Intermediary service between Indian importer and exporter outside India is not export of service under GST : AAR

AUTHORITY FOR ADVANCE RULINGS, MAHARASHTRA

MRS. Vishakhar Prashant Bhave, In re

B.V. BORHADE AND PANKAJ KUMAR, MEMBER

GST-ARA-23/2018-19/B-87

AUGUST  10, 2018 

PROCEEDINGS

[Also refer GST Export : Free Study Material ]

(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

1. The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by Mrs. Vishakar Prashant Bhave, the applicant, seeking an advance ruling in respect of the following issue.

At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference provision under the CGST Act/MGST Act would be mentioned as being under the “GST Act”.

2. FACTS AND CONTENTION – AS PER THE APPLICANT

The submissions, as reproduced verbatim, could be seen thus—

STATEMENT OF THE RELEVANT FACTS HAVING A BEARING ON THE QUESTIONS

2. The modus operandi of the negotiated transactions can be briefly summarized as under:

3. Now, in the circumstances, the following questions arise for consideration & decision by this Honourable Advance Ruling Authority, Maharashtra State, Mumbai:

4. For the purposes of examining the issues involved one needs to go through the labyrinth of new G5T Laws.

5. The conspectus of various provisions gives the following picture:

6. Though Micro is providing the service to the foreign supplier of goods as an integral part of the international/cross-border transaction of export/import, and also receiving valuable consideration’ in freely convertible foreign exchange, but still it is not considered as Export of service’ for the reason given in the definition of “Export of Service’, quoted below, read with section 13(8) (b) of the IGST Act as all the conditions of “export of service” are not met in the case on hand:

Conditions precedent for treating the service as ‘export of service’ (as per Section 2(6) of the IGST Act] – All conditions have to be met.

(6) “export of services” means the supply of any service when,–

7. Now, therefore, the CGST/SGST will be payable in the Taxable Territory on account of the ‘place of supply’, being the place where the Supplier, i.e. Micro, is registered, that is in the State of Maharashtra.

8. In the context of the case on hand, the aforesaid interpretative process makes taxable “intermediary services” rendered by Micro to the recipient abroad in non-taxable territory, liable tax in Maharashtra State, which is the place where the Supplier (Micro) is Registered and happens to be the place of supply; and fortunately further also the “destination state” or “consumption State”; because the Laboratory Equipment imported by M/s. Panama Laboratory, Mumbai, would be used by the Purchasing Customer, who is also residing in the State of Maharashtra.

9. Before looking at another example, a few words on new taxation Policy. Effective July 1, 2017 there has been a paradigm shift in taxation Policy, now, adopting the destination based tax. The basic difference between the Destination based tax and origin based tax lies in the fact that origin based taxation seeks to levy and collect tax on the basis of location of production and destination based taxation seeks to levy and collect tax on the basis of location of consumption. Further, a fundamental proposition under the new GST regime is that the concept of “place of consumption” also called and known as the “Place of supply”, merely determines that the tax would accrue to the State of consumption (jurisdictional aspect).

10. Now, look at another case, in which Micro procures the P.O. from the Customer at Vadodara (formerly known as Baroda), in the State of Gujarat, for purchase of Laboratory Equipment from the same Germany-seller. By virtue of section 13 (8) (b) read with 2(13) of IGST Act, the place of supply” remains the same i.e. “the place of Supplier”, State of Maharashtra. But the destination based or consumption based taxation Policy would get a jolt; because the actual use of the goods imported would be in the State of Gujarat, whereas the tax will accrue to the state of Maharashtra, where the place of supplier and the place of supply synchronize.

11. The matter needs to be examined further.

12. Actually, the “nature of supply” is determined under Section 7 and 8 of the IGST Act, 2017 which reads:

CHAPTER IV

DETERMINATION OF NATURE OF SUPPLY

Inter-State supply

7. (1) Subject to the provisions of section 10, supply of goods, where the location of the supplier and the place of supply are in–

shall be treated as a supply of goods in the course of inter-State trade or commerce.

