2019 (7) TMI 1475 - AAAR - GST

Marketing and promotional activities for parent company constitute intermediary services not composite supply under GST

AAAR held that appellant's marketing and promotional activities for parent company Sabre APAC constituted intermediary services rather than composite ... Intermediary - composite supply - principal supply - arranges or facilitates the supply - place of supply - jurisdictional limitation of AARIntermediary - arranges or facilitates the supply - principal to principal - Whether the activities undertaken by the appellant amount to intermediary services - HELD THAT: - On construction of Section 2(13) of the IGST Act and factual matrix in the Marketing Agreement, the Authority found that the appellant identifies potential subscribers, conducts organisational and work-flow analysis, logs non binding subscription requests in the Sabre APAC SCMS and thereby plays a critical role in creating recipients for the OIDAR services supplied by Sabre APAC. The Authority applied the definitions of 'agent' and 'intermediary', and held that the appellant acts on behalf of Sabre APAC in arranging and facilitating the supply of online information and database access and retrieval services to subscribers in India. The Authority rejected contentions based on the contractual clause denying agency, the mode of charging (cost plus markup), and the appellant's use of digital infrastructure, holding that the substance of the activities - not the label or payment mechanism - determines whether the appellant arranges or facilitates the supply. Accordingly, the appellant's activities were held to satisfy the constituent limbs of the statutory definition of intermediary and are primarily in the nature of intermediary services. [Paras 25, 26, 28, 31, 32]Activities of the appellant are intermediary services; the appellant arranges and facilitates the supply of OIDAR services between Sabre APAC and subscribers.Composite supply - principal supply - Whether the appellant's entire gamut of activities constitutes a composite supply and if so, the principal supply - HELD THAT: - The Authority accepted that the appellant provides a bundle of services (marketing, consultancy, PR, promotions, sponsorships, trade shows and support services) that are naturally bundled and supplied in conjunction with each other. While these ancillary services can be described as composite in nature, the Authority held that the principal service within that composite is the intermediary service (as determined above). Thus the composite supply characterization is accepted, with intermediary services as the predominant element to which other services are ancillary. [Paras 20, 42]The appellant's services form a composite supply; the principal supply is intermediary services.Place of supply - jurisdictional limitation of AAR - Whether the Appellate Authority for Advance Ruling (AAAR) can decide the place of supply or whether the services qualify as export of services - HELD THAT: - The Authority noted that determination of place of supply and whether a service qualifies as export under Section 2(6) of the IGST Act involves questions not within the limited scope of matters provided for advance ruling under Section 97(2). Although the earlier ARA had commented on place of supply, the AAAR held that it does not have jurisdiction to decide the place of supply/export eligibility and therefore cannot rule on whether the appellant's services qualify as export of services. The Authority confined its decision to the nature of the supply (intermediary/composite) and expressly declined to rule on export/place of supply. [Paras 41, 43]AAAR has no jurisdiction in this appeal to decide place of supply or whether the services are export of services; no ruling on export/place of supply is given.Final Conclusion: The AAAR modified the ARA ruling: it held that the appellant's activities are intermediary in nature and that the entire gamut of services is a composite supply whose principal supply is intermediary services; the AAAR declined to rule on place of supply or export of services for lack of jurisdiction. Issues Involved1. Whether the services provided by the Appellant qualify as intermediary services under the GST Act.2. Determination of the place of supply for the services provided by the Appellant.3. Whether the services provided by the Appellant qualify as export of services under the GST Act.4. Classification of the services provided by the Appellant as a composite supply.Detailed Analysis1. Intermediary ServicesThe Appellant argued that their services should not be classified as intermediary services under Section 2(13) of the IGST Act. They contended that their activities were performed on a principal-to-principal basis, and they did not facilitate the supply of goods or services between two parties. However, the judgment concluded that the Appellant's activities, such as identifying potential subscribers, initiating the subscription process, and providing marketing support services, facilitated the supply of OIDAR services provided by Sabre APAC to the subscribers. Thus, the Appellant was acting as an intermediary.2. Place of SupplyThe Appellant contended that the place of supply for their services should be outside India, as the recipient of the services (Sabre APAC) was located in Singapore. However, the judgment noted that determining the place of supply falls outside the jurisdiction of the Advance Ruling Authority as per Section 97(2) of the CGST Act. Therefore, the place of supply was not conclusively determined in this judgment.3. Export of ServicesThe Appellant argued that their services should qualify as export of services under Section 2(6) of the IGST Act, which would make them zero-rated supplies. They claimed that they met all the conditions for export of services, including the location of the supplier and recipient, receipt of payment in convertible foreign exchange, and the principal-to-principal nature of the agreement. However, the judgment could not address this issue due to the lack of jurisdiction to determine the place of supply, which is a prerequisite for deciding whether a service qualifies as an export.4. Composite SupplyThe Appellant argued that their services should be classified as a composite supply under Section 2(30) of the CGST Act, with the principal supply being marketing and promotion services. The judgment agreed that the services provided by the Appellant could be considered a composite supply, but held that the principal supply was intermediary services. All other activities such as advertising, PR, and promotional activities were deemed ancillary or incidental to the principal intermediary service.ConclusionThe judgment concluded that the Appellant's services constituted a composite supply, with intermediary services being the principal supply. The determination of whether these services qualify as export of services was not addressed due to jurisdictional limitations.