IN W.P.(C) 10704/2022- DEL HC - ‘Actual work performed’ is crucial in determining ‘Intermediary’ status under Section 2(13) of the Integrated Goods and Services Tax Act, rules Delhi High Court
Justice Vibhu Bakhru & Justice Amit Mahajan [18-05-2023]

Read Order: M/s Netgear Technologies India Private Limited V. Joint Commissioner CGST Appeals I Delhi & Anr

Chahat Varma

New Delhi, May 27, 2023: The Delhi High Court has set aside the Order-in-Appeal passed by Joint Commissioner, CGST Appeals-I, Delhi, holding that, the determination of whether an entity qualifies as an intermediary under section 2(13) of the Integrated Goods and Services Tax Act, 2017 (IGST Act), should be based on the actual work performed, which was not properly considered in the present case.

Brief facts of the case were that M/s Netgear Technologies India Private Limited (petitioner) submitted that it was involved in the export of services to Netgear Pte. Ltd. without payment of Integrated Goods and Services Tax (IGST). The petitioner argued that since the supplies made were zero-rated supplies, they were eligible for the refund of Input Tax Credit (ITC). The petitioner filed an application for refund. The Adjudicating Authority (respondent no.2) issued a show cause notice proposing to reject the petitioner's claim for refund. The notice stated that the petitioner qualified as an intermediary under Section 2(13) of the IGST Act, as they were merely facilitating and arranging services. According to the Authority, the place of supply of services was in India, making the supplies ineligible for zero-rated supplies under Section 16(1) of the IGST Act.

The petitioner argued that Clause 2.4 of the Agreement, when considered in its entirety, clearly indicated that the fee paid to them was on a cost-plus basis, and the same had been read out of context by the Authority.

The division bench held that there was a lack of sufficient analysis regarding the actual work performed by the petitioner.

“The Adjudicating Authority has merely referred to a portion of Clause 2.4 of the Agreement, which provides that Netgear Technologies (India) Pvt. Ltd. would perform reconciliation of that years sale, as a direct result of the service providers activity and would reasonably approve the cost incurred by the service provider in fulfilling its duties under the Agreement. The same does not, absent any other material, indicate that the remuneration is based on the sales achieved. The question whether an entity is an intermediary will have to be determined on the basis of actual work performed,” said the bench.

With the above observations, the court remanded the matter back to the Adjudicating Authority for a fresh decision, taking into consideration the examination of the actual work performed by the petitioner.