2018 (11) TMI 959 - AAR - GST

Back office support services to overseas clients don't qualify as zero-rated export under section 16 IGST Act when provider acts as intermediary

The AAR Maharashtra ruled that the applicant's back office support services to overseas clients do not qualify as zero-rated supply under section 16 of ... Zero rated supply - Export of services - Place of supply - Intermediary - Composite supply - Establishments of distinct personsZero rated supply - Export of services - Place of supply - Intermediary - Services proposed to be rendered by the applicant do not qualify as 'export of services' and hence are not a 'zero rated supply'. - HELD THAT: - The Authority examined the service agreement, invoices and other records and concluded that the applicant's activities - coordinating buyers and sellers, processing orders in client's software, liaising with forwarders/inspectors, raising payment requests and related back-office functions - amount to arranging or facilitating supplies between the overseas client and its customers. On the basis of these contractual obligations and the nature of services, the applicant falls within the definition of an intermediary. For intermediary services the place of supply is the location of the supplier (the applicant's Mumbai establishment). Since the place of supply is therefore in India, the condition that the place of supply be outside India for export of services is not satisfied. The Authority also noted that payment in convertible foreign exchange was not shown to have been received. Because not all ingredients of the statutory definition of export of services were concurrently satisfied, the services cannot be treated as zero rated supply under section 16 of the IGST Act.Answered in the negative - the services do not qualify as export of services/zero rated supply.Establishments of distinct persons - The question whether the supplier and recipient are merely establishments of a distinct person (the statutory 'distinct person' test) was not finally determined and requires further factual verification. - HELD THAT: - The Authority observed that the statutory test whether supplier and recipient are 'establishments of distinct persons' (which would affect the export fiction) involves detailed factual inquiry into corporate relationships, group structure and operations (for example, whether the foreign client operates in India through an establishment/branch or related Indian entity). The Authority expressly refrained from adjudicating this condition (clause (v) of the definition of export of services), indicating that it would require more specific and detailed examination and verification by the concerned officer to establish the correct factual position.Left to be verified and determined on factual investigation whether the supplier and recipient are establishments of distinct persons.Final Conclusion: On the facts and documents before it the Authority ruled that the services proposed to be provided by the applicant are intermediary/back office services with place of supply in India and therefore do not qualify as export of services or as zero rated supply; the issue whether the supplier and recipient are establishments of distinct persons was not finally determined and requires further factual verification. Issues Involved:1. Whether the services proposed to be rendered by the applicant qualify as 'Zero Rated Supply' under Section 16 of the Integrated Goods and Services Tax Act, 2017.2. Whether the applicant is considered an 'intermediary' under the IGST Act.3. Determination of the place of supply of services.Detailed Analysis:1. Whether the services proposed to be rendered by the applicant qualify as 'Zero Rated Supply' under Section 16 of the Integrated Goods and Services Tax Act, 2017:The applicant, Vservglobal Private Limited, sought an advance ruling to determine if their back-office support services qualify as 'Zero Rated Supply' under Section 16 of the IGST Act, 2017. The applicant contended that their services satisfy all conditions for 'Export of Services' as defined in Section 2(6) of the IGST Act, which includes:- The supplier of service is located in India.- The recipient of service is located outside India.- The place of supply of service is outside India.- Payment for such service is received in convertible foreign exchange.- The supplier and recipient are not merely establishments of a distinct person.2. Whether the applicant is considered an 'intermediary' under the IGST Act:The applicant argued that they are not intermediaries but provide services on a principal-to-principal basis. They referenced the definition of 'intermediary' under Section 2(13) of the IGST Act, which excludes persons supplying goods or services on their own account. The applicant cited the case of GoDaddy India Web Services Pvt Ltd, where similar services were ruled not to be intermediary services.3. Determination of the place of supply of services:The jurisdictional officer argued that the application is not maintainable as it pertains to 'place of supply,' which is not covered under the questions that can be sought for advance ruling as per Section 97(2) of the CGST Act. The officer further contended that the services provided by the applicant are not 'export of services' as the place of supply is within India, given that the recipient's fixed establishment is in India.Observations and Ruling:The Authority for Advance Ruling (AAR) examined the service agreement and concluded that the applicant facilitates the supply of goods or services between the client and its customers, thus falling under the definition of 'intermediary' as per Section 2(13) of the IGST Act. Consequently, the place of supply for intermediary services is the location of the supplier, which is in India, as per Section 13(8) of the IGST Act.Since the place of supply is in India, the services do not qualify as 'export of services' under Section 2(6) of the IGST Act. Therefore, the services cannot be considered 'Zero Rated Supply' under Section 16 of the IGST Act.Order:The AAR ruled that the services proposed to be rendered by the applicant do not qualify as 'Zero Rated Supply' in terms of Section 16 of the IGST Act, 2017. The application was answered in the negative.