Unjust Enrichment on Export of Services

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The Honourable Bombay High Court has held that GST is not chargeable to the services rendered abroad as they amount to the export of services and categorised as Zero Rated Supplies under Sec:16 of IGST Act 2017.

The court allowed the GST refund to the petitioner.

The core of the litigation involved is that the petitioner is in the business of providing production services to "A Suitable Company Ltd." (ASCL) located in London. The petitioner has entered into an agreement with ASCL for supplying such services. 

The important clause of the agreement provides that if any refund of tax component is received by the petitioner, the production expenses shall be reduced from the consideration while computing the total amount payable towards supply of production services. 

The petitioner received and used various input services for supplying production services to ASCL, on which applicable CGST/MSGST/IGST were paid/(borne the incidence) as charged by their vendors. 

In cases where the services were received from a service provider/ vendor located outside India CGST or IGST on such supplies was paid by the petitioner on RCM basis, based on the Place of Supply stipulations.

While first refund application filed by the petitioner for the period from April to July, 2019, filed by the petitioner was  allowed by the Assistant Commissioner, another refund claim for the subsequent period of August 2019 to October 2019 was rejected on the ground that the incidence of tax has been passed on to the client, resulting in unjust enrichment of the petitioner.

The appeal filed consequently was also dismissed, holding that if a refund were granted, it would amount to unjust enrichment.

The petitioner contended that the principle of unjust enrichment does not apply to export services. 

The honourable court held that 

1. the agreement clearly stipulates that if a refund is received, it shall be deducted from the expenses of production, and

2. The principle of unjust enrichment does not apply to export services.

However, the department contended that the petitioner has admitted that even in the case of alleged unjust enrichment by the petitioner, the credit notes will nullify the effect of the same, and GST law does not contemplate any mechanism for paying back the GST by way of the issuance of credit notes. 

The court further observed that the ASCL is located outside of India and the petitioner company is located in India. The production services are rendered by the petitioner in the U.K. and the place of Supply is outside India.

It is, thus, clear that the services rendered by the petitioner fall within the expression "export of services" and therefore GST does not apply to the services rendered abroad while refund is eligible.

Well!......

As the supply is considered as a zero-rated supply, clearly, the principle of unjust enrichment does not apply to the services rendered by the petitioner and as rightly held by the honourable court they are lawfully entitled for refund.

SRIVATSAN.R.

MEPZ-SEZ,

Chennai


Post Script:-

Case Title: 

Jar Productions Private Limited Vs Union of India & Ors.

Citation: Writ Petition No. 1143 Of 2021, Dated: 09.06.2022

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