Bombay High Court: Indian Subsidiary Serving Foreign Parent Is Not an Intermediary Under GST

An Indian company that provides services to overseas group companies on its own account is not an intermediary under GST and is entitled to a refund of unutilised input tax credit. That is the effect of the Bombay High Court's decision in Sundyne Pumps and Compressors India Pvt. Ltd. v. Union of India, delivered on 16 June 2026, which directed the authorities to grant the refund within four weeks. The ruling is welcome news for exporters of services, captive units, and back-office providers who have faced refund denials on the intermediary ground.

The classification matters because if a supplier is treated as an intermediary, the place of supply can fall within India, the transaction is not treated as an export, and the refund of accumulated credit is denied.

The intermediary problem

GST law treats a person who merely arranges or facilitates a supply between two other persons as an intermediary. Service exporters who deal with foreign group entities are frequently accused of being intermediaries, on the theory that they act for the overseas parent rather than supplying services in their own right. The label converts what should be a zero-rated export into a domestic supply and blocks the refund of input tax credit that piles up because no output tax is payable on exports.

Sundyne argued that it supplied services to its overseas group companies on a principal-to-principal basis, for its own account, and not as a go-between arranging supplies between two other parties.

Why classification decides the refund

Under GST, the export of services is treated as a zero-rated supply. This lets the exporter either supply without payment of tax under a bond or letter of undertaking and claim a refund of accumulated input tax credit, or pay tax and claim a refund of that tax. Either way, the credit on inputs and input services used for the export is meant to be recoverable, so that taxes are not exported along with the service. The intermediary label disrupts this scheme. For an intermediary, the place of supply rules can locate the supply within India, which means the transaction is not an export at all, no zero-rating applies, and the accumulated credit cannot be refunded.

That is why the question of whether a captive unit or service provider is an intermediary is worth so much money. A wrong classification converts a legitimate export into a domestic supply on paper and traps working capital in unrefunded credit, sometimes for years while litigation continues.

What the High Court held

The Bombay High Court agreed with the company. It held that an Indian entity providing services to overseas group companies on its own account is not an agent or intermediary, and that the supplies were made on a principal-to-principal basis. As a result, the company was eligible for a refund of unutilised input tax credit, and the Court directed the respondents to grant the refund within four weeks.

The judgment reinforces that the intermediary label cannot be applied mechanically wherever a foreign group relationship exists. The nature of the contract and whether the supplier acts on its own account remain decisive.

Why exporters should take note

Service exporters and captive units should review their agreements to ensure they clearly reflect a principal-to-principal supply rather than a facilitation role. The decision adds to a run of recent taxpayer-friendly rulings on procedure and refunds, including the Bombay High Court's holding that GST show cause notices cannot bunch multiple financial years into one notice. Where credit accumulates on exports, the practical route to recovery is set out in our guide on how to claim a GST refund in India.

Disputes over classification and advance rulings continue to evolve, as seen in the clarification that the GSTAT Principal Bench will hear appeals against the National Appellate Authority for Advance Ruling.

To reduce the risk of an intermediary finding, exporters should ensure their service agreements clearly describe the scope of work, state that the supplier acts on its own account on a principal-to-principal basis, and avoid language suggesting that the Indian entity merely arranges or facilitates a supply between the foreign parent and a third party. Invoices, transfer pricing documentation, and the actual conduct of the parties should all line up with that characterisation, because tax authorities look at substance as well as the words of the contract.

Related Reading

For day-to-day compliance, see how to generate an e-way bill under GST in India.

On the direct-tax side, read about the Madras High Court seeking the Centre's response on retrospective income tax amendments.

Key Takeaways

An Indian company serving overseas group entities on its own account is not an intermediary under GST and can claim a refund of unutilised input tax credit. The classification turns on whether the supplier acts principal-to-principal or merely facilitates a supply between two others. Exporters should align their contracts with the principal-to-principal position to protect their refund claims.