2018 (7) TMI 1182 - AAR - GST

Marine Consultancy Services to foreign ship owners are not composite supply as services can be obtained separately from different providers

In Re : Five Star Shipping

AAR Maharashtra ruled that Marine Consultancy Services provided to foreign ship owners do not constitute composite supply as services can be obtained ... Composite supply - Marine Consultancy Service (MCS) provided to foreign ship owners - principal supply of consultancy service - place of supply of services - Intermediary services. Whether MCS provided to foreign ship owners constitutes “composite supply” with the principal supply of consultancy service? - Held that:- Even if the applicant is called on to do all of the services, the same would still not amount to a composite supply as the foreign ship-owner’s natural course of business as understood from the agreement reveals that the services may or may not be assigned to the applicant or could be got done from outside, too. Thus when part of the services are performed by the applicant and the remaining by others, each has equal importance in terms of delivery thereof - The perception of the service receiver which is the foreign ship-owner in the instant case that the services need not be bundled and could be got performed from different service providers or from his own staff, too. We see that the flyer on ‘composite supply and mixed supply’ has made a very clear observation that the illustrative indicators are not determinative but indicative of bundling of services in ordinary course of business. Hence, when the foreign ship-owner himself perceives the situation as being so, we need not even look at how the other players in the field, view the services to be. The requirement of ‘principal supply’ would, therefore, not be met in the facts of the instant case - the provision of services under the impugned agreement would not be a composite supply under the GST Act. Where services are provided to foreign ship owners distinctively as supply of consultancy service and support service with separate and demarcated fees for their consultancy service and for support service: (a) Whether consultancy service will qualify as business consultancy service in terms of the scheme of classification of services (Annexure to Notification 11/ 2017 Central Tax (Rate), dated 28th June, 2017? - Held that:- The business consultancy services of sr. no.299 are covered under the Group “Management consulting and management services” - A general understanding of the term ‘Management Consultancy’ is that it is the practice of keeping organizations to improve their performance, operating primarily through the analysis of existing organizational problems and the development of plans for improvement. As a result of their exposure to and relationships with numerous organizations, consulting firms are typically aware of Industry Best practices - In the present case, it is very apparent that the consultancy services being provided by the applicant are not in the nature of guiding the ship owning company in the management of the ship owning company but are only in the nature of consultancy in respect of opportunities of marine transportation business - The applicant would have to identify the category as per the services delivered in terms of Annexure about Scheme of Classification of Services. Thus the classification of their service will depend on the exact nature of service/services they would provide in specific case. Where services are provided to foreign ship owners distinctively as supply of consultancy service and support service with separate and demarcated fees for their consultancy service and for support service: (b) Whether support service qualifies as “intermediary service” in terms of Section 2(13) of the IGST Act? - Held that:- From the very nature of support services that are being provided by the applicant, as visible from the terms of agreements as referred above and submitted to this authority, it is clear that the support services being provided by them would be ‘intermediary services’ and the applicant would be covered in the definition of an intermediary in terms of Section 2(13) of the IGST Act, 2017 - The support service qualifies as “intermediary service” in terms of Section 2(13) of the IGST Act. Ruling:- MCS provided to foreign ship owners do not constitute “composite supply” with the principal supply of consultancy service. The consultancy service will not qualify as business consultancy service in terms of the scheme of classification of services [Annexure to Notification 11/ 2017 – Central Tax (Rate), dated 28th June, 2017. The support service qualifies as “intermediary service” in terms of Section 2(13) of the IGST Act. Issues Involved:1. Whether Marine Consultancy Service (MCS) provided to foreign ship owners constitutes a 'composite supply' with the principal supply of consultancy service.2. Whether the place of supply of MCS (as a composite supply) will be determined in terms of Section 13(2)(a) of the IGST Act, i.e., the 'location of recipient of service.'3. Whether consultancy service will qualify as business consultancy service in terms of the scheme of classification of services.4. Whether support service qualifies as 'intermediary service' in terms of Section 2(13) of the IGST Act.5. If ruled that the support service qualifies as an intermediary service, whether the place of supply of support service as intermediary service will be the 'location of supplier of service' in terms of Section 13(8)(b) of the IGST Act.Detailed Analysis:Issue 1: Composite Supply of Marine Consultancy Service (MCS)The applicant argued that MCS, consisting of consultancy and support services, should be treated as a composite supply with consultancy service as the principal supply. The Authority examined the agreement and found that the services provided by the applicant could be performed by other consultants or the foreign ship-owner's staff, indicating that these services are not naturally bundled. The Authority concluded that since the services can be provided in isolation and the foreign ship-owner does not necessarily need to avail all services from the applicant, the supply does not meet the criteria for a composite supply. Therefore, the answer to whether MCS constitutes a composite supply is negative.Issue 2: Place of Supply for Composite SupplySince the Authority concluded that MCS does not constitute a composite supply, the question of determining the place of supply for MCS as a composite supply under Section 13(2)(a) of the IGST Act becomes irrelevant and was not considered for decision.Issue 3: Classification of Consultancy ServiceThe applicant sought to classify consultancy services under business consultancy services per the scheme of classification of services. The Authority referred to the Annexure to Notification 11/2017 - Central Tax (Rate) and observed that the consultancy services provided by the applicant are not in the nature of guiding the ship-owning company in management but are related to marine transportation opportunities. Therefore, these services are more appropriately classified under support services in transport or other professional, technical, and business services, depending on the exact nature of the service provided. Thus, the consultancy service does not qualify as business consultancy service.Issue 4: Classification of Support Service as Intermediary ServiceThe Authority examined whether support services qualify as intermediary services under Section 2(13) of the IGST Act. The definition of intermediary includes a broker or agent who arranges or facilitates the supply of goods or services between two or more persons but does not supply such services on their own account. The Authority found that the support services provided by the applicant, such as monitoring voyage execution and arranging for accounts reconciliation, inherently involve interaction and coordination with ship charterers on behalf of the ship owners. Therefore, these support services qualify as intermediary services.Issue 5: Place of Supply for Intermediary ServicesSince the support services qualify as intermediary services, the place of supply for these services is determined under Section 13(8)(b) of the IGST Act, which states that the place of supply for intermediary services is the location of the supplier of services. Consequently, the place of supply for the support services provided by the applicant will be the location of the applicant in India, making the transaction subject to GST.Conclusion:1. Marine Consultancy Service (MCS) provided to foreign ship owners does not constitute a 'composite supply' with the principal supply of consultancy service.2. The question of determining the place of supply for MCS as a composite supply was not considered.3. Consultancy service does not qualify as business consultancy service under the scheme of classification of services.4. Support service qualifies as 'intermediary service' in terms of Section 2(13) of the IGST Act.5. The place of supply for intermediary services is the location of the supplier of services, making the support services provided by the applicant subject to GST.