioner preferred an Appeal to Respondent No 3. After hearing the Petitioner, Respondent No.3 dismissed the Appeal of the Petitioner vide Order-in-Appeal holding that the incidence of tax has passed on to the client and that it amounted to unjust enrichment. 

Petitioner Arguments:

Petitioner submitted that the principle of unjust enrichment does not apply to export services. Being a zero rated supply, the principle of unjust enrichment does not apply to the services rendered by the petitioner. Clause 4.10 of the agreement clearly stipulates that if refund is received, it shall be deducted from the expenses of production. He further submitted that there are judgments of this court indicating that the principle of unjust enrichment does not apply to export services.

Clause 4.10 of the agreement shows that if the amount of GST is refunded, then the same will be deducted from the total cost in connection with the production services. This clearly shows that the incidence of tax has not been passed to the recipient. Respondent No. 3 has treated alternative argument of the petitioner as admission. It was contended by the petitioner before Respondent no 3 that without admitting that the incidence of tax has passed on, credit notes were issued for the value of GST, the incidence of tax cannot be transferred. This alternative argument cannot be treated as an admission.

Held by High Court:

When services are rendered abroad, GST will not apply. In the case at hand also, the petitioner has rendered services to abroad i.e. in U.K. Therefore, GST does not apply to the services rendered a.......
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Author:

TaxReply


Jun 14, 2022


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