In a significant ruling for India’s service export sector, the Karnataka High Court has clarified that business support services provided by an Indian entity to its overseas group company do not become intermediary services merely due to group affiliation.
The decision, delivered on 12 December 2025 in Li & Fung (India) Private Limited v. Union of India and Others, resolves a recurring dispute under GST where tax authorities have denied refunds by broadly applying the intermediary concept. The judgment not only settles the legal position but also carries meaningful commercial implications for multinational groups operating service centres in India.
At its core, the ruling reinforces a simple principle. When services qualify as exports, refund of accumulated input tax credit follows as a statutory consequence.
Background of the Dispute
Li & Fung (India) Private Limited provided business support services to its Hong Kong‑based group entity under a Service Agreement dated 13 February 2007. These services were rendered during the period July 2017 to March 2020, shortly after the introduction of GST.
The petitioner treated these supplies as export of services and did not charge IGST. As a result, input tax credit accumulated in its electronic credit ledger. A refund claim was filed under Section 54 of the CGST Act, 2017, read with the Karnataka SGST Act.
The tax authorities rejected the refund on the ground that the petitioner was acting as an intermediary, which would shift the place of supply to India and disqualify the services from export treatment. Multiple show cause notices and related proceedings followed, prompting the petitioner to approach the High Court.
Core Legal Question
Although several statutory and constitutional challenges were raised, the dispute ultimately turned on a narrow but critical question: “was the petitioner an intermediary, or was it supplying services on its own account to an overseas recipient“?
The answer to this question determined whether the refund denial could survive.
Court’s Analysis and Findings
Intermediary Classification Examined
The High Court analysed the service agreement and the actual scope of activities performed by the petitioner. It found that the petitioner was not arranging or facilitating supplies between third parties. Instead, it was providing defined services directly to its overseas group company.
The Court reiterated that the intermediary definition under GST is specific and cannot be expanded to cover every cross‑border service arrangement. The mere existence of a group relationship or internal business benefit does not convert a service provider into an intermediary.
On facts, the petitioner was held to be supplying services on a principal‑to‑principal basis, placing it outside the intermediary framework.
Services Treated as Export of Services
Once intermediary status was ruled out, the legal consequence was straightforward. The recipient of services was located outside India, consideration was received from abroad, and the statutory conditions for export were satisfied.
The Court therefore held that the services qualified as export of services under GST law and were zero‑rated supplies.
Refund of Input Tax Credit
Having accepted that the petitioner was engaged in export of services, the Court held that denial of refund was contrary to law. Section 54 of the CGST Act confers a right to refund of accumulated and unutilised input tax credit in such cases.
The rejection order and connected proceedings were found to lack legal basis and were set aside.
Reliance on Established Judicial Trend
The Court’s reasoning aligns with a consistent line of Karnataka High Court decisions involving similar service arrangements. The judgment relied on earlier rulings in cases such as:
- Amazon Development Centre India Pvt. Ltd.
- Columbia Sportswear India Sourcing Pvt. Ltd.
- Athene Technologies India LLP
- Nokia Solutions and Networks India Pvt. Ltd.
Together, these cases confirm that support and back‑end services rendered independently to overseas entities do not fall within the intermediary category.
Final Directions of the Court
The High Court issued clear and time‑bound directions:
- The refund rejection order dated 31 January 2024 was quashed.
- All related show cause notices and proceedings were set aside.
- The authorities were directed to sanction refund of the accumulated and unutilised input tax credit.
- Refund was to be granted along with applicable statutory interest.
- The process was to be completed within three months from receipt of the order.
While the judgment does not specify the refund amount, it covers the entire eligible ITC balance reflected in the electronic credit ledger.
Commercial Significance
The ruling has practical relevance for:
- Indian captive service providers
- Global sourcing and procurement offices
- Shared service and support centres
- Export‑oriented service entities operating on cost‑plus or fee‑based models
For many such businesses, refund denials on intermediary grounds have led to prolonged litigation and blocked working capital. This judgment reinforces that contractual substance and actual conduct must guide GST classification, not broad assumptions.
Practical Takeaways for Taxpayers
Businesses engaged in cross‑border service arrangements should note the following:
- Service agreements should clearly reflect independent service delivery.
- Documentation supporting export conditions must be consistent and complete.
- Past refund rejections on similar grounds may warrant reconsideration or legal challenge.
The decision strengthens the position of taxpayers facing disputes over intermediary classification.
Scope Limitations
While the ruling provides strong relief to the petitioner, it stops short of addressing the wider constitutional challenge to Section 13(8)(b) of the IGST Act and related notifications, leaving that larger controversy unresolved. The Court deliberately confined itself to the facts of the case and existing precedents, which means the judgment does not offer a final answer on the validity of the intermediary place‑of‑supply framework itself. In addition, the decision is closely tied to the clarity of the service agreement and the demonstrated principal‑to‑principal nature of the services. Cases with weaker documentation or mixed roles may still face scrutiny. Finally, as a High Court ruling, its binding effect remains jurisdiction‑specific, and divergent interpretations may continue in other States until the issue is conclusively settled by the Supreme Court or through legislative intervention.
Conclusion
The Karnataka High Court’s ruling in the Li & Fung case further consolidates judicial clarity on GST treatment of export of services. It confirms that the intermediary concept cannot be stretched to deny export benefits where services are genuinely supplied on a principal‑to‑principal basis.
By directing refund of accumulated input tax credit with interest and within a defined timeframe, the Court has reaffirmed both taxpayer rights and administrative discipline. For service exporters, the decision offers legal certainty and tangible commercial relief.
Karnataka HC Judgement dated 12/12/2025: Li and Fung (India) Pvt Ltd vs Union of India & Others (WP No. 13502 of 2024)