2021 (1) TMI 334 - AAR - GST

Commission agent facilitating machinery sales provides intermediary services, not goods supply, attracting CGST and SGST under Section 9(1)

AAR Gujarat ruled that an applicant acting as commission agent for Korean machinery company UKIL Machinery Co. Ltd. provides intermediary services, not ... Levy of CGST and SGST or IGST - Commission agent - Intermediary services or not - nature of the transaction carried out by the applicant - agreement with UKIL Machinery Co. Ltd., a corporation organized under the laws of Republic of Korea to sell their machinery in the Indian Territory - HELD THAT:- It appears that the services provided by the applicant are in the nature of services of commission agents or commodity brokers who negotiate between buyers and sellers as a facilitator for the supply of goods for which they are paid a fee or commission. The said service can also be called as ‘intermediary services’. The applicant is covered by the said definition of an intermediary because they are definitely acting as an agent and facilitating the process for sale of machinery by their foreign principals to the Indian parties and for providing such service to the foreign principal the applicant is receiving the commission. The applicant in his applicant has submitted that, “they are acting as an agent of foreign entities who are supplying such machineries directly to the end customer and the company is getting commission for being an intermediary, thereby creating Principal- Agent relationship.” It is very clear from the facts of transaction that the applicant is acting as an “agent” of the foreign company and neither providing services nor supplying the goods on their own account - Further, the type of GST to be paid i.e. CGST + SGST or IGST is dependent on type of supply of goods or services provided i.e. intra-state or interstate or imports/exports and also on the place of supply of goods or services. Also, since the recipient of service in the instant case is located outside India as discussed earlier, we feel it necessary to refer to Section 13 of the IGST Act, 2017, which helps in determining the place of supply of services in cases where the location of the supplier of services or the location of the recipient of the services is outside India. Sub-section (2) of Section 13 specifically provides that the place of supply of services except the services provided in sub-sections (3) to (13) shall be the location of the recipient of services provided that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services - In the instant case, the supplier of service is the applicant and the service recipient is M/s. UKIL Machinery Co. Ltd, Republic of Korea. We find that the services provide by the applicant i.e. ‘intermediary services’ appears at Sub-Section (8)(b) of Section 13. Also, sub-section (8) clearly mentions that the place of supply in respect of the services described under the said sub-section shall be the location of the supplier of services. Further, the supplier in the instant case is the applicant and the location of the said supplier is in Gujarat. Now, since the location of the applicant, who is supplier of services, is in Gujarat and both the supplier of service as well as the place of supply of service is in Gujarat, the supply of services would be considered akin to intra-state supply of services and would be liable to CGST and SGST as per the provisions of Section 9(1) of the CGST Act, 2017. The applicant is liable to payment of CGST and SGST for the services provided as an “intermediary”. Issues Involved:1. Applicability of IGST or CGST + SGST on the services provided by the applicant.Detailed Analysis:Nature of the Transaction:The applicant, M/s. Sagar Powertex Pvt. Ltd., is engaged in the agency business of weaving machineries, acting as an agent for foreign entities supplying machinery directly to end customers in India. The applicant receives a commission for facilitating these transactions, thereby establishing a Principal-Agent relationship.Definition of Intermediary:The core issue is whether the services provided by the applicant fall under the category of intermediary services. As per Section 2(13) of the IGST Act, 2017, an intermediary is defined as a broker, agent, or any other person who arranges or facilitates the supply of goods or services between two or more persons but does not supply such goods or services on their own account.Analysis of the Agreement:The agreement between the applicant and UKIL Machinery Co. Ltd. specifies that the applicant is the exclusive sales agent for the company's machinery in India, earning a commission on sales. The applicant's role is to facilitate these sales, confirming their status as an intermediary.Place of Supply:The determination of whether CGST + SGST or IGST is applicable hinges on the place of supply. According to Section 13 of the IGST Act, 2017, the place of supply for intermediary services is the location of the supplier of services. In this case, the supplier (applicant) is located in Gujarat.Tax Implications:Since the location of both the supplier and the place of supply is in Gujarat, the transaction is considered an intra-state supply. Consequently, the services provided by the applicant are subject to CGST and SGST as per Section 9(1) of the CGST Act, 2017.Conclusion:The applicant is liable to pay CGST and SGST for the intermediary services provided, as both the supplier and the place of supply are located in Gujarat.Ruling:Q.1 In the said transaction, whether IGST is applicable or CGST + SGST is applicableRs.Ans. The applicant is liable to payment of CGST and SGST for the services provided as an 'intermediary.'