(2) Supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-State trade or commerce.

(3) Subject to the provisions of section 12, supply of services, where the location of the supplier and the place of supply are in–

shall be treated as a supply of services in the course of inter-State trade or commerce.

(4) Supply of services imported into the territory of India shall be treated to be a supply of services in the course of inter-State trade or commerce.

(5) Supply of goods or services or both,–

shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.

13. It is manifestly clear from the conjoint reading of section 7 (5) of the IGST Act read with Section 13 (8) (b) that the nature of transaction on hand is taken out of the IGST Act and by virtue of the Supplier’s Location and the Place of Supply make the transaction fall into the trap of the “intra-state” service and hence would attract 9% CGST+ 9% SGST, in the aggregate 18%, the services being Classifiable under the Residuary Tariff Classification, namely, 9997

14. With the result that the benefit of “Zero rated tax” defined under Section 16 of the IGST Act, 2017 is unavailable, simply because the role played by the Micro is treated as “Intermediary Services” under section 13 (8) (b) of the IGST Act.

15. As a direct consequence of this situation, although all other transactions of export of goods or service or both get the advantage of zero tax burden the case on hand gets discriminatory dispensation by saddling it with unintended cost burden of 18%, (with another Income Tax burden @ 30%) and to add salt to the injury, Refund of such CGST/SGST in unavailable, being “forward charge”.

16. However, there is another way to look at this integrated & composite international-cross-border transaction in which the Applicant plays a pivotal role as an intermediary by virtue of which the “import of goods” is occasioned, gets effectuated.

17. Now, for this new approach two definitions are important:

(13) “intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account;

(5) “agent” means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another:

18. Since Micro does not supply or receive goods/services on behalf of anyone, Micro carries on business of its own, it is certainly not an “Agent” as defined in section 2 (5) of the CGST Act, 2017.

19. All the analysis & discussion above, finally boils down to and depends on the true meaning and purport of the expression: “intermediary services” in section 13 (8) (b) of the IGST Act. If it is not the same thing as “Intermediary”, the provisions of section 13 (8) (b) will not apply; and consequently, provisions of section 7 (5) (a) Of the IGST Act will get attracted, as can be seen from the quoted provision:

(5) Supply of goods or services or both, –

(a) when the supplier is located in India and the place of supply is outside India;

In that case, Section 16 of IGST Act will apply and there would be two options available:

CHAPTER VII

ZERO RATED SUPPLY

Zero rated supply.

16. (1) “zero rated supply” means any of the following supplies of goods or services or both, namely:–

(2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply.

(3) A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely:–

20. Now, the crucial question is: what is the true meaning & purport of the expression “intermediary services” appearing in section 13 (8) (b) of the IGST Act. It may be added that the term “intermediary” has been defined in section 2(13) of the IGST Act, but the expression ‘”intermediary services.” appearing in section 13 (8) (b) has not been defined.

21. What is the significance of use of the two terms/expressions, apparently looking similar, by the Legislature in the GST statutes. One thing is clear that they are not synonymous terms or expressions, having the same meaning as another word or phrase in the same language.

22. One has to construe the true meaning of the undefined expression, namely, “intermediary services”, which is not simply a coined expression, but seems to have acquired a well set connotation. This expression is not used for the first time by the Legislature.

