2019 (4) TMI 1543 - AAAR - GST

AAAR rejects intermediary services claim for back office support, confirms taxable classification under Section 2(13) IGST Act 2017

The AAAR upheld the AAR decision regarding classification of back office administrative and accounting support services. The appellant argued their ... Intermediary - composite supply - place of supply - zero rated supply - person who supplies on his own account (exclusion to intermediary) - noscitur a sociis - ejusdem generis - principal supplyIntermediary - person who supplies on his own account (exclusion to intermediary) - place of supply - Whether the services rendered by the appellant amount to intermediary services as defined in Section 2(13) and thereby attract place of supply rules (making them not zero-rated). - HELD THAT: - The Authority examined the contractual scope of services (Article 2) and found that beyond routine back office and accounting tasks the appellant performed activities that directly facilitated the supply of goods between the overseas client and its suppliers/customers (e.g., sending sales contracts/proforma invoices, sending purchase orders, liaising for cargo readiness and inspections, arranging carrier nomination, following up for shipping documents and bills of lading, arranging inspection certificates, notifying ETA). Those activities are essential to effecting the supply of goods between two other persons and the goods remain owned by the client or the client's supplier. The remuneration structure (per transaction basis with a minimum monthly amount) further indicates that consideration was tied to transactions handled. Applying the threefold test in the statutory definition-(i) arranging or facilitating supply, (ii) supply between two or more persons, and (iii) not supplying on own account-the Authority concluded that all criteria are satisfied and the appellant is acting as an intermediary. The appellant's contention that certain legal interpretive rules (noscitur a sociis, ejusdem generis) or the appellant's characterization as supplying on its own account alter this conclusion was rejected on the facts and the contractual scope before the Authority. The Authority therefore upheld the AAR's conclusion that the services are intermediary services and subject to place of supply rules, so they cannot be treated as zero rated supplies. [Paras 34, 35, 36, 37, 44]The services are intermediary services within the meaning of Section 2(13) and accordingly the place of supply rules apply; they are not zero-rated supplies.Composite supply - principal supply - Whether the gamut of services supplied as a package by the appellant constitutes a composite supply and, if so, which is the principal supply. - HELD THAT: - The Authority addressed whether the bundle of services (back office administration, accounting, and the facilitation/liaison activities) are 'naturally bundled' in the ordinary course of business using indicia from the Service Tax education guide and CBIC flyer: perception of the recipient, prevalent industry practice, existence of a principal service with ancillary/incidental services, and single pricing for the package. The appellant itself had pleaded that the services are offered as a single package and that the industry follows similar bundling, and received lump sum consideration. Applying these criteria, the Authority found that the predominant element of the bundle is the intermediary service (facilitating the supply of goods) while back office and accounting tasks are ancillary or incidental. Consequently the bundle qualifies as a composite supply and the intermediary service is the principal supply for taxation purposes. [Paras 39, 40, 41, 42, 43]The services as supplied in a package constitute a composite supply, with the intermediary service being the principal supply.Final Conclusion: The appeal is dismissed; the AAR ruling is upheld - the appellant's services are intermediary services and, supplied as a composite package with intermediary as the principal supply, are not zero rated. Issues Involved:1. Whether the services provided by the Appellant qualify as 'intermediary services' under Section 2(13) of the IGST Act, 2017.2. Whether the supply of these services in a package can be construed as composite supply.Issue-wise Detailed Analysis:1. Whether the services provided by the Appellant qualify as 'intermediary services' under Section 2(13) of the IGST Act, 2017:The Appellant, an Indian company, provides back office support services to an overseas client. The core issue is whether these services qualify as 'intermediary services' as defined under Section 2(13) of the IGST Act, 2017. The definition of 'intermediary' includes a broker, agent, or any person facilitating the supply of goods or services between two or more persons but excludes those supplying goods or services on their own account.The Appellant's agreement with the client involves coordinating with buyers, sellers, and other necessary parties for executing purchase and sale contracts, maintaining accounting, and other related activities. Specific tasks include generating orders, liaising with suppliers and inspection authorities, processing payment requests, and arranging shipping and inspection certificates.The Appellate Authority found that these services go beyond back office support and facilitate the supply of goods between the client and its suppliers or customers. The Appellant's role in sending sales contracts, liaising for cargo readiness, and other logistical tasks indicates facilitation of supply, thus meeting the criteria for 'intermediary services.' The remuneration based on the number of transactions handled further supports this classification. The Appellant does not supply goods on its own account, satisfying all criteria for intermediary services.2. Whether the supply of these services in a package can be construed as composite supply:The Appellant argued that the services provided are naturally bundled and should be considered as composite supply. The term 'composite supply' refers to a supply made by a taxable person consisting of two or more taxable supplies naturally bundled and supplied in conjunction with each other in the ordinary course of business.The Appellate Authority referred to the Taxation of Services: An Education Guide and GST flyers, which suggest that services perceived by the recipient as a single package and offered as such by the industry can be considered naturally bundled. The Appellant's services include back office support, accounting, and liaising with respect to delivery, transportation, and payment settlement. These services are provided as a single package against a lump sum amount.The Authority concluded that the principal supply among these services is intermediary services, with other services being ancillary or incidental. Therefore, the entire gamut of services provided by the Appellant qualifies as composite supply, with intermediary services as the principal supply.Conclusion:The Appellate Authority upheld the ruling of the Advance Ruling Authority, confirming that the services provided by the Appellant qualify as intermediary services and the supply of these services in a package constitutes composite supply with intermediary services as the principal supply. The appeal was dismissed, and the ruling of the AAR was affirmed.