Refund Rejection on Intermediary Grounds Quashed for Nokia India

Case Details:

• Case Title: M/s Nokia Solutions and Networks India Pvt. Ltd. vs. Union of India & Ors.

• Court Name: High Court of Karnataka at Bengaluru

• Petition Number: W.P. No. 14827 of 2022 (T-RES)

• Category of Dispute: Refund – Export of Services

• Date of Judgment: 22nd August 2024

• Relevant Sections: Section 16(1)(a), Section 2(6), Section 2(13) of IGST Act; Section 54(1), 54(4) of CGST Act; Rule 89(2)(c) of CGST Rules

Facts of the Case (Ref: Paras 2–7)

1. The petitioner, Nokia India, provided software development and support services to overseas group entities on a principal-to-principal basis under contractual agreements dated 10.06.2016 and 17.05.2018.

2. It filed four refund applications between March 2020 to October 2020, which were partly sanctioned by the Assistant Commissioner.

3. The Revenue appealed the refund orders, claiming missing FIRCs/BRCs and citing mismatch in banking details and the classification of services as “intermediary services.”

4. During pendency, Show Cause Notices (SCNs) dated 06.09.2021 and 07.07.2022 were issued to recover the refund.

5. Subsequently, the appellate authority set aside the refund orders. An ex parte recovery order dated 26.07.2022 was also passed.

Questions in Consideration (Ref: Para 1 & 14)

1. Whether the absence of FIRCs/BRCs alone can justify rejection of refund under Section 54 of CGST Act?

2. Whether the petitioner’s services constituted “intermediary services” under Section 2(13) of the IGST Act?

3. Whether procedural lapses override substantive compliance in refund claims?

Observations of the Court (Ref: Paras 9–14)

1. FIRCs Discontinued: RBI had discontinued FIRCs (Ref: RBI Circular 26.05.2016). The petitioner had submitted FIRAs, CA certificates, and later eBRCs proving receipt of export proceeds (Para 13.i).

2. Mismatch in Bank Details: Difference in bank account numbers and location (Gurgaon vs. Bengaluru) were held to be irrelevant for refund eligibility (Paras 13.ii & iii).

3. No Intermediary Role: The petitioner was providing services on its own account without third-party involvement, disqualifying it from the “intermediary” category. The agreements showed it was not an agent or broker (Paras 13.xii–xiii).

4. Judicial Precedents: Cited rulings such as Genpact India, Ernst & Young, ABB India, and Xilinx India emphasized that principal-to-principal export of services are not intermediary services (Paras 13.v–xvi).

5. Procedural vs Substantive Compliance: Rejection of refund solely on procedural lapses such as format of documents was held unjustified in view of the law and precedents (Paras 13.iv–vi).

Judgment of the Court (Ref: Para 15)

• The Writ Petition was allowed.

• The impugned orders dated 18.05.2022 and 26.07.2022, and SCNs dated 06.09.2021 and 07.07.2022 were quashed.

• The Court upheld the refund entitlement of the petitioner.

Between Fine Lines (Simplified Summary in 5 Lines)

• Nokia India provided software services to group companies abroad on its own account.

• Refunds of unutilised ITC were partly sanctioned but later challenged for lack of FIRCs and alleged “intermediary” status.

• The Court held RBI had discontinued FIRCs and accepted alternative proofs like eBRCs and CA certificates.

• It also ruled that Nokia was not an intermediary, as services were on principal-to-principal basis.

• Refund denial was quashed as being based on technicalities and incorrect legal interpretation.

Summary of Referred Cases

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