23. It may be added that this precise expression: ‘Intermediary service was adopted by the Delegated Legislation while framing the Place of Provision of Service Rules, 2012 (POPS Rules, 2012). In those Rules, Rule 2 (f) had defined “intermediary” as below :

(F) Intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the “main” service) between two or more persons, but does not include a person who provides the main service on his account;

9. Place of provision of specified services.

The place of provision of following services shall be the location of the service provider:

24. Clarification and Legal nemesis:

An Education Guide (‘Guidance Note’) on June 20, 2012 issued by the Central Board of Excise and Customs clarifying the meaning of intermediary states: QUOTE:

5.9.6 What are “Intermediary Services”? Generally, an “intermediary” is a person who arranges or facilitates a supply of goods, or a provision of service, or both, between two persons, without material alteration or further processing. Thus an intermediary is involved with supplies at any one time:

UNQUOTE:

—Rule 2(1) defines intermediary’ to mean a broker, any agent or any other person, by whatever name called, who arranges or facilitates a provision of a service(hereinafter called the ‘main service’) between two or more persons (it doesn’t include a person who provides service on his own account).

Thus an intermediary service is involved with two supplies at one time. In other words, the expression “intermediary” connotes distinctness/detachment from the “main” service. The expression “intermediary service” is thus, a nomen juris (“nomen juris,” literally term of law; a technical legal term) and its use is having a specific legal concept and connotation. When that expression is used in any subsequent legislation, it has to be interpreted and understood in the same sense & nothing less or more. (VIDE The Madras General Sales Tax Act, 1939 (Madras Act 9 Of 1939) was enacted in pursuance of the powers contained in entry 48 of List II of Seventh Schedule of the Government of India Act, 1935 which deals with sale of goods. The corresponding entry in the Constitution is entry No. 54 in List 11 of Seventh Schedule. It was in exercise of the powers under this entry that the Mysore Sales Tax Act, 1957 (Mysore Act No. 25 of 1957) was enacted. It is now settled law that the words “sale of goods” have to be construed not in the popular Sense but in their legal Sense and should be given the same meaning which they carry in the Sale of Goods Act, 1930. The expression sale of goods” is a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement

25. In this connection one must take a note of the Amendment to the definition of “intermediary” in Rule 2 (1) of the POPS Rules, 2012.

26. By Notification No. 14/2014 – Service Tax, dated the 11th July, 2014, The Place of Provision of Services (Amendment) Rules, 2014, were brought into force on the 1st day of October, 2014:

(1) In the Place of Provision of Services Rules, 2012,

(a) in rule 2 for clause the following clause shall be substituted namely:

(f) “intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the main’ service) or a supply of goods, between two or more persons, but does not include a person who provides the main service or supplies the goods on his account

27. When this modified version of “intermediary” as of 01-10-2014, was re-bottled in the GST law, two changes happened:

28. Further, as stated earlier, there is one term: “intermediary”, which is defined (section 2(13) IGST Act), and entirely different expression : “intermediary services” is used in section 13 (8) (b) of the IGST Act, which is handpicked from the Legislative phraseology adopted in Rule 9 (c) of the POPS Rules, 2012 as it existed pre-Amendment of 2014, effective 04-10-2014 of section 2 (f) of the POPS Rules, 2012. The pivotal issue in the case on hand turns on the interpretation of the expression: “intermediary services” in Section 13 (8) (b) of the IGST Act.

29. At this stage, it is necessary to refer to some well known Rules of Interpretation of statues before embarking on the interpretative process:

30. In the light of the aforesaid rules of interpretation, it can be said that when the Legislature has used two un-identical and non-synonymous terms/expression, it has to be inferred that it did not want to convey the same meaning. It may also be noted that the Legislature does not use any surplus age or superficial words or phrases.

31. If the provisions of section 13 (8) (b) of the IGST Act, were to cover and encompass both the types of Brokers, Agents in relation to goods and services, nothing was simpler than to re-draft section 13 (8) (b) as below and say:

32. In conclusion, it is respectfully submitted :

(5) Supply of goods or services or both, —

(a) when the supplier is located in India and the place of supply is outside India;

Will apply, and consequently “zero-rated tax” benefit under section 16 would be available.

