Judicial Victory for Service Exporters: Principal-to-Principal Contracts Qualify as Export of Services
The Rajasthan High Court delivered a significant ruling clarifying the distinction between “Export of Services” (zero-rated, eligible for IGST refund) and “Intermediary” services (taxed in India). The court held that services provided under a direct, principal-to-principal contract to a foreign client are exports, even if the service ultimately benefits a third party.
Key Points of the Judicial Ruling (Rajasthan High Court)
- Principal-to-Principal Status Affirmed: The court ruled that the services provided by the petitioner (an Indian entity providing student placement assistance) to its foreign parent company (IDP Australia) qualified as a direct, principal-to-principal supply.
- Negation of ‘Intermediary’ Status: The definition of an ‘Intermediary’ under Section 2(13) of the IGST Act requires facilitation or arrangement of a supply between two or more persons. Since the Indian entity was supplying services on its own principal account directly to the foreign client (IDP Australia) and had no direct contractual nexus with the students (the ultimate beneficiaries), the activity did not meet the definition of an intermediary.
- Entitlement to Export Benefits: By qualifying as a principal-to-principal export, the transaction meets the condition that the place of supply is outside India, making it an “export of services.” Consequently, the petitioner is entitled to the full IGST refund that had been previously denied by tax authorities.
- Support for Subcontracting: The ruling reinforces the judicial and CBIC circular position that subcontracting or providing support services to a foreign entity on one’s own account is an export of services, not an intermediary activity, offering relief to various service exporters like education consultants and BPOs.
- GST Council Recommendation: The judgment aligns with the subsequent recommendation by the 56th GST Council Meeting to omit the specific place of supply provision for intermediary services (Section 13(8)(b) of the IGST Act), which would further clarify and restore export status for Indian service providers.