Karnataka High Court Directs Refund of Unutilized ITC on Software Exports, Discards Intermediary Tag
Background and Context
The Karnataka High Court, in the case of Informatica Business Solutions Private Limited Vs ACIT, examined whether software development and related services rendered by an Indian entity to its foreign parent qualify as export of services or fall under the category of intermediary services. This classification directly impacted the assessee’s eligibility to claim refund of accumulated unutilized input tax credit (ITC) under the GST regime.
The dispute arose from refund rejection orders and computation sheets for the period April 2024 to June 2024, through which the authorities denied refund on the ground that the assessee was functioning as an intermediary. The High Court was called upon to determine whether such characterization was legally sustainable in light of earlier consistent findings and judicial precedents.
Reliefs Sought Before the High Court
The assessee approached the Karnataka High Court with a writ petition seeking multiple reliefs, including:
Quashing of refund rejection order
- Setting aside the Refund Order / Order-in-Original bearing No.50/2025-26/ED-5 in FORM-GST-RFD-06 dated 18.06.2025 issued by the 1st respondent for the tax period January to April 2024 (Annexure-M).
Quashing of computation sheet
- Annulment of the computation sheet in FORM-GST-RFD-06 prepared by the 1st respondent for the period April 2024 to June 2024 (Annexure-N).
Direction to release balance refund
- A direction to the 1st respondent to sanction the balance refund of Rs.2,24,24,605/- claimed in the assessee’s refund application filed in Form GST-RFD 01 (Annexure-H), being accumulated unutilized ITC.
Any other appropriate reliefs
- Such further directions as the Court deemed fit, in the interest of justice and equity.
Nature of Business and Claim of Zero-Rated Supply
Assessee’s Business Model
The assessee is a company engaged in:
- Software development
- Technical and functional support services
- Customer service functions
These services are rendered exclusively to its foreign parent, Informatica HoldCo Inc., USA. The arrangement is governed by a formal agreement dated 26.03.2020.
Claim of Export of Services
The assessee asserted that:
- The services are supplied to a foreign entity located outside India.
- Consideration is received in convertible foreign exchange.
- All the conditions for “export of services” are satisfied.
Accordingly, the assessee argued that such services qualify as zero-rated supplies under Section 16 of the IGST Act. Based on this, the assessee claimed refund of accumulated unutilized ITC under Section 54 of the CGST Act.
Note: Zero-rated supplies permit refund of unutilized ITC when supplies are made without payment of IGST, subject to conditions prescribed under the GST law.
History of Refunds Under Pre-GST and Post-GST Regimes
Refunds Under the Erstwhile Service Tax Regime
The record showed that, under the pre-GST regime, for multiple tax periods such as:
- October to December 2013
- January to March 2014
- April to June 2015
- July to September 2015
the respondents had passed orders dated 07.03.2017 at Annexure-E (collectively), sanctioning refunds in favour of the assessee. This indicated that the authorities consistently accepted that the services were exports and not intermediary services.