PRAYER:

33. The Applicants most respectfully pray that the application be allowed, and

STATEMENT CONTAINING APPLICANTS INTERPRETATION OF LAW IN RESPECT OF THE

QUESTIONS RAISED

IV-STATUTORY PROVISIONS:

7. Before proceeding to make legal submissions, it is necessary to Review the statutory provisions of law:

(i) Section 2 of the IGST Act:

“export of services” means the supply of any service when, —

(i) the supplier of service is located in India;

(ii) the recipient of service is located outside India;

(iii) the place of supply of service is outside India;

(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; and

(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;

(ii) Section 13 of the IGST Act is made applicable to determine the ‘place of service’, where location of supplier or location of recipient of service (either) is outside India.

(iii) In the present case, the supplier of service is located in India and customer i.e. recipient of Service is located outside India, Germany; hence Section 13 of the IGST Act gets attracted.

(iv) Section 13 of IGST Act:

“(8) The place of supply of the following services shall be the location of the supplier of services, namely:

(v) The term “Intermediary” is defined in Section 2(13) of the IGST Act:

“(13) ‘intermediary’ means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account”.

(vi) Consequently, the Applicant being a Broker (or Commission Agent) and facilitator between the German -seller of the goods and the and the Indian-buyer of the goods, shall be covered under the definition of Intermediary” under Section 2 (13) of the IGST Act bringing about a deal for export-import of goods/equipment, a cross-border transaction in the nature of inter state sale under IGST Act.

IV-STATUTORY PROVISIONS: RULES OF INERPRETATION:

8. At this stage, it is necessary to refer to well settled Rules of Interpretation of statues:

V–LEGAL SUBMISSIONS:

9. In the light of the aforesaid rules of interpretation, it can be said that when the Legislature has used two un-identical and non-synonymous terms/expression, it has to be inferred that it did not want to convey the same meaning. It may also be noted that the Legislature does not use any surplus age or superficial words or phrases.

10. If the provisions of section 13 (8) (b) of the IGST Act were intended to cover and encompass both the types of Brokers, Agents in relation to goods and services, nothing was simpler than to redraft or re- write section 13 (8) (b) as below and say:

11. Section 13(8) (b) has, however, adopted the expression: “intermediary services” which expression was prevalent prior to 2014-Amendment of POPS Rules, 2012, which distinguishes it from the “main service”.

There are other weighty reasons:

(i) As laid down by the Apex Court (Delhi Transport Corporation v. D.T.C. Mazdoor Congress on 4 September, 1990 = 1990 (9) TMI 334 – SUPREME COURT), the doctrine of reading down is applied where the provisions of the statute are vague and ambiguous and it is possible to gather the intention of the legislature from the object of the statute, the context in which the provision occurs and the purpose for which it is made.

(ii) Further, it is well settled that every word or phrase in a clause takes colour from the other related clauses in the same section, namely, sub-section (8), section 13 of IGST Act.

(iii) As stated earlier, if the Legislature wanted to have wider meaning of “services”, it would have used the phraseology “services of intermediary” rather than “Intermediary services”.

(iv) It is not open to inject definition of “intermediary” as Amended in 2014, by interpretative process when the context of Section 13 (8) is specifically restricted & made applicable to specified/selected services.

(v) The term “intermediary” in section 13 (8) is an as an adjective of the noun that follows, namely, “services”, one has to give due meaning to it and read that expression to convey only “Intermediary services” which are different from the “main service/s”

(vi) By process of reading down, the clause must be held as applicable only if the “intermediary” is acting in the main transaction of supply of services between the service provider and the service recipient, and not Where the seller supplies “goods” to the buyer or recipient of supply.

(vii) Any other interpretation would be against the Legislative mandate used to pin-point its intention.

