2020 (3) TMI 894 - AAR - GST

Agent services to Italian companies fall under forward charge mechanism, not reverse charge for exports

The AAR, Karnataka ruled that the applicant, acting as an agent for Italian companies, provides intermediary services within taxable territory under ... Intermediary services - reverse charge mechanism - place of supply of intermediary services - import of services treated as inter state supply - eligibility of input tax credit on IGST paid on import - scope of advance ruling under Section 97(2)Reverse charge mechanism - export of services - Export of services by the applicant attract IGST under reverse charge mechanism - HELD THAT: - The Reverse Charge Mechanism (RCM) shifts tax liability to the recipient. The applicant, in relation to the purported export of services, acts as the supplier of those services. Therefore the factual matrix does not bring the applicant within the class of persons on whom tax liability is shifted under RCM. Consequently, levy of IGST on export of services under RCM in respect of the applicant does not arise. [Paras 6, 7]Export of services by the applicant do not attract IGST under RCM as the applicant is the supplier of such services.Intermediary services - place of supply of intermediary services - Whether the services provided by the applicant are intermediary services - HELD THAT: - Under Section 2(13) of the IGST Act an 'intermediary' includes an agent who arranges or facilitates supply of goods or services. The applicant, by contractual agency arrangements with the parent company and with the supplier, acts as agent/partner to identify customers and procure orders which are fulfilled by the foreign principals. The agreements, commission structure and conduct indicate the applicant arranges/facilitates supplies on behalf of foreign principals. Section 13(8)(b) mandates that place of supply of intermediary services is the location of the supplier of services; however, given that the applicant is an agent acting to facilitate supplies for non resident principals, the supply by the applicant is covered by the definition of intermediary and is taxable in the taxable territory under forward charge in the hands of the applicant. [Paras 6, 7]The services furnished by the applicant in relation to agency/booking of orders are intermediary services and are taxable under forward charge in the hands of the applicant.Import of services treated as inter state supply - eligibility of input tax credit on IGST paid on import - Whether IGST paid under RCM is eligible for input tax credit for the applicant - HELD THAT: - IGST applies to inter state supplies and to importation of goods/services which are treated as inter state supplies; IGST charged on clearance of imported goods and IGST on import of services (discharged under RCM by the importer) is generally available as input tax credit to the importer. In the present factual situation the applicant is not an importer of services and does not discharge IGST under RCM as recipient of imported services. Therefore the question of availment of ITC on IGST paid under RCM does not arise for the applicant; the authority nevertheless records the general proposition that IGST borne on import (including where discharged under RCM) is available as ITC to the importer. [Paras 6, 7]Payment of IGST under RCM by the applicant does not arise as the applicant is not recipient/importer of services; generally IGST paid on import is available as ITC to the importer.Scope of advance ruling under Section 97(2) - Provision in GST returns to show the transactions and information that applicant absorbs IGST as cost-impact - HELD THAT: - The fourth and fifth queries concern procedural presentation in returns and commercial information about pricing (non collection/absorption of IGST). Those matters do not fall within the list of questions eligible for advance ruling under Section 97(2) of the CGST Act and hence the Authority declines to rule upon them for lack of jurisdiction. No ruling is given on these points. [Paras 6, 7]No ruling is given on the fourth and fifth queries as they are outside the scope of Section 97(2) of the CGST Act.Final Conclusion: The Authority ruled that (1) export of services by the applicant do not attract IGST under reverse charge as the applicant is the supplier, (2) the applicant's agency/bookings constitute intermediary services taxable under forward charge, (3) the question of IGST under RCM and corresponding ITC does not arise for the applicant as it is not importer/recipient of services (noting generally that IGST on import is available as ITC to an importer), and (4) no ruling was issued on the procedural/return related and pricing queries as they fall outside the advance ruling jurisdiction under Section 97(2). Issues:1. Export of services under IGST Reverse Charge Mechanism2. Classification of services as Intermediary Services3. Eligibility of IGST paid under RCM for Input Tax Credit4. Provision in GST returns for transactions display5. Impact of not collecting IGST on transaction valueAnalysis:Issue 1: Export of services under IGST Reverse Charge MechanismThe applicant sought a ruling on whether their export of services attracts IGST under RCM. The Authority clarified that as the applicant is a supplier, the question of levying IGST on export of services under RCM does not arise.Issue 2: Classification of services as Intermediary ServicesThe applicant in question was involved in various business activities, including acting as an agent for parent companies in Italy. The Authority found that the applicant's activities fell under Intermediary Services, as they acted as agents facilitating the supply of goods between parties, making their services taxable under the forward charge mechanism.Issue 3: Eligibility of IGST paid under RCM for Input Tax CreditThe Authority explained that IGST is levied on inter-state supplies and importation of goods/services, making it available for Input Tax Credit to the importer. As the applicant was not importing any services, the payment of IGST under RCM did not apply in this case.Issue 4: Provision in GST returns for transactions displayThe applicant raised a query about the provision in GST returns to display transactions. The Authority clarified that this query was not within the scope of issues for seeking an advance ruling under the CGST Act 2017.Issue 5: Impact of not collecting IGST on transaction valueThe applicant also provided information about not collecting IGST from customers, which impacted the transaction value. The Authority stated that this information did not fall under the jurisdiction of the advance ruling authority as per the CGST Act 2017.In conclusion, the Authority ruled that the export of services by the applicant did not attract IGST under RCM, their services were classified as Intermediary Services taxable under the forward charge mechanism, and IGST paid under RCM was not applicable since the applicant was not importing any services. The queries regarding GST return provisions and the impact of not collecting IGST were deemed outside the authority's jurisdiction.