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 India. The authority also upheld the finding that the services provided constitute a composite supply. However, the authority modified the ruling regarding the identification of the service recipient, determining that SPA, located outside India, is the recipient of the services, and that the appellant does not qualify as an intermediary under the relevant legal provisions.

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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 Transaction

The 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.

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