Goods & Services Tax (GST) in IndiaIncidence of GST not passed on to International Recipient: Service Provider entitled to refund of GST

June 28, 20220

In the case of Jar Productions Pvt. Ltd. v. The Union of India Writ Petition No. 1143 of 2021 dated 09.06.2022, the Bombay High Court held that the services rendered abroad amount to export of services and that Goods and Services Tax (“GST”) would not be applicable on the same. Further, it observed that since the incidence of GST has not passed on to the recipient, the Petitioner is entitled to refund of GST.


Jar Productions Pvt. Ltd. (hereinafter referred to as “the Petitioner”) was engaged in providing production services to A Suitable Company Ltd. (“ASCL”) situated in London, United Kingdom, through an Agreement between the Petitioner and ASCL.

According to a clause of the said Agreement, any refund of tax component received by the Petitioner would be deducted from the production expenses at the time of computation of the compensation payable to the Petitioner for the production services.

The Petitioner obtained and utilized numerous inputs and input services in order to provide the production services to ASCL, on which appropriate Central, State or Integrated GST were paid in accordance with the vendors’ charges. When the input services were received from a service provider/vendor outside of India, the Petitioner paid the relevant Central and State GST or Integrated GST.

As the Petitioner was entitled to avail refund of the Input Tax Credit (“ITC”) accumulated from the GST paid for inputs and input services, the Petitioner filed the first refund application for the period from April to July, 2019 on 31.03.2020, which was allowed by the Assistant Commissioner (hereinafter referred to as “the Respondent”).

Subsequently, the Petitioner filed another claim of refund for the period from August 2019 to October, 2019. Thereafter, the Petitioner received a Show Cause Notice (“SCN”), to which the Petitioner replied. After hearing the Petitioner, the Respondent rejected the claim of refund on the ground that the incidence of GST had been passed on to the Petitioner’s client, i.e., ASCL, which resulted into unjust enrichment of the Petitioner.

Aggrieved by the Respondent’s order of rejection, the Petitioner preferred an Appeal before the Appellate Authority which was also rejected, on the same ground that as the burden of GST had been shifted to the recipient of service, the Petitioner cannot be a beneficiary, and hence, any refund to the Petitioner would amount to unjust enrichment.

The Petitioner further filed another refund application for the period of November 2019 to July 2020 on 01.09.2020. Thereafter, SCN was issued by the Respondent and subsequently the Petitioner’s claim of refund was rejected by the Respondent on the same ground that incidence of tax had been passed on and hence, the refund would amount to unjust enrichment.

On appeal against the aforementioned rejection order, the Appellate Authority again rejected the claim of the Petitioner on the same grounds as mentioned above. Hence, the Petitioner challenged both the rejection orders in the present writ petition before the Bombay High Court.


Whether the incidence of GST has ultimately been passed on to the recipient, restricting the Petitioner from claiming refund of GST?


The Petitioner contended that the principle of unjust enrichment does not apply to export services, and similarly does not apply to the Petitioner’s services being a zero-rated supply. The Petitioner argued that the Agreement clearly stated that once a refund is received, the value of refund would be deducted from the expenses of production.

The Petitioner further submitted that multiple judgments of the Bombay High Court had indicated that the principle of unjust enrichment would not be applicable for export services.

The Respondent contended that it was admitted by the Petitioner that the credit notes would invalidate the effect of any alleged unjust enrichment by the Petitioner. However, the Central Goods and Services Tax Act, 2017 (“CGST Act”), Integrated Goods and Services Tax Act, 2017 (“IGST Act”) and similar state enactments do not stipulate a method for paying back the GST charged on zero-rated services through the issuance of credit notes.

The Respondent argued that as the Petitioner had admitted that the GST collected from ASCL would be paid back to them when the refund is obtained, it showed that the incident of tax had passed onto ASCL.

Thus, the Respondent submitted that the Adjudicating Authority and the Appellate Authority were justified in holding that the Petitioner was not entitled to the refund of GST, since the tax incidence had been passed on to the recipient and there was unfair enrichment of the Petitioner.


The High Court noted that the Petitioner provided export of services to ASCL within the meaning of Section 2(6) of the IGST Act, and hence, it is a zero-rated supply.  Further, the High Court observed that the refund of unutilized ITC is permitted in cases of zero-rated supply, according to Section 54(3) of the CGST Act. However, the same cannot be claimed when incidence of tax has been passed on to the recipient or any other person as per Section 54(8)(e) of the CGST Act.

After careful consideration of the Agreement in this case, the High Court ascertained that the production expenses included all costs relating to production services including the amount of IGST payable, and that in case the GST is refunded, it would be deducted by the Petitioner from the total cost relating to production services. Thus, the High Court held that the incidence of tax has not been passed to ASCL.

The High Court relied on the decisions in Motilal Oswal Securities Ltd v. Commissioner of Service Tax 2016 (12) TMI 1527 and Commissioner of Service Tax, Pune II v. HSBC Software Development (I) Pvt. Ltd. 2016 (42) STR 575 (Tri-Mumbai), wherein the Supreme Court held that when services are rendered abroad, Service Tax law would not be applicable to them as also on the export of services.

The High Court further cited its own decision in Commissioner of Service Tax, Mumbai II v. SGS India Pvt. Ltd. 2014 (34) STR 554 (BOM) considering the same issue, wherein it was held that:

“It is in the sense that the Tribunal holds that the benefit of the services occurred to the foreign clients outside India. This is termed as export of service. In the circumstances, the Tribunal takes a view that if services were rendered to such foreign clients located abroad, then, the act can be termed as export of service. Such an act does not invite a Service Tax liability.”

The High Court affirmed that as the Petitioner had rendered services in the United Kingdom, the same amounts to export of services and thus, would not attract the levy of GST. Furthermore, the High Court observed that the Respondent had failed to prove that the incident of tax had ultimately been passed to the recipient, ASCL, located in United Kingdom.

Therefore, the High Court held that both the Adjudicating Authority and the Appellate Authority committed error in rejecting the refund of GST of the Petitioner and set aside the rejection orders.


From the inception of Service Tax law in India, the erstwhile had precluded the applicability of Service Tax on export services, and the practice has been carried forward to the current GST regime. Services provided by Indian taxpayers to recipients outside India do not attract the levy of GST in India, and are termed as zero-rated supplies. Likewise, the CGST Act and IGST Act enables the service provider to claim the refund of IGST paid on inputs and input services for such export services.

In the instant case, the Petitioner and its client in United Kingdom had entered into an Agreement which provided that the Petitioner would adjust the amount of GST refunds obtained from the production expenses payable to the Petitioner by the client. The Bombay High Court, through its decision, clarified the ambiguity of GST implications on the Petitioner’s transaction and held that as the Petitioner provided export services to its overseas client, GST would not be applicable on the Petitioner’s services.

Further, the High Court noted that the Agreement between the Petitioner and its client, regarding the deduction of GST refunds from the production expenses payable, did not indicate that the incidence of tax had ultimately passed on to the client. Thus, the High Court set aside the rejection orders and allowed the Petitioner to avail refund of GST.

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