2022 (10) TMI 310 - AAAR - GST

AAAR invalidates advance ruling due to factual discrepancies, remands R&D services case under Sections 103(2) and 104(1)

In Re: M/s. Hilti Manufacturing India Pvt. Ltd.

The AAAR remanded the case to GAAR for fresh consideration after finding significant changes in facts presented by the appellant. The appellant, providing ... Scope of services provided by the applicant to the entities located outside India - covered under Section 13(2) of the Integrated Goods and Services Tax Act. 2017 or not - zero rated supply or not - Section 16 of the Integrated Goods and Services Tax Act, 2017 - HELD THAT:- The appellant in their application made before the GAAR has submitted that the foreign entities send the product samples/goods for R&D purposes to the appellant in India; that the appellant is carrying out such R&D activity in India on the goods provided to them by the foreign customers and submitting a detailed report to them thereafter. The appellant have also submitted that they have entered into a contract with Hilti Aktiengesellschaft. pursuant to which, the appellant is carrying out R&D services on the samples / goods provided by the foreign company, which is located outside India - there has been significant change in the facts of the case presented before the GAAR and now made before this authority by the appellant. They stated during the course of personal hearing that the matter may be remanded back to GAAR for fresh consideration and decision. The appellant has now' presented new facts which have not been placed before the GAAR and the ruling given by the GAAR is thus based on different facts. Further, as the appellant have got the subject advance ruling based on different set of facts, the advance ruling given is not valid in view of the provisions of Section 103(2) and 104(1) of the CGST Act. 2017. The matter is remanded to the Authority for Advance Ruling i.e. the GAAR for fresh decision. The GAAR will take into consideration all aspects of the matter and decide the case afresh following the principles of natural justice. Issues Involved:1. Whether the services provided by the appellant to entities located outside India are covered under Section 13(2) of the IGST Act, 2017.2. Whether the services provided by the appellant are liable to CGST and SGST or IGST, or eligible to be treated as 'zero rated supply' under Section 16 of the IGST Act, 2017.Issue-wise Detailed Analysis:1. Coverage under Section 13(2) of the IGST Act, 2017:The appellant argued that the services provided to foreign entities should be classified under Section 13(2) of the IGST Act, 2017, which generally states that the place of supply of services shall be the location of the recipient of services, except in cases specified in sub-sections (3) to (13). The appellant contended that their R&D services on product samples sent by foreign entities qualify as 'export of service' and should be zero-rated under Section 16 of the IGST Act, 2017. They emphasized that the services fulfilled all conditions under Section 2(6) of the IGST Act, 2017, and the place of supply should be the location of the recipient outside India.2. Liability to CGST and SGST or IGST, or Zero-Rated Supply:The Gujarat Authority for Advance Ruling (GAAR) initially ruled that the services provided by the appellant were liable to CGST and SGST, as the place of supply was determined to be Gujarat under Section 13(3)(a) of the IGST Act, 2017. This section states that the place of supply of services requiring the physical presence of goods should be the location where the services are actually performed. The GAAR concluded that since the product samples were physically available to the appellant in Gujarat for R&D activities, the place of supply was Gujarat, making the services liable to CGST and SGST.Appellant's Argument Against GAAR's Ruling:The appellant contested the GAAR's ruling, arguing that the goods supplied by foreign customers were consumed during the R&D process and not sent back to the customers. They cited several case laws, including Commissioner v B.A. Research India Ltd., to support their claim that the services should be treated as export of services since the final report was delivered and used outside India. They also highlighted that the payment for services was received in foreign currency and the appellant and recipient were not merely establishments of a distinct person under Section 8 of the CGST Act.New Facts Presented by the Appellant:During the personal hearing, the appellant revealed a factual change, stating that the goods on which R&D services were conducted were manufactured in India by the appellant, not supplied by the foreign customer. This significant change in facts led the appellant to request a remand to the GAAR for fresh consideration.Findings and Conclusion:The appellate authority acknowledged the