2019 (6) TMI 719 - AAR - GST

Fund manager must pay GST on advisory fees from domestic and overseas contributors under Section 12 IGST Act

In Re: M/s. Multiples Alternate Asset Management Pvt. Ltd.

AAR Maharashtra ruled that GST is leviable on advisory management fees received by fund manager from both domestic and overseas contributors. For domestic ... Levy of GST - Advisory & Management Fees received in Indian Currency from Domestic Contributors located in India - HELD THAT:- The advisory and management fees received by the applicant are for financial services rendered to the AIF - Since the location of both, the applicant and the ALF are in India, the place of Supply is to be determined by applying Sec 12 of the IGST Act, 2017 - It is very clear that both, the applicant and the AIF are in taxable territory and the services rendered by the applicant to the AIF are taxable and therefore GST is payable, by application of the provisions of Section 12(12) of the IGST Act, 2017 - GST is thus leviable on the above transaction. Levy of GST - Advisory & Management Fees received in Foreign Currency from Overseas Contributors located outside India - HELD THAT:- The Advisory and management Services are provided to the AIF, which is a separate legal entity which makes investment decisions on the advice of the applicant and therefore sub-section 12 of Section 12 of IGST Act, 2017 will apply in this case also as both supplier and the recipient of service are located in India. For the same reason, we do not agree with the applicant’s contention that the transaction with foreign investors should be determined in terms of Section 13 of the IGST Act, 2017 because the recipient of service i.e. AIF is not located outside India and the applicant are not providing any services to the Overseas Contributors. The transaction also do not qualify to be an export of service as the condition specified in sub-clause (ii) of Sub-section (6) of Section 2 of IGST Act, 2017 that recipient of service should be outside India, is not satisfied, and therefore it is not a zero rated supply - GST is thus leviable on the above transaction. Issues Involved:1. Applicability of GST on Advisory & Management Fees received in Indian Currency from Domestic Contributors located in India.2. Applicability of GST on Advisory & Management Fees received in Foreign Currency from Overseas Contributors located outside India.Issue-wise Detailed Analysis:1. Applicability of GST on Advisory & Management Fees received in Indian Currency from Domestic Contributors located in India:The applicant, an investment advisory firm, sought clarity on whether GST is applicable on the fees received from domestic contributors. The judgment clarified that the services provided by the applicant fall under the definition of 'Supply' as per Section 7 of the CGST Act, 2017. These services are classified under Heading 997153 as per Notification 11/2017-CGST (Rate) dated 28th June 2017, attracting a GST rate of 18%.The judgment emphasized that both the applicant and the Alternative Investment Fund (AIF) are located in India. Therefore, the place of supply is determined by Section 12 of the IGST Act, 2017. Specifically, Section 12(12) of the IGST Act, which pertains to banking and other financial services, applies here. Since both the supplier (applicant) and the recipient (AIF) are in India, GST is applicable on the fees received from domestic contributors.2. Applicability of GST on Advisory & Management Fees received in Foreign Currency from Overseas Contributors located outside India:The applicant contended that the fees received from overseas contributors should be treated as an export of services and thus be zero-rated. However, the judgment clarified that the services are provided to the AIF, which is a separate legal entity located in India. The AIF makes investment decisions based on the applicant’s advice. Hence, Section 12(12) of the IGST Act, 2017, which deals with financial services, applies here as well.The judgment further stated that the transaction does not qualify as an export of services because the recipient of the service (AIF) is not located outside India. Therefore, the condition specified in sub-clause (ii) of Sub-section (6) of Section 2 of the IGST Act, 2017, which requires the recipient to be outside India, is not satisfied. Consequently, the services are not zero-rated, and GST is applicable on the fees received in foreign currency from overseas contributors.The judgment also dismissed the concerned officer’s submission that the applicant should be treated as a financial institution under Section 13(8)(a) of the IGST Act, 2017, as the funds are received directly by the AIF, not the applicant.Order:1. GST is applicable on the Advisory & Management Fees received in Indian Currency from Domestic Contributors located in India.2. GST is applicable on the Advisory & Management Fees received in Foreign Currency from Overseas Contributors located outside India.