2021 (12) TMI 117 - AAAR - GST

Appellate Authority's Decision on Export of Service and Composite Supply

The appellate authority confirmed the ruling that the specified transaction does not qualify as an export of service due to the place of supply being in ... Levy of IGST - supply of service of installation/up-gradation & training - principal-agent relationship - Composite supply of services - naturally bundled services or not - specified transaction of the Applicant is to be reckoned as being provided to SPA or to the customers of SPA located in India - intermediary Services - HELD THAT:- A composite supply would mean a supply consisting of two or more taxable supplies of goods or services or both or any combination thereof which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. The consideration agreed with SPA is based on hourly rate for activities such as travelling, regular work or overtime hours and based on the time spent for each of the activities. Accordingly, they are providing more than two services i.e. installation or up-gradation of service, training to the customer for the operation of machine and other activities like overtime service. The contention of the appellant that charges for travelling, working hours or overtime are not separate activities and these are the benchmarks or methodology based on which consideration for actual service such as installation / up-gradation of machine or training in respect of machines would be determined but appellant have not put forth any argument how the travelling hours, working hours or overtime are not separate activities - The appellant may received the one consolidated charges for their service provided to customer considering it as one supply and not more than one. However, in the contract held between appellant and SPA hourly rate is fixed for each work i.e. working hours, travelling hours and overtime hours. Therefore, the appellant is providing more than two services and contention of the appellant that they are providing only one service is not correct. Indian customer as service recipient for the present transaction - HELD THAT:- A reading of the definitions given in Section 2(93) and 2(31) of the CGST Act, indicates that the person who is required to make a payment for getting a job done is the recipient of service. Accordingly, the recipients of the service supplied by the appellant will be the manufacturer as it is at their behest that the appellant has undertaken the activity of installation/up-gradation of the machine, service of machines which are under service contract with SPA and machine which are under warranty period to the customer - there is force in their argument and in present case SPA is paying consideration to the appellant for the service provided to the Indian customer. Therefore, in present case SPA is recipient of supply of service in terms of the consideration paid to the appellant and not Indian customer. Qualification of Applicant to be an ‘intermediary’ - HELD THAT:- Since there is no performance of service by SPA and actual services are performed by the appellant itself they are outside the purview of the definition of ‘intermediary’. Further as per CBIC circular dated 20.09.2021 referred above, subcontracting of services whether a part or whole cannot be included within the purview of intermediary services. In the present case, SPA has sub-contracted the services like installation/ upgradion of machines sold by SPA, training at customer’s site etc. to the appellant. Such services would be provided by the appellant to SPA as part of sub-contract agreement, by providing services to the customers of SPA. The supply of service by the appellant where it has been subcontracted to it by the recipient will fall under the exclusion part of the definition of ‘intermediary’ as per the provisions of Section 2(13) of the IGST Act 2017. Non-qualification of the specified transaction as ‘export of service’ - HELD THAT:- SPG Prints B.V. holding and foreign company of Stovec Industries Ltd. (i.e. is appellant) are two separate legal person and are not merely establishments of distinct person in accordance with Explanation 1 in Section 8 of IGST Act - the appellant service is performance based as such the appellant can perform service only at SPA’s customer in India and not outside India. Application disposed off. Issues Involved:1. Qualification of the specified transaction as 'composite supply'.2. Identification of the service recipient for the present transaction.3. Qualification of the Applicant as an 'intermediary'.4. Qualification of the specified transaction as 'export of service'.Detailed Analysis:First Ruling: Qualification of the Specified Transaction as 'Composite Supply'The appellant contended that the GAAR's observation that the conditions specified for composite supply in Section 2(30) of the CGST Act, 2017 are fulfilled in respect of the specified transactions is incorrect. The definition of 'Composite Supply' under Section 2(30) of CGST Act, 2017 reads: 'Composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.'The appellant argued that they provide only one service at a time, such as installation/up-gradation of a machine or training, and that charges for traveling, working hours, or overtime are not separate activities but benchmarks for determining consideration. However, the authority found that the appellant is providing more than two services, including installation/up-gradation, training, and other activities like overtime services. The appellant's argument that these activities are not separate was not substantiated, as the contractual agreement specified separate hourly rates for each activity. The authority concluded that the services provided are naturally bundled and supplied in conjunction with each other, thus qualifying as a composite supply.Second Ruling: Identification of the Service Recipient for the Present TransactionThe appellant argued that GAAR failed to understand the definition of 'recipient' as per Section 2(93) of the CGST Act, which states that the recipient of supply of goods or services is the person liable to pay consideration. The appellant contended that SPA, who pays for the services, should be considered the recipient, not the Indian customer. The authority agreed with the appellant's argument, noting that SPA pays the consideration to the appellant for services provided to the Indian customer. Therefore, SPA is the recipient of the supply of services, not the Indian customer.Third Ruling: Qualification of the Applicant as an 'Intermediary'The appellant contended that they do not qualify as an intermediary under Section 2(13) of the IGST Act, 2017, which defines an intermediary 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 include a person who supplies such goods or services on his own account. The appellant argued that they provide services on a principal-to-principal basis and not as an agent or broker. The authority referred to Circular No. 159/15/2021-GST dated 20.09.2021, which clarified that sub-contracting of services cannot be included within the purview of intermediary services. The authority agreed with the appellant's contention that their services are not intermediary in nature, as they perform the actual services themselves and not on behalf of SPA.Fourth Ruling: Qualification of the Specified Transaction as 'Export of Service'The appellant contested GAAR's ruling that the specified transaction does not qualify as an export of service because three out of the five conditions specified under Section 2(6) of the IGST Act, 2017 are not fulfilled. The conditions include the supplier being located in India, the recipient being located outside India, the place of supply being outside India, payment received in convertible foreign exchange, and the supplier and recipient not being merely establishments of a distinct person.The authority found that SPA, located outside India, is the recipient of the service, fulfilling the second condition. However, the third condition, that the place of supply should be outside India, was not met as the service is performance-based and performed in India. The fifth condition was fulfilled as SPA and the appellant are separate legal entities and not merely establishments of a distinct person. Therefore, the specified transaction does not qualify as an export of service.Conclusion:The appellate authority confirmed the GAAR's ruling in respect of Ruling No. 1 and 4 and rejected the appeal filed by the appellant to that extent. The authority modified the GAAR's ruling in respect of Ruling No. 2 and 3, agreeing that SPA is the recipient of the service and that the appellant is not an intermediary as per the provisions of Section 2(13) of the IGST Act, 2017.