(viii) It well settled:

*Thus, the language of a taxing statute should ordinarily be read understood in the sense in which it is harmonious with the object of the statute to effectuate the legislative animation. A taxing statute should be strictly construed; common sense approach, equity, logic, ethics and morality have no role to play. Nothing is to be read in, nothing is to be implied; one can only look fairly at the language used and nothing more and nothing less. (J. Srinivasa Rao v. Govt. A.P. 2006(13) SCALE 27 = 2006 (11) TMI 620 – SUPREME COURT OF INDIA, Raja Jagadambika Pratap Narain Singh v. C.B.D.T., (1975) 100 ITR 698 (SC))  SUPREME COURT.

(ix) It is settled law that by an interpretative process the legislative edict cannot be altered or re-written to bring out presumed intention.

(x) The expression, “intermediary services” had acquired definite connotation when the POPS Rules, 2012 were brought in to play, namely, the services differentiated from the “main services”. Since the term “intermediary services” is nomen juris, the GST Law when it uses it, then it must be understood in that sense only. (State of Madras v. Gannon Dunkerley & co. = 1958 (4) TMI 42 – SUPREME COURT OF INDIA)

12. In conclusion, it is respectfully submitted:

VI-PRAYER:

13. In the circumstances, the Applicant most respectfully prays:

3. CONTENTION – AS PER THE CONCERNED OFFICER

The submission, as reproduced verbatim, could be seen thus—

In a submission dated 27/06/2018, the registered dealer M/s. Micro Instruments has given elaborative submission before Maharashtra Authority for Advance Ruling.

I wish to submit few points before Authority in relation to submission by dealer.

A. Under heading “Question of Law”, the dealer has sought ruling from Authority that whether Transactions summarized in “Brief Facts” fall under Export of Services under Section 2(6), attracting Zero rated Tax under Section of IGST Act 2017.

Section 2(6) of IGST Act States

(6) “export of services” means the supply of any service when-

♦ As per Section 97(2) of CGST MGST Act 2017, The question on which the advance ruling is sought under this Act, shall be in respect of

Whether a transaction is Export of Services or not is dependent upon the fact as to whether Supply of Services is out of India or Not. Consequently, if the MAAR proceeds ahead with examination and consideration of this fact, discussion and finding on aspect of place of supply will be inevitable.

The Act limits AAR to decide issued earmarked for it under Section 97(2) of MGST/CGST Act. Therefore, where a question also involves examination of place of Supply (which is not amongst the issued which can be decided by AAR), the question cannot be taken by the authority for lack of jurisdiction.

(Ref. Decision by Haryana Authority for Advance Ruling HAR/HAAR/R/2018-19/6) = 2018 (7) TMI 1334 -AUTHORITY FOR ADVANCE RULINGS HARYANA.

♦ Secondly we may refer to submission by dealer under heading Rules of Interpretation (Page No-6, point No-ii) which argues about “consideration must yield to clear & express provisions of the law”. Also as per point No. vi and vii, dealer has quoted that – “legislature is presumed to have made no mistakes and legislature intends to say, what it has said.”

B. Without prejudice to above, I further submit that dealer’s contention to differentiate intermediary Service for Service and intermediary Services for goods is not correct. The dealer has pointed out dichotomy between goods and Services and has argued that Section 13(8) connotes to Specified Services for Services and not for goods. He has argued to differentiate between Intermediary Services and Services of intermediary.

It must be noted that the constitution (one hundred and first amendment) act, 2016 was passed by Parliament to merge taxation between for goods and Services. Also, the IGST Act categorically defines Nature, place, time and Zero rated supply. Section 13 of IGST Act expressly provides Place of Supply as per location of Suppliers, recipient and nature of Service.

It is an established principle of interpretation that in case of apparent conflict between two provisions, the Specific provision prevails over general provision. Section 13(8) is a specific provision, where place of Supply is decided as – “location of Supplier”.

Hence dealer’s application cannot be maintained under heading with question of law that whether said transaction is Export of Services or not. Dealer’s application may please be rejected.

In addition, the location of Supplier is in Mumbai. Thus, the type of supply should be Intra-state. Hence he is liable to pay CGST+SGST for supply Of Services as per section 13(8)(b).

