2019 (7) TMI 43 - AAR - GST

Foreign client services with goods physically available in India qualify as intra-state supply under Section 13(3)(a) IGST Act

In Re: M/s. Bilcare Ltd.

AAR Maharashtra ruled that services provided to foreign clients where goods are physically made available by the recipient to the service provider in ... Liability to pay tax under IGST Act or CGST and SGST? - Nature of supply - interstate or intra-state supply? - services provided to foreign clients i.e. situated outside India and for which the place of supply is in the taxable territory - Place of provision of services - HELD THAT:- Though the location of the recipient is outside India, the services supplied are in respect of goods which are made physically available by the recipient of the services to the supplier of the services for the services to be performed. Thus the provisions of sub-section (3)(a) of Section 13 of IGST Act, 2017 are squarely applicable for the supply in the instant case - Since the ‘place of supply’ is in taxable territory it is clear that the provisions of Section 2(6) of the IGST Act are not fulfilled in this case and therefore their supply cannot be considered as Export of Services as per the GST Law. Since the ‘place of supply’ and the ‘service provider’ are in the same State, CGST and SGST are payable for this transaction. In case it is ruled that IGST is payable, the procedure to be followed for payment of IGST as the GST portal does not permit the payment of IGST where the place of supply is indicated as state of Maharashtra? - HELD THAT:- This question is not answerable as IGST is not applicable. ISSUES PRESENTED AND CONSIDERED 1. Whether services supplied by a supplier located in India to recipients located outside India, but for which the place of supply is determined to be in the taxable territory under Section 13(3)(a) of the IGST Act, are subject to IGST or to CGST and SGST. 2. If IGST is held payable, the administrative procedure to discharge IGST where the GST portal does not permit payment of IGST when the place of supply is shown as a particular State (Maharashtra) on the portal. ISSUE-WISE DETAILED ANALYSIS Issue 1: Taxability - IGST v. CGST & SGST where place of supply is in India though recipient is abroad Legal framework: The distinguishing provisions considered are Section 5(1) of the IGST Act (levy of IGST on inter-State supplies), Sections 7 and 8 of the IGST Act (determination of inter-State or intra-State nature of supply), Section 13 of the IGST Act (place of supply where supplier or recipient is outside India), and Section 2(6) definition and conditions for export of services under the IGST Act/Central GST framework; together with corresponding provisions under CGST and SGST Acts governing intra-State levy. Precedent treatment: No binding judicial precedents are applied or overruled in the order; textual and doctrinal authorities (dictionary/explanatory sources) are cited by the applicant concerning phraseology ('subject to the provisions of Section 12') but are not treated as altering statutory operation. Interpretation and reasoning: The Tribunal applies Section 13(3)(a) to hold that where services are supplied in respect of goods that the recipient must make physically available to the supplier (or person acting on supplier's behalf), the place of supply is the location where the services are actually performed. In the facts, goods (investigational products) were physically available in India and services (storage, distribution, packaging, related activities) were performed in India; hence place of supply is in taxable territory despite recipient being located abroad. Having established that the place of supply and supplier are in the same State, Section 8(2) (treating supply as intra-State where supplier and place of supply are in same State) applies to characterize the supply as intra-State. The order also considers Section 7(5)(c) (supply in taxable territory not being intra-State supply treated as inter-State) as contended by the applicant, but finds that Section 8(2) governs because supplier and place of supply coincide within the State. The consequence drawn is that such supplies do not satisfy the statutory criteria for export of services (Section 2(6) read with relevant IGST provisions), and therefore are not eligible for IGST treatment; instead CGST and SGST are payable. Ratio vs. Obiter: The holding that services described (storage, distribution, packaging where goods are physically present in India) have place of supply in India under Section 13(3)(a) and consequently attract CGST and SGST (intra-State levy) is the ratio decidendi. Observations on alternative statutory readings advanced by the applicant (relying on Section 7(5)(c) to treat such supplies as inter-State) and on dictionary meanings of 'subject to' are considered and rejected in the operative reasoning, and thus are obiter only insofar as ancillary discussion of interpretive aids is concerned. Conclusions: Services provided in respect of goods physically made available to the supplier in India have place of supply in India under Section 13(3)(a); where the supplier and place of supply are in the same State, the supply is intra-State under Section 8(2) and is liable to CGST and SGST, not IGST. Such transactions do not qualify as export of services. Issue 2: Administrative procedure for payment of IGST where GST portal restricts IGST payment when place of supply is shown as State Legal framework: Procedural obligations for tax declaration and payment under GST (GSTR-1; GSTR-3B) and the segregation of IGST v. CGST/SGST liabilities on the portal are referenced by the applicant; however, these do not alter substantive characterisation under Sections 5, 7, 8 and 13 of the IGST Act. Precedent treatment: No procedural or administrative precedent is invoked or followed. Interpretation and reasoning: The issue is premised on a hypothetical procedural difficulty only if IGST were payable. Because the Tribunal concludes IGST is not applicable on the factual supply (see Issue 1), the portal-related procedural question becomes moot. The Tribunal therefore declines to address any alternative administrative mechanism for paying IGST when the portal categorises the supply as intra-State due to 'place of supply' being a State field. Ratio vs. Obiter: The non-answer to the procedural question is not a determinative legal holding; it is a procedural disposition (mootness) and thus constitutes obiter in the sense that no substantive guidance is given because the precondition (that IGST applies) is not met. Conclusions: The procedural question on how to discharge IGST via the GST portal, if IGST were payable while the portal forces CGST/SGST on a State-designated place of supply, is not answered because the Tribunal finds IGST to be inapplicable on the facts; the question is therefore moot. Cross-references and interplay Section 13(3)(a) governs place of supply where services relate to goods physically made available by the recipient; this determination controls the application of Section 8(2) (intra-State) and thereby the levy provisions in Section 5(1) (CGST/SGST) versus Section 5(1) IGST. Section 7(5)(c) (inter-State treatment of supplies in taxable territory not being intra-State) was considered but not found applicable once Section 8(2) establishes intra-State character.