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

In Re: M/s. Stovec Industries Ltd.,

AAR Gujarat ruled on classification of payment processing services provided by applicant to foreign entity for Indian customers. The Authority held that ... Classification of supply - contract with SPG Prints Austria GMBH (SPA) to provide particular services to customers of SPA in India, as per SPA’s instruction - individual supply or composite supply of service? - whether the specified transaction of the Applicant is to be reckoned as being provided to SPA or to the customers of SPA located in India? - whether the specified transaction of the Applicant could be categorized as that of an “intermediary” as per Section 2(13) of The Integrated Goods and Service Tax Act, 2017? - Export of service as per Section 2(6) of The Integrated Goods and Services Tax Act, 2017. Whether, in the facts and circumstances, the specified transaction of the Applicant should be categorized as individual supply or composite supply of service as per the Central Goods and Services Tax Act, 2017 and the Gujarat Goods and Services Tax Act, 2017? - HELD THAT:- It was observed by Authority for Advance Ruling that no remuneration / consideration is received by the applicant from Indian Customers. Applicant would only receive from WWD US, a fee equal to the operating cost incurred by the applicant plus mark up of 13% on such costs for payment processing services. It is noticed that applicant would receive said fees from WWD US, even in respect of Indian Customers, who directly remit service charges to WWD US through International Credit Card, wherein applicant is not in the picture. In view the above it was observed that by providing the payment processing services to WWD, the applicant is not providing any service to the customers of WWD in India - The applicant satisfies all the three conditions, of Composite supply hence the applicant services get covered under the definition of “composite supply”. Whether, in the facts and circumstances, the specified transaction of the Applicant is to be reckoned as being provided to SPA or to the customers of SPA located in India? - HELD THAT:- It is an exhaustive definition, implying it can neither be expanded nor reduced. In the context of a supply involving payment of consideration, a ‘recipient’ of supply of goods or services means the person who is liable to pay the consideration and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied. The ‘recipient’ is, therefore, so defined as to make separation impossible between the person to whom the supply is made and the one liable to pay the consideration. Of course, when no consideration is involved, as under clause (c) of the above section, the recipient can only be the person to whom the service is rendered. The person who receives the supply in India should, therefore, be considered as the recipient, being inseparable from the foreign buyer as far as the Applicant’s supply is concerned - thus, the Applicant supplies the composite service to the recipient located in India. Whether, in the facts and circumstances, the specified transaction of the Applicant could be categorized as that of an “intermediary” as per Section 2(13) of The Integrated Goods and Service Tax Act, 2017? - HELD THAT:- The applicant specified transactions are squarely covers under the definition of “intermediary” as defined under Section 2(13) of the IGST Act, 2017 - the applicant’s activity falls within the ambit of “intermediary” as defined under Section 2(13) of IGST Act, 2017. Whether, in the facts and circumstances, the specified transaction qualifies to be “Export of service” as per Section 2(6) of The Integrated Goods and Services Tax Act, 2017? - HELD THAT:- The specified transaction do not qualifies the export of service because all the conditions which are stipulated under Section 2(6) of IGST Act, 2017 are not satisfied which is the foremost requirement for any transaction to be qualified “Export of Service”. 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.