4. HEARING

Preliminary hearing in the matter was held on 27.06.2018, when Sh. D. P. Bhave, Advocate along with Sh. Ajay Wadke, C.A. duly authorized appeared and requested for admission of application as per details in their application. Jurisdictional Officer Sh. Nitesh Bhandari, Asstt. Commr. of S.T. (D-906), Mumbai was present and stated that they would be making detailed submissions in due course.

The application was admitted and called for final hearing on 24.07.2018, Sh. D. P. Bhave, Advocate along with Sh. Ajay Wadke, C.A. appeared and made oral and written submissions. The Jurisdictional Officer, Sh. Rishikesh Wagh, Asstt. Commr. of S.T. (D-906), Mumbai appeared and stated that they would be making submissions immediately.

5. OBSERVATIONS

We have gone through the facts of the case, submissions made by the applicant and the documents on record. The applicant, Ms Vishaka Prashant Bhave, is the proprietor of the firm M/s. Micro Instruments (hereinafter referred to, as ‘MI’) and had made the subject application in her capacity as a proprietor.

Briefly stated, MI is providing services to its Principals at Germany, by way of procuring Purchase Orders (P. O.) from the parties in India who desire to purchase advanced type of Laboratory Equipment from their Principals. A floor price is fixed by the Principals for the said equipments and MI negotiates the terms of supply including fixation of price above such floor price, for which they receive commission in convertible foreign exchange”. After the negotiations are concluded, the prospective customer in India places the order directly on the Principals at Germany, arranges for remittance of purchase price arrived at and the material is directly supplied to them by the foreign Principals. The applicant has submitted that in most cases the P.O. states the name of MI and also mentions that the Indian Purchaser will be entitled to have some discounts to be provided by MI, which is thus provided by MI. Services with respect to the materials purchased are to be provided by the foreign Principals and not by MI. On the basis of the above said facts, the applicant has raised the main question as to whether the commission received by them as an “intermediary” in International/cross border transaction, for acting as a Broker or facilitator, in procuring from an Indian Customer/s purchase order/s (P.O.) for importing Laboratory Equipment from Germany, is liable to GST either under CGST/SGST Act, 2017 or the IGST Act, 2017?

In simple terms ‘intermediary’ can be explained as a firm or a person, etc. Who acts as a link between parties for the conduction of business, etc. We find from the question posed that the applicant is of the opinion that they are providing services as an intermediary. The facts also reveal likewise and therefore we first take up the definition of an intermediary as per GST laws.

The term ‘Intermediary’ is defined in Section 2(13) of IGST Act, 2017 as:- ‘intermediary’ means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account”

From the above definition we find that an intermediary can be a broker, an agent or any other person who arranges and facilitates the supply of goods and/or services between two or more persons and who cannot change the nature of supply as provided by the principal.

From the facts before us we find that MI is covered by the said definition of an intermediary because they are definitely acting as a broker and facilitating the process for sale of materials by their foreign principals to the Indian parties because they locate the customer, negotiate the prices and probably ensure the sale, they also provide for discounts to the said customers, out of the commissions received bythem, as mentioned in the PO. It is very clear from the facts of transaction that the applicant is neither providing services nor supplying the goods on their own account.

The applicant at point no. 5 of their submission have clearly stated that the services provided by them in the subject case would be termed as “taxable services” under the GST Regime, because they do some activity for which monetary consideration, that is, “Commission” amount is received by them, in this case, in freely convertible currency. We agree with this contention of the applicant that they are providing taxable services in the instant case.

Since the applicant, being the supplier of service is located in India and the recipient of Service i.e. supplier of goods is located outside India, Section 13 of the IGST Act, 2017 would be applicable to determine the place of service. As per Section 13 (8) (b) of the said Act, the place of supply of Intermediary Services shall be the location of the supplier of services, in this case, the applicant. Since the place of supply of services in the instant case is in taxable territory, the said intermediary services cannot be treated as export of services under the provisions of the GST laws.

