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

AAR Maharashtra ruled that GST is leviable on advisory management fees received by fund manager from both domestic and overseas contributors. For domestic contributors paying in Indian currency, GST applies under Section 12 IGST Act as both supplier and recipient (AIF) are in India. For overseas contributors paying in foreign currency, GST still applies under Section 12(12) since services are provided to AIF located in India, not directly to overseas contributors. The transaction doesn't qualify as export of services as recipient AIF is in India, failing zero-rated supply conditions.

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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.

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