Order Date – 18 May 2023

Parties: M/s McDonalds Pvt. Ltd. Vs Additional Commissioner, CGST Appeals II, Delhi & Anr.

Facts – 

• The Petitioner, M/s McDonalds Pvt. Ltd., is a company incorporated in India and is a subsidiary of McDonald’s Corporation, USA. The petitioner is entitled to a consideration on cost plus 10% mark-up basis for the services rendered under the Service Agreement.
• The petitioner claims that the services rendered by it to McDonald’s USA are ‘zero rated supplies’ under Section 16 of the Integrated Goods and Services Tax Act, 2017.
• The appellant claims that during the period April 2018 to March 2019, it had provided services under the said Service Agreement without payment of Integrated Goods and Services Tax and thus, is entitled to refund of tax paid on inputs.
• A Show Cause Notice dated 14.08.2020 was issued proposing to reject the petitioner’s claim for refund of ITC and it was confirmed holding that the petitioner was performing services on behalf of McDonald’s USA in the backdrop of McDonald’s USA’s obligations

Issue – 

• Whether the petitioner is an intermediary within the meaning of Section 2(13) of the IGST Act?

Order – 

• The Divisional Bench of Hon’ble High Court observed that rendering service on behalf of another person does not render the service provider an intermediary. However, it is essential that the principal service, the supplier of such services, and the service purchaser are identified to ascertain whether the services performed by the petitioner are those of a facilitator or one that arranges such services. The Order-in-Original has not analysed the services rendered by the petitioner on the aforesaid anvil.
• There is no basis for the Appellate Authority to have concluded that the petitioner acts as a mediator between joint ventures/ franchisees and McDonald’s USA. The Appellate Authority has not considered that the MLA, which entitles the petitioner to enter into sub-licenses with franchisees, is a separate agreement.
• In the present case, under the Service Agreement, the service recipient is McDonald’s USA and the petitioner is the service provider. The supply of services by the petitioner to McDonald’s USA does not require the physical presence of McDonald’s USA. Section 13(3)(b) of the IGST Act contemplates the location of service, whereby the presence of a service recipient is necessarily to be in India.
• Hence the order is set aside and remand the matter to the Adjudicating Authority to consider the petitioner’s case afresh.