Service by a subsidiary to its holding company situated outside India is an export of service

Case Title: Vuram Technology Solutions (P.) Ltd. v. Additional Commissioner of GST (Appeals)

Court: High Court of Madras

Petition No.: W.P. (MD) No. 15092 of 2022

Category of Dispute: Refund — Export of Services

Date of Judgement: 10 April 2024

Relevant Sections: Section 2(6)(v) and Section 8 of IGST Act, 2017; Section 54/55 of CGST Act, 2017

Takeaway: Export to Foreign Subsidiary—Not Just an Extension, But a Separate Entity

Facts of the Case

1. The petitioner, Vuram Technology Solutions (P.) Ltd., provided software development services to its foreign subsidiary, Vuram Australia Pty Ltd., and claimed a refund of ₹3,39,457 under Section 54/55 of the CGST Act, 2017 by treating it as an export of services (Para 4).
2. The second respondent rejected the refund claim on 14.11.2019, which was upheld by the first respondent in appeal vide order dated 20.08.2020, holding that the petitioner and the recipient were “merely establishments of a distinct person” under Explanation 1 to Section 8 of IGST Act (Para 2–3).
3. The petitioner challenged the denial through a writ petition, citing misinterpretation of the statutory provisions and subsequent CBIC Circular No. 161/17/2021-GST dated 20.09.2021 which clarified such relationships (Para 5–7).

Questions in Consideration

1. Whether the supply of services by an Indian company to its foreign subsidiary qualifies as ‘export of services’ under Section 2(6) of the IGST Act, 2017? (Para 2, 6)
2. Whether the relationship between the petitioner and Vuram Australia Pty Ltd. constitutes “merely establishment of a distinct person” under Explanation 1 to Section 8 of IGST Act, thereby disqualifying it from being treated as export? (Para 2, 13)

Observations of the Court

1. The High Court noted that the lower authority correctly found the petitioner satisfied the conditions of Section 2(6)(i) to (iv), but erred in interpreting clause (v) (Para 12–13).
2. The Court emphasized that the petitioner and its foreign subsidiary are two separate legal entities and not merely establishments of a distinct person (Para 13–14).
3. It placed reliance on CBIC Circular No. 161/17/2021-GST and judgment in Xilinx India Technology Services (P.) Ltd. v. Special Commissioner Zone VIII, which clarified that such supply qualifies as export (Para 7–8, 14–15).
4. The Court held that the Advance Ruling in Segoma Imaging Technologies India (P.) Ltd. was not applicable as facts were different (Para 13).
5. The circular though not binding on the Court, reflected correct legal interpretation and had to be followed by the department (Para 15).

Judgement of the Court

1. The High Court allowed the writ petition and set aside the impugned order (Para 16).
2. It directed the second respondent to process the refund claim along with applicable interest within 12 weeks (Para 16).

Between Fine Lines

• The Madras High Court held that an Indian company and its foreign-incorporated subsidiary are distinct entities under IGST law.
• Export of services to such a subsidiary qualifies as “export of services” under Section 2(6) of IGST Act.
• CBIC Circular No. 161/17/2021-GST reinforced this interpretation and was relied upon.
• Advance Ruling in Segoma Imaging was deemed inapplicable due to differing facts.
• Refund was allowed, and the department was directed to process it with interest.

Summary of Referred Cases