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 applicant's services constitute composite supply, not individual supply, as all three conditions were satisfied. The transaction was deemed provided to recipients in India rather than foreign entity, as recipients are inseparable from consideration payers. Applicant qualified as intermediary under Section 2(13) IGST Act 2017. However, the transaction failed to qualify as export of service under Section 2(6) IGST Act 2017 as required conditions were not met.

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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 Supply
The 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 Transaction
The 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 Service
The 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 Service
Section 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.

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