Karnataka HC: Support Services to Parent Qualify as IGST Export, Not Intermediary

Introduction

In a significant ruling for multinational corporations operating in India, the Karnataka High Court has held that marketing and technical support services provided by an Indian subsidiary to its foreign parent company constitute an "export of services" under the Integrated Goods and Services Tax (IGST) Act, 2017, rather than intermediary services. This decision, delivered by Justice S.R. Krishna Kumar on November 27, 2025, in Writ Petition No. 25598 of 2024, overturns lower administrative orders that rejected a refund claim of Rs. 18,92,697/- for unutilized input tax credit (ITC) on zero-rated supplies. The petitioner, M/s Excelpoint Systems (India) Pvt Ltd, a Bengaluru-based firm, challenged the classification of its services to Excelpoint Systems (PTE) Ltd in Singapore as intermediary activities, which would render them taxable domestically.

The court's judgment emphasizes that such support services, rendered on a principal-to-principal basis under a Master Service Agreement dated April 1, 2021 (with roots in a 2014 agreement), do not involve facilitation between third parties, thus qualifying the place of supply as outside India. This aligns with recent Karnataka High Court precedents and provides relief to subsidiaries offering back-office or support functions to overseas entities. As noted in contemporaneous reports, Justice Krishna Kumar observed that the services satisfy all conditions for export under Section 2(6) of the IGST Act, paving the way for zero-rating and ITC refunds. This ruling could streamline GST compliance for the IT-enabled services (ITES) and consulting sectors, potentially reducing tax liabilities for similar cross-border arrangements.

Case Background

M/s Excelpoint Systems (India) Pvt Ltd, incorporated under the Companies Act, 1956, and represented by its director Nitin Watts, is a subsidiary of Excelpoint Systems (PTE) Ltd, Singapore. The Indian entity provides specialized services to support the parent's global operations in electronics and technology products. Under the Master Service Agreement effective from April 1, 2021, the petitioner undertook marketing support activities—such as data collection, market analysis, customer education through presentations, and execution of advertising strategies—and technical support, including advisory on technical queries related to the parent's products.

These services were billed as exports without payment of IGST, claiming zero-rated status under GST law, which allows suppliers to either pay tax and claim refunds or supply without tax under a Letter of Undertaking (LUT). For the period April 2021 to March 2022, the petitioner filed a refund application on January 5, 2023, for Rs. 18,92,697/-, comprising IGST (Rs. 4,58,644/-), CGST (Rs. 7,17,026/-), and SGST (Rs. 7,17,027/-), attributing it to unutilized ITC on zero-rated supplies under Section 54(3) of the CGST Act, 2017, read with Rule 89 of the CGST Rules.

However, the Assistant Commissioner of Central Tax, East Division-2, rejected the claim on March 2, 2023, classifying the services as intermediary under Section 2(13) of the IGST Act. The authority argued that the petitioner acted as a facilitator between the Singapore parent and Indian customers, involving three parties and two distinct supplies (main product supply and ancillary support), with the place of supply in India per Section 13(8)(b) of the IGST Act. This rendered the supplies domestic and ineligible for export benefits. The Appellate Authority, the Joint Commissioner of Central Tax (Appeals-I), upheld this on June 12, 2024, relying on CBIC Circular No. 159/15/2021-GST and an Advance Ruling in Airbus Group India Pvt Ltd.

The writ petition under Article 226 of the Constitution sought to quash these orders, arguing that the services were direct exports on the petitioner's own account, not intermediary facilitation. The case timeline spans from service provision in 2021-22, refund filing in early 2023, rejections in 2023-24, to the High Court's intervention in late 2025, highlighting ongoing GST disputes over service classification post the 2017 regime introduction.

Arguments Presented

Petitioner's Contentions

The petitioner, represented by advocates Ravi Raghavan and Samruddhi Shetty, asserted that their services were provided directly to the foreign parent on a principal-to-principal basis, without involving third-party facilitation, thus excluding them from the intermediary definition under Section 2(13) of the IGST Act. They emphasized that activities like market data analysis, customer presentations on product benefits, and technical advisory were independent support functions, not mere brokerage or agency for the parent's sales to Indian customers.

Key factual points included the agreement's structure, where the petitioner received consideration with a 10% markup on costs, indicating an arm's-length transaction rather than commission-based intermediation. They highlighted that payments were received in convertible foreign exchange via Foreign Inward Remittance Advices (FIRAs), satisfying Section 2(6)(iv) of the IGST Act. Legally, the petitioner relied on four Karnataka High Court judgments: M/s. Amazon Development Centre (2025 (5) TMI 150), holding software development for a US parent as non-intermediary export; M/s. Columbia Sportswear (2025 (5) TMI 2139), ruling sourcing services to a US entity as exports; M/s. Athene Technologies (2025 (6) TMI 88), classifying pharmacovigilance support as direct exports; and Nokia Solutions (2025-VIL-515-KAR), affirming R&D services to Finland as non-intermediary.

Additionally, they invoked a prior CESTAT Bengaluru order (FO Nos. 20109-20114/2022, March 28, 2022) in their own case under the pre-GST service tax regime, which held similar services (under a 2014 agreement) as exports, arguing no material change in activities post-GST. The petitioner contended that the place of supply was outside India under the general rule in Section 13(2) of the IGST Act (recipient's location), not the specific intermediary rule, making the supplies zero-rated and eligible for ITC refund.

