In W.P.(C) 11430/2022 – DEL HC - Delhi High Court sets aside Appellate Authority's decision that McDonalds India was mediator between franchisees and McDonalds USA, remands matter for fresh consideration
Justice Vibhu Bakhru & Justice Amit Mahajan [18-05-2023]

Read Order: M/s McDonalds India Pvt. Ltd V. Additional Commissioner, CGST Appeals - II Delhi & Anr

Chahat Varma

New Delhi, May 30, 2023: In a recent ruling, the Delhi High Court has ruled that rendering service on behalf of another person does not render the service provider an intermediary and held that there was no justification for the Appellate Authority's conclusion that McDonalds India (appellant), acted as a mediator between joint ventures/franchisees and McDonalds USA.

Brief facts of the case were that M/s. McDonalds India (appellant), a subsidiary of McDonalds Corporation, USA, had entered into a service agreement with McDonalds USA, whereby the appellant had agreed to perform certain services. The appellant claimed that during the period of April 2018 to March 2019, it had provided services under the said Service Agreement without payment of Integrated Goods and Services Tax (IGST) and thus, was entitled to refund of tax paid on inputs (ITC). The appellant filed an application for refund of goods and service tax paid on the inputs used for the services rendered to McDonalds USA, however, the Adjudicating Authority rejected the refund application, stating that the services were not considered exports but intermediary services with the place of supply being in India. The appellant's appeal before the Appellate Authority was also rejected.

The bench of Justice Vibhu Bakhru and Justice Amit Mahajan noted that the Show Cause Notice issued to the appellant, did not specifically set out any reason in detail for denial of refund of ITC.

The bench observed that the Appellate Authority failed to consider the fact that the Master License Agreement (MLA), which granted the appellant the right to enter into sub-licenses with franchisees, was a separate agreement. The bench also noted that certain observations in the impugned order indicated that the Appellate Authority proceeded on the assumption that providing services on behalf of another party constituted acting as an intermediary.

The bench further highlighted that the Service Agreement established McDonald's USA as the service recipient and the appellant as the service provider. They further emphasized that the supply of services from the appellant to McDonald's USA did not necessitate the physical presence of McDonalds USA in India.

Based on the aforementioned considerations, the bench concluded that it was appropriate to set aside the impugned order and the order passed by the Adjudicating Authority. The matter was remanded back to the Adjudicating Authority for a fresh consideration.