2021 (3) TMI 1344 - AAAR - GST

Training services to apprentices classified as composite supply under Section 2(30) CGST Act, place of supply in India disqualifies zero-rated export treatment.

The AAAR held that the appellant's multiple activities including construction and training services constituted a composite supply under Section 2(30) of ... Composite supply - principal supply - place of supply - performance-based services - place of supply - services supplied to individuals representing recipient - export of services - conditions under Section 2(6) of the IGST Act - classification under SAC 999294 - Other education and training services nowhere else classified - classification under SAC 999792 - Agreeing to do an act (rejected)Composite supply - principal supply - classification under SAC 999294 - Other education and training services nowhere else classified - classification under SAC 999792 - Agreeing to do an act (rejected) - Classification of the gamut of activities undertaken by the appellant - HELD THAT: - The activities undertaken by the appellant (construction of training centre, implementation of training measures, on job vocational training, qualification of graduates and suppliers, and ancillary tasks) form a bundle of naturally bundled supplies with a dominant element. Those activities are a composite supply where the principal supply is training services provided to candidates. Consequently, the composite supply is classifiable under the more specific SAC 999294 ('Other education and training services nowhere else classified') rather than SAC 999792 ('Agreeing to do an act') as held by the MAAR. [Paras 10, 11, 12, 13, 14]The entire gamut of activities is a composite supply whose principal supply is training services and is classifiable under SAC 999294.Place of supply - performance-based services - place of supply - services supplied to individuals representing recipient - Section 13(3)(b) of the IGST Act - Determination of the place of supply of the impugned services - HELD THAT: - Having characterized the principal supply as training services, those services are performance based services supplied to individuals (apprentices, students, unskilled workers) who act on behalf of the recipient (the foreign principal) and whose physical presence is required for the supply. Therefore Section 13(3)(b) applies and the place of supply is the location where the services are actually performed. As the training is performed at the appellant's premises in India, the place of supply is in India. [Paras 10, 11, 12, 16]The place of supply of the impugned training services is in India under Section 13(3)(b).Export of services - conditions under Section 2(6) of the IGST Act - zero-rated supply - Whether the impugned services qualify as export of services / zero-rated supply - HELD THAT: - Export of services requires satisfaction of all conditions in Section 2(6), including that the place of supply is outside India. Since the place of supply has been held to be in India under Section 13(3)(b), the condition that the place of supply be outside India (clause (iii) of Section 2(6)) is not met. Accordingly the supply does not qualify as export of services and is not zero rated. [Paras 16, 17, 19]The supply does not qualify as export of services and is not zero rated because the place of supply is in India.Final Conclusion: The MAAR ruling is modified: the appellant's activities constitute a composite supply with training as the principal supply and are classifiable under SAC 999294; the place of supply is in India under Section 13(3)(b); therefore the services do not qualify as export of services under Section 2(6) and are not zero rated. The appeal is dismissed as not maintainable. Issues Involved:1. Classification of services provided by the Appellant.2. Determination of whether the services qualify as 'export of services' and 'zero-rated supply' under the IGST Act, 2017.3. Determination of the place of supply of services.Issue-wise Detailed Analysis:1. Classification of Services Provided by the Appellant:The Appellant is engaged in various activities, including the construction of a training center and providing training to apprentices, unskilled workers, and students. The Maharashtra Authority for Advance Ruling (MAAR) initially classified these activities under SAC 999792 ('Agreeing to do an act'). However, upon appeal, it was determined that the activities constitute a 'composite supply' with the principal supply being training services. Thus, the appropriate classification is under SAC 999294 ('Other education and training services nowhere else classified').2. Determination of Whether the Services Qualify as 'Export of Services' and 'Zero-Rated Supply':The Appellant contended that their services should be considered as 'export of services' and thus qualify as 'zero-rated supply' under Section 16(1) of the IGST Act, 2017. However, for services to qualify as 'export of services' under Section 2(6) of the IGST Act, 2017, five conditions must be met, including that the place of supply should be outside India. Since the place of supply for the Appellant's services was determined to be in India, the services do not meet the criteria for 'export of services' and cannot be considered 'zero-rated supply'.3. Determination of the Place of Supply of Services:The Appellant argued that the place of supply should be determined under Section 13(2) of the IGST Act, 2017, which prescribes the place of supply as the location of the recipient (Prettl GmbH, located outside India). However, the services provided by the Appellant were deemed to be performance-based services requiring the physical presence of the trainees (apprentices, unskilled workers, students) in India. Therefore, the place of supply was determined to be in India under Section 13(3)(b) of the IGST Act, 2017.Conclusion:The Appellate Authority modified the MAAR's ruling, classifying the services under SAC 999294 and determining that the place of supply is in India. Consequently, the services do not qualify as 'export of services' or 'zero-rated supply'. The appeal filed by the Appellant was dismissed.