2021 (1) TMI 544 - AAR - GST

Payment processing services for foreign entity classified as composite supply to Indian recipients, not export of service under Section 2(6) IGST Act 2017

AAR Gujarat ruled on classification of payment processing services provided by applicant to foreign entity for Indian customers. The Authority held that ... Composite supply - recipient of supply - intermediary - export of services - place of supply - intermediary services (Section 13(8)) - ejusdem generisComposite supply - Specified transactions are to be classified as composite supply or individual supplies. - HELD THAT: - The Authority examined whether the multiple services (installation/upgradation, training, travel hours, working hours, overtime) are naturally bundled and whether there is a principal supply. Applying the statutory definition of composite supply and the CBEC indicators of natural bundling, the Authority found the services are supplied together in the ordinary course of business, are naturally bundled (travel, working and overtime are ancillary to installation/training) and that the principal supply is the installation/upgradation & training. Accordingly the specified transactions constitute a composite supply. [Paras 70, 88]The specified transaction is a composite supply of services.Recipient of supply - Whether the recipient of the specified service is SPA (overseas principal) or the Indian customers of SPA. - HELD THAT: - The Authority interpreted the exhaustive definition of recipient in Section 2(93) of the CGST Act and observed that where consideration is payable the recipient means the person liable to pay and is inseparable from the person to whom supply is made. On the facts and contract terms, the Authority concluded that the supply is made to the person who receives the service in India (the Indian customer), since the person receiving the composite service in India is the effective recipient for the Applicant's supply. [Paras 72, 88]The recipient of the specified transaction is the Indian customer to whom the service is supplied in India.Intermediary - ejusdem generis - Whether the specified transaction falls within the definition of an intermediary under Section 2(13) of the IGST Act. - HELD THAT: - The Authority analysed the definition of intermediary, including the meaning and scope of 'broker', 'agent' and the phrase 'any other person, by whatever name called'. It rejected the Applicant's reliance on the rule of ejusdem generis to restrict 'any other person' to persons similar to agents or brokers, observing that the words do not form a single genus and the general phrase must be read to cover other facilitators. Examining the contract and conduct (services provided 'on behalf of and as per instruction of' SPA; coordination with SPA area coordinator; SPA supplying parts/setting prices; obligation to inform SPA; commission overview), the Authority found the Applicant arranges/facilitates the supply between SPA and its Indian customers and is not supplying the main service on its own account. The Authority noted that the form of consideration (hourly fee and commission) does not preclude characterisation as an intermediary. Pre GST decisions were considered but applied to the GST definition; relevant AAR/AAAR precedents were found supportive. [Paras 75, 76, 79, 81, 88]The specified transaction is an intermediary service within Section 2(13) of the IGST Act, 2017.Export of services - place of supply - intermediary services (Section 13(8)) - Whether the specified transaction qualifies as an export of services under Section 2(6) of the IGST Act. - HELD THAT: - Export of services requires five cumulative conditions under Section 2(6): supplier in India; recipient outside India; place of supply outside India; payment in convertible foreign exchange; supplier and recipient not establishments of a distinct person. While the supplier is located in India and payment is in convertible foreign exchange, the Authority concluded the recipient (per its earlier finding) is the Indian customer and, crucially, that the place of supply for intermediary services is the location of the supplier under Section 13(8)(b). Further, Stovec is not an establishment distinct from SPA. Given these lacunae, the specified transaction does not satisfy the conditions for export of services. [Paras 85, 86, 88]The specified transaction does not qualify as export of services.Final Conclusion: The Authority ruled that the Applicant's specified transactions are a composite supply of services, are supplied to the Indian customers (the recipients), amount to intermediary services under Section 2(13) of the IGST Act, and do not qualify as export of services under Section 2(6). Issues Involved:1. Classification of the specified transaction as individual or composite supply.2. Determination of the recipient of the specified transaction.3. Categorization of the specified transaction as an intermediary service.4. Qualification of the specified transaction as an export of service.Issue-wise Detailed Analysis:Issue 1: Classification of the Specified Transaction as Individual or Composite SupplyThe applicant, engaged in the textile and graphics printing market, provides services including installation, upgrades, and training for machines sold by SPA. The applicant contends that these services are independent and separate, with distinct consideration based on hourly rates for different activities. The definition of 'composite supply' under Section 2(30) of the CGST Act, 2017, requires that the supplies be naturally bundled and supplied in conjunction with each other, with one being a principal supply. The Authority concluded that the services provided by the applicant (installation, upgrades, training, etc.) are naturally bundled and supplied in conjunction with each other in the ordinary course of business, thus qualifying as a composite supply.Issue 2: Determination of the Recipient of the Specified TransactionThe applicant argued that SPA, who pays for the services, should be considered the recipient. However, the Authority referred to Section 2(93) of the CGST Act, 2017, which defines the recipient as the person to whom the supply is made and who is liable to pay the consideration. The Authority concluded that the recipient of the service is the Indian customer to whom the service is supplied, as the supply is inseparable from the foreign buyer.Issue 3: Categorization of the Specified Transaction as an Intermediary ServiceThe term 'intermediary' is defined under Section 2(13) of the IGST Act, 2017, as a person who arranges or facilitates the supply of goods or services between two or more persons but does not include a person who supplies such goods or services on his own account. The Authority examined the agreement between the applicant and SPA, noting that the applicant acts on behalf of SPA, coordinating with SPA's area coordinator, and providing services as per SPA's instructions. The Authority determined that the applicant's role fits the definition of an intermediary, as they facilitate the supply of services between SPA and its customers in India.Issue 4: Qualification of the Specified Transaction as an Export of ServiceSection 2(6) of the IGST Act, 2017, defines 'export of services' and requires that the recipient of the service be located outside India and the place of supply be outside India. The Authority concluded that the recipient of the service is the Indian customer, and the place of supply, as per Section 13(8) of the IGST Act, is the location of the supplier (India). Since the conditions for export of services are not met, the specified transaction does not qualify as an export of service.Ruling:1. The specified transaction is a composite supply of service.2. The recipient of the specified transaction is the Indian customer.3. The specified transaction is categorized as an intermediary service.4. The specified transaction does not qualify as an export of service.