2018 (12) TMI 227 - AAR - GST

Commission for Intermediary Services Not Considered 'Export' under IGST Act

The commission received by M/s. Micro Instruments for intermediary services was not classified as an 'export of services' under the IGST Act, 2017, and ... Export of services - place of supply - intermediary services - intermediary - zero-rated supply - inter state supply - intra state supply - IGST v. CGST+SGSTExport of services - place of supply - intermediary services - intermediary - Whether the commission received by the applicant as an intermediary in the described cross border transactions qualifies as an 'export of services' and falls outside the scope of section 13(8)(b) of the IGST Act so as to attract zero rated treatment. - HELD THAT: - The authority found that the applicant's activities fall squarely within the statutory definition of an 'intermediary' because the applicant arranges or facilitates the supply of goods between the foreign principals and Indian purchasers and does not supply the goods or services on its own account. Section 13(8)(b) provides that the place of supply of 'intermediary services' is the location of the supplier. Since the supplier (the applicant) is located in India, the place of supply is in the taxable territory, and therefore the condition in the statutory definition of 'export of services' requiring the place of supply to be outside India is not fulfilled. The authority rejected the applicant's argument that the phrase 'intermediary services' was restricted to intermediaries of services only, holding that the facts establish provision of intermediary services as defined and that such services are not export of services for the purposes of section 2(6) and so do not qualify as zero rated under section 16.Answered in the negative: the commission received by the applicant as an intermediary is not an 'export of services' and does not attract zero rated treatment under section 16.Inter state supply - intra state supply - IGST v. CGST+SGST - place of supply - If not an export of services, whether the impugned supply is an intra state supply attracting CGST and SGST or an inter state supply attracting IGST, and the applicable rate. - HELD THAT: - Having held that the place of supply of the intermediary services is the supplier's location in India, the authority examined the nature of supply under the IGST Act. It concluded that the transaction does not qualify as an intra state supply under section 8 read with section 12, because the recipient is located outside India and the specific inter state provisions of section 7(5) apply. Accordingly, the supply is an inter state supply under the IGST Act and not an intra state supply. The authority therefore held that IGST is leviable on the service and applied the residuary classification resulting in an 18% tax rate.The supply is an inter state supply and IGST is leviable at 18%.Final Conclusion: The Authority ruled that the applicant's commission as an intermediary does not qualify as an 'export of services' because the place of supply under section 13(8)(b) is the supplier's location in India; consequently the services are not zero rated and are to be treated as inter state supplies subject to IGST at 18%. Issues Involved:1. Whether the 'Commission' received by the Applicant in convertible Foreign Exchange for rendering services as an 'Intermediary' between an exporter abroad and an Indian importer is an 'export of service' under section 2(6) of the IGST Act, 2017, attracting zero-rated tax under section 16(1)(a) of the IGST Act, 2017.2. If the answer to the first question is negative, whether the impugned supply of service will be treated as an 'intra-state supply' under section 8(1) of the IGST Act, 2017, attracting CGST/MGST, and if so, at what rate.Detailed Analysis:Issue 1: Export of ServiceThe applicant, M/s. Micro Instruments (MI), provides services to its German principals by procuring Purchase Orders (P.O.) from Indian customers for advanced Laboratory Equipment. The applicant receives commission in convertible foreign exchange for these intermediary services.The applicant contends that the commission received should be classified as 'export of service' under section 2(6) of the IGST Act, 2017, which would qualify for zero-rated tax under section 16(1)(a) of the same Act.Section 2(6) of the IGST Act defines 'export of services' as the supply of any service when:- 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.- The payment for such service has been received in convertible foreign exchange.- The supplier and recipient are not merely establishments of a distinct person.However, as per section 13(8)(b) of the IGST Act, the place of supply for 'intermediary services' is the location of the supplier of services, which in this case is India. Therefore, the commission received by MI cannot be classified as 'export of services' since the place of supply is not outside India.Conclusion: The commission received by MI does not qualify as 'export of services' under section 2(6) of the IGST Act, 2017, and therefore, does not attract zero-rated tax under section 16(1)(a).Issue 2: Intra-State SupplyGiven the negative response to the first issue, the next question is whether the supply of service by MI is an 'intra-state supply' under section 8(1) of the IGST Act, 2017.Section 13(8)(b) of the IGST Act specifies that the place of supply for intermediary services is the location of the supplier, which is in India. Therefore, the supply of services by MI, being located in India, does not qualify as an intra-state supply but as an inter-state supply.Section 7(5)(c) of the IGST Act states that supply of goods or services in the taxable territory, not being an intra-state supply and not covered elsewhere in this section, shall be treated as inter-state supply.Conclusion: The supply of services by MI is treated as an inter-state supply and not an intra-state supply. Consequently, IGST is applicable at the rate of 18%.Order:1. The commission received by the applicant for intermediary services is not considered as 'export of services' under section 2(6) of the IGST Act, 2017.2. The supply of services by the applicant is treated as an inter-state supply, attracting IGST at the rate of 18%.