Software Export Refund under GST: Intermediary Classification Must Be Properly Examined – Bombay High Court

The Bombay High Court in Varian Medical Systems International India Pvt. Ltd. Vs Union of India & Ors. has clarified that refund of accumulated input tax credit (ITC) on export of services cannot be denied merely by branding the assessee as an “intermediary” without a clear, reasoned finding. The Court set aside the rejection order and remanded the matter for a fresh, detailed consideration.

This judgment is particularly relevant for Indian subsidiaries and captive units providing software development and related services to their overseas group entities, especially where refund claims are rejected invoking Section 13(8)(b) of the IGST Act on the ground of “intermediary services”.

Background of the Case

Nature of Business and GST Position

The assessee, Varian Medical Systems International India Pvt. Ltd., is a private limited company engaged in providing software development and allied services to its associated enterprises situated outside India. The entity is registered with the Software Technology Park of India (STPI) for export-oriented software operations.

Key aspects of its business model:

  • Services were provided from India to foreign group entities.
  • Supplies were made without payment of IGST under a valid Letter of Undertaking (LUT).
  • Consideration was received in convertible foreign exchange against such services.

The assessee claimed that these supplies qualify as “export of services” under Section 2(6) of the IGST Act, entitling it to a refund of accumulated ITC under Section 54(3) of the CGST Act read with Rule 89(4) of the CGST Rules.

Corporate Amalgamation

Prior to 2017, the software services were rendered by Varian Medical Systems India Software Private Limited. In 2017, this company was amalgamated with the present assessee, Varian Medical Systems International (India) Software Private Limited, pursuant to a scheme of amalgamation approved by the National Company Law Tribunal vide order dated 20th December 2017. Post-amalgamation, the assessee continued the software export operations.

Refund Claim and Period Involved

For the period May 2023 to January 2024, the assessee:

  • Entered into agreements with various overseas entities for software development and related services.
  • Raised export invoices, supported by Foreign Inward Remittance Certificates (FIRCs), evidencing receipt of foreign exchange.

Subsequently, on 30th April 2025, the assessee filed a refund application for:

  • Refund amount: Rs. 12,12,00,656/- (IGST)
  • Legal basis:
    • Section 20 of the IGST Act
    • Section 54(3) of the CGST Act
    • Rule 89(4) of the CGST Rules
  • Reason for refund: Accumulated ITC on account of export of services without payment of tax under LUT
  • ARN: AA2704251931181

Departmental Proceedings and Rejection of Refund

Show Cause Notice

On 30th May 2025, the jurisdictional authority (Respondent No. 3) issued a show cause notice in Form GST RFD-08 proposing to reject the refund claim of Rs. 12,12,00,656/-.

The notice essentially proceeded on the basis that:

  • The assessee was allegedly providing “intermediary services”.
  • In such a case, the place of supply would be governed by Section 13(8)(b) of the IGST Act, which could result in the services being treated as intra-India supplies rather than exports.

Assessee’s Reply and Personal Hearing

The assessee responded to the notice on 10th June 2025 through Form GST RFD-09, and:

  • Denied all allegations in the show cause notice.
  • Contended that it was providing software development and related services on a principal-to-principal basis to foreign recipients.
  • Submitted relevant contracts, invoices, FIRCs, and supporting documentation demonstrating that:
    • Services were rendered to recipients located outside India.
    • Consideration had been received in foreign currency.
    • There was no element of arranging or facilitating supplies between two other parties.

A personal hearing was granted on 11th June 2025, where the assessee’s authorised representative reiterated these submissions and filed a copy of the written reply.

Impugned Order Rejecting Refund