Amazon Development Centre India Private Limited Vs Additional Commissioner of Central Tax (Karnataka High Court)

The case revolve around a dispute concerning Goods and Services Tax (GST) refund claims of an Indian petitioner, engaged in support services for foreign affiliates. The case primarily addresses whether the services rendered qualify as exports under Indian GST law, specifically Sections 2(6) and 2(6) of the Integrated Goods and Services Tax (IGST) Act, 2017, and how contractual agreements, jurisdiction, and international law influence the tax treatment.Legal BackgroundUnder Indian GST law, particularly the IGST Act, exports are considered zero-rated supplies, allowing suppliers to claim refunds of input tax credits. The classification of services as export depends on fulfilling criteria such as the place of supply being outside India, the recipient being a foreign person or entity, and the service being utilized outside India.A key provision is Section 2(6) of the IGST Act, which defines export of services to include services provided from India to a recipient located outside India, provided certain conditions are met. Notably, the concept of “merely establishments of a distinct person” moderates whether supply between related entities in different countries qualifies as an export or is subject to intra-group supply taxation.Core Issues and Court’s FindingsThe core issues in the case concern:Key judicial findings:Qualification of Services as ExportThe court scrutinized the nature of the services. It observed that the petitioner provided services directly to overseas entities, such as market research, advisory, bookkeeping, payroll, and accounts—services which are predominantly created and used outside India. The court referred to Circulars issued by the Central Board of Indirect Taxes and Customs (CBIC), which clarify that services rendered to related foreign entities are eligible for export benefits provided they meet substantive conditions.The court noted that:“The services provided by the petitioner are on principal–to–principal basis and did not involve third-party intermediaries or agents. Such services are, therefore, eligible for export classification.”This aligns with earlier judicial precedents emphasizing that the nature of the contractual relationship and the direction of service utilization determine eligibility for export status.Intermediary ServicesA significant part of the dispute involved whether the petitioner was acting as an intermediary, facilitating or arranging services between foreign entities or providing principal services directly. The courts examined the agreements, emphasizing the contractual language—specifically whether the petitioner merely facilitated or actively provided core services.Referring to case law such as Xilinx India Technology Services Pvt. Ltd. v. Commissioner ([2023 SCC OnLine Del 5628]), the court held that the agreement’s language and the actual scope of services rendered proved the petitioner was not an intermediary but a principal service provider.Jurisdiction and Applicable LawThe agreements explicitly specify Luxembourg law as the governing law. The court assessed whether Indian tax authorities could disregard this choice of law and the implications for taxation.It was observed that:“The contractual choice of law and jurisdiction, in principle, delegitimizes Indian authorities from unilaterally applying Indian law unless explicitly stated or unless the services have a nexus with India beyond contractual provisions.”This suggests the court recognizes the importance of contractual jurisdiction clauses and the impact of foreign law on tax classification.Relevant Judicial PrecedentsThroughout the case, several decisions and circulars frame the analysis:Legal ImplicationsThe court’s analysis led to a partial quashing of the authorities’ orders rejecting the refund claims. It concluded that:Directions and Liberties ReservedThe court upheld the petitioner’s right to contest remaining issues before the GST Appellate Tribunal, given the evolving legal landscape and specific procedural rights.ConclusionThis case illustrates the complexity of tax law relating to cross-border services, the significance of contractual language, and the importance of administrative circulars and judicial precedents in determining the tax classification of services.The court’s decision affirms that services directly provided by Indian entities to foreign affiliates for investment, advisory, or research purposes that fulfill conditions of place of supply and recipient location qualify as exports. It highlights the importance of proper contractual clarity and the necessity for tax authorities to interpret agreements in line with law and precedents.