2018 (11) TMI 887 - AAR - GST

Authority rules applicant's testing services subject to IGST, not zero-rated supply under GST Act.

In Re: Behr-Hella Thermocontrol India Pvt. Ltd.,

The authority ruled that the testing services provided by the applicant are liable for Integrated Goods and Services Tax (IGST) and do not qualify as ... Levy of IGST - Zero-rated supply - testing services provided to its overseas group entities - place of supply - export of services or not - Held that:- In the subject case it is seen that the supplier of service is in India and the receiver of the service is outside India and therefore as per Section 7(5) of the IGST Act we find that the supply of service in this case shall be treated as a supply of service in the course of Inter-State trade. Applicability of provisions of Section 2(6) of the IGST Act - export of service - zero rated supply - Held that:- There is no doubt that the, supply of service in the present case satisfies clauses (i), (ii), (iv) and (v) of Section 2(6) of the IGST Act. However to qualify as an export all the conditions must be satisfied and therefore we now take upon ourselves to discuss whether the applicant also satisfies clause (iii) i.e. whether the place of supply in the subject case is outside India. We agree with the applicant that the “place of supply” is relevant to decide the taxability and the Status of taxability of the testing services provided by them to their overseas clients and would therefore require detailed examination. Section 13 of the IGST Act contains the provisions for determining the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India. As per Section 13(2) generally, the place of supply of services shall be the location of the recipient of services except in case of the services specified in sub-sections (3) to (13) of Section 13 of the IGST Act. In the subject case the prototypes are made physically available by the recipient of services (the overseas clients) to the supplier of services (the applicant). The applicant is providing testing services on physical product samples i.e. prototypes, made available to them in India by their overseas clients in respect of prototypes after due examination and testing of these prototypes. From a reading of the agreement it is very clear that the testing activities that are carried out include Functional tests, Electrical tests, Mechanical tests, Life cycle tests, Endurance tests, Illumination tests, Environmental tests, Software tests, Product robustness tests, etc. - The facts and situation in the present case clearly attract the provisions of Section 13 (3)(a) of the IGST Act and therefore it can be inferred that the said services of testing of the protypes, which are physically made available by the service receiver to the service provider, are provided in India and therefore liable to tax. In the present case it can safely be inferred from a reading of the provisions of Section 13(3) that the services supply of which has been rendered by the applicant to their overseas client as per the agreement is taxable under IGST Act. Applicant relied on the case of COMMISSIONER OF SERVICE TAX, MUMBAI-III VERSUS M/S. SGS INDIA PVT. LTD.[2014 (5) TMI 105 - BOMBAY HIGH COURT], but the facts in that case was entirely different - In that case the overseas clients of SGS used the services of SGS in inspection/ test analysis of the goods which the clients located abroad intended to import from India. The tests were conducted on sample goods and the said goods were not made physically available by their overseas client. In fact the overseas clients would import the goods only after the goods were tested by SGS and a report was sent to that effect. The import would occur only the reports sent were found to confirm that the goods imported complied with requisite specifications and standards, In the subject case the situation is different. Here the overseas client had made the goods physically available to the applicant in order to enable them to conduct the tests. If the goods were not made physically available to the applicants for testing purposes, the tests could not have been conducted and therefore no reports could be generated - thus, the facts of the SGA case are different from the facts of the subject matter. Ruling:- The testing services being provided by the applicant in the present case is liable to IGST and cannot be treated as zero rated supply. Issues Involved:1. Liability to pay Integrated Goods and Services Tax (IGST) on testing services provided to overseas group entities.2. Determination of whether the testing services qualify as 'zero-rated supply' under the GST Act.Issue-Wise Detailed Analysis:1. Liability to Pay IGST on Testing Services Provided to Overseas Group Entities:The applicant, a private limited company, provides testing services to its overseas group entities. The key question was whether these services are liable for IGST or qualify as zero-rated supply. The applicant argued that the place of supply for the testing services is outside India, thus qualifying as an export of services and zero-rated supply under Section 16 of the IGST Act.The applicant contended that the services provided are completed only when the test reports are delivered to the overseas entities, and thus, the place of supply should be considered outside India. They cited Section 13(2) of the IGST Act, which generally states that the place of supply of services is the location of the recipient of services unless specified otherwise in subsections (3) to (13) of Section 13.2. Determination of Whether the Testing Services Qualify as 'Zero-Rated Supply':The applicant's interpretation was that the services qualify as zero-rated supply under Section 16 of the IGST Act, which allows for the export of services without payment of IGST. They based their argument on the definition of 'export of services' under Section 2(6) of the IGST Act, which includes conditions such as the supplier being in India, the recipient being outside India, the place of supply being outside India, payment in convertible foreign exchange, and the supplier and recipient not being merely establishments of a distinct person.The applicant also referenced Section 13(3)(a) of the IGST Act, which states that the place of supply for services related to goods made physically available by the recipient to the supplier is the location where the services are actually performed. They argued that since the ultimate deliverable is the test report, the place of supply should be outside India.Observations and Judgment:The authority examined whether the supply of services by the applicant qualifies as export of services under Section 2(6) of the IGST Act. They agreed that the applicant satisfies clauses (i), (ii), (iv), and (v) of Section 2(6). However, they focused on clause (iii) to determine if the place of supply is outside India.The authority referred to Section 13(3)(a) of the IGST Act, which specifies that the place of supply for services related to goods physically made available by the recipient is the location where the services are performed. Since the prototypes are physically made available to the applicant in India, the services are performed in India, making the place of supply India.The authority concluded that the services provided by the applicant do not qualify as zero-rated supply and are liable for IGST. They distinguished the present case from the SGS India case cited by the applicant, noting that in SGS India, the goods were not physically made available by the overseas clients, unlike in the present case.Order:The authority ruled that the testing services provided by the applicant are liable for IGST and do not qualify as zero-rated supply. The place of supply for the services is in India, as the services are performed on goods physically made available in India.