In order to classify as ‘export of service’, as per section 2(6) of the Integrated Goods and Service Tax Act, 2017, one of the crucial condition as contained under sub-clause (iii) requires that the place of supply of service should be outside India. In the subject case, the place of supply shall be location of the supplier of services and therefore such ‘intermediary services’ cannot be classified as ‘export of services’.

Further, we find that their contentions that though they are covered under the definition of ‘intermediary’, the services being provided by them are not ‘Intermediary Services’ are not tenable for the reasons that they are very clearly covered under the definition of Intermediary’ and the services being provided by them are clearly the services as given in the definition of ‘Intermediary’, as referred in the discussion above.

We now discuss Inter-state provisions as well as Intra State provisions under the GST laws as follows:—

Inter State provisions are contained under section 7 of the Integrated Goods and Service Tax Act, 2017 and since none of the specific provisions are applicable, residuary provision contained under section 7 (5) (c) shall be made applicable in the case of intermediary service, which states that inter-state supply of goods or services or both in the taxable territory shall be treated to be a supply of goods or services or both in the course of inter-state trade or commerce, however, the same should not be an intrastate supply and should not be covered elsewhere in section 7 of the IGST Act.

Section 8 of the Integrated Goods and Service Tax Act, 2017 deals with the provisions of intra-state. Applying the provisions of section 8 (2) which states that ‘subject to the provisions of section 12, in case where the location of the supplier and the place of supply of services are in the same state or in the same union territory, the supply of service shall be treated as intra-state supply’.

The above provisions of inter-state supply and intra-state supply have clarity when both the recipient and the supplier of services are located in India. However as in the subject case, when the recipient is located outside India provisions of section 7(5)(c) shall be applicable. Section 7(5)(c) is reproduced as follows:—

Supply of goods or services or both-

shall be treated to be a supply of goods or services or both in the course of inter-State-trade or commerce.

As per intra-state provisions contained in Section 8(2), the said provisions are subject to the provisions of section 12 of the IGST Act. As per section 12, the provisions of section 12 would be applicable only for determining the place of supply of service where the location of supplier of services and the location of recipient of the services is in India. When recipient is located outside India the said provisions of section 12 cannot be made applicable and since provisions of section 8(2) are inter-linked with provisions of section 12, the same cannot be made applicable in case the recipient of service is located outside India.

Thus we find that in case the intermediary services are provided to the recipient located outside India, the inter-state provisions as contained under section 7(5) (c) shall be applicable and hence IGST is payable under such transaction.

6. In view of the extensive deliberations as held hereinabove, we pass an order as follows :

ORDER

(under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

NO.GST-ARA-23/2018-19/B-87

Mumbai, dt. 10/08/2018

For reasons as discussed in the body of the order, the questions are answered thus –

Question :- (i) Whether the “Commission” received by the Applicant in convertible Foreign Exchange for rendering services as an “Intermediary” between an exporter abroad receiving such services and an Indian importer Of an Equipment, is an “export of service” falling under section 2(6) & outside the purview of section

13 (8) (b), attracting zero-rated tax under section 16 (1) (a) of the Integrated Goods and Services Tax Act, 2017?

Answer:- Answered in the negative.

Question :- (ii) If the answer to the Q (i) is in the negative, whether the impugned supply of service forming an integral part of the cross-border sale/purchase of goods, will be treated as an “intra-state supply” under section 8 (1) of the IGST Act read with section 2(65) of the MGST Act attracting CGST/MGST? And, if so, at what rate?

Answer:- The said supply will be treated as Inter-State supply and not intra state supply and IGST will be levied @ 18%.

Other Post

Pay GST on printing the Bible under specific orders from foreign party as it not export : AARCoffee supplied to SEZ units is not Zero rated supply : KARNATAKA AAR