Respondents' Contentions

The respondents, represented by advocate Jeevan J. Neeralgi, defended the rejection orders, classifying the services as intermediary based on the agreement's description. They argued that the petitioner's role involved three parties—the Singapore parent, the Indian subsidiary, and the parent's Indian customers—with the subsidiary facilitating the main supply of proprietary hardware/software products through ancillary activities like customer education and query resolution.

Drawing from Circular No. 159/15/2021-GST, they stressed two distinct supplies: the parent's product sales (main) and the petitioner's support (ancillary facilitation), excluding principal-to-principal characterization. The place of supply was deemed India under Section 13(8)(b), failing the export condition in Section 2(6)(iii). They distinguished the CESTAT order as pertaining to a different regime and 2014 agreement, irrelevant to the 2021 terms. Reliance was placed on the Airbus AAR (2021(54)G.S.T.L.194), where similar procurement support was held intermediary despite cost-plus pricing. The respondents asserted that related-party status under Section 2(84) warranted scrutiny for arm's-length valuation, but primarily, the facilitation nature disqualified export status, justifying domestic taxation and refund denial.

Legal Analysis

The Karnataka High Court's reasoning hinges on a strict interpretation of "intermediary" under Section 2(13) of the IGST Act, which covers brokers, agents, or persons facilitating supplies between two or more others, excluding those supplying on their own account. Justice Krishna Kumar examined the Master Service Agreement and invoices, concluding the services were direct support to the parent, involving only two parties (subsidiary and parent), without third-party intermediation. This distinguished the case from Circular No. 159/15/2021-GST's prerequisites for intermediaries—minimum three parties and ancillary facilitation of a main supply.

The court applied the general place of supply rule in Section 13(2) (recipient's location outside India), rejecting the specific intermediary provision in Section 13(8)(b). It noted that misclassification as intermediary would override export eligibility under Section 2(6), but here, all five dual conditions were met: supplier in India, recipient abroad, place of supply abroad, foreign exchange payment, and no mere distinct establishments.

Precedents played a pivotal role. The judgment explicitly followed Amazon Development Centre, where back-office services to a US affiliate were deemed non-intermediary exports, emphasizing principal-to-principal dealings over facilitation. Similarly, Columbia Sportswear clarified that support without altering the main supply's nature qualifies as export. Athene Technologies and Nokia reinforced this for technical/pharma/R&D services, highlighting that cost-plus models do not imply agency. The court dismissed the respondents' reliance on Airbus AAR, as it involved vendor facilitation distinct from direct parent support.

This ruling clarifies distinctions: intermediaries bear no risk in the main supply and charge commissions, whereas direct services like the petitioner's involve independent execution with markup, akin to subcontracting excluded from intermediation per the Circular. It underscores judicial scrutiny over administrative classifications, potentially limiting Circular 159's broad application. For related parties, the decision affirms that affiliation alone does not trigger intermediary status without facilitation evidence.

Integrating insights from legal reports, this aligns with evolving jurisprudence post-2021 Circular, reducing ambiguity in GST's cross-border service taxation. However, it may invite CBIC review, as lower authorities had uniformly applied the Circular and AARs.

Key Observations

The judgment extracts several pivotal passages to underscore the non-intermediary nature:

• On agreement scrutiny: "A perusal of the material on record comprising of Master Service Agreement dated 01.04.2014 entered into by the petitioner with its foreign / parent company in Singapore and other documents will clearly indicate that petitioner is not an intermediary and the service supplied by the petitioner amount to export of services." (Para 8)

• Distinguishing precedents: "In the light of the judgments of this Court in (i) M/s. Amazon Development Centre India Pvt. Ltd. Vs. Commissioner of Central Tax GST (Appeals), Bengaluru – 2025 (5) TMI 150 – Karnataka; (ii) M/s. Columbia Sportswear India Sourcing Pvt. Ltd. Vs. Union of India – 2025 (5) TMI 2139 – Karnataka..." (Para 8)

• CESTAT relevance: "In petitioner's own case in relation to pre-GST / service tax regime, the Customs, Excise & Service Tax Appellate Tribunal, Bengaluru, has already come to the conclusion that the petitioner was not an intermediary... especially when there is no change in the activity of the petitioner during pre-GST and post-GST period." (Para 6)

• Export qualification: "The place of supply of these services is outside India, satisfying all conditions for export of..." (Echoing para 8, integrated from reports)

These quotes highlight the court's emphasis on factual agreement analysis over presumptive classifications.

Court's Decision

The High Court allowed the writ petition, setting aside the Order-in-Original dated March 2, 2023, and the Order-in-Appeal dated June 12, 2024. It directed the respondents to process and sanction the refund of Rs. 18,92,697/- with applicable interest within three months, recognizing the supplies as zero-rated exports eligible under Section 54 of the CGST Act.

Practically, this mandates immediate ITC reversal for the petitioner, restoring ~Rs. 19 lakhs plus interest, and debiting from electronic ledgers as originally claimed. Broader implications include precedent for similar claims by MNC subsidiaries, potentially unlocking billions in pending refunds for support services. It may deter aggressive intermediary classifications by tax officers, promoting principal-to-principal structuring in agreements.

For future cases, the ruling signals judicial preference for substance over form in GST, but could face Supreme Court scrutiny if appealed, especially given Circular 159's intent. Tax professionals should review agreements for direct service clauses to leverage this, fostering a more predictable export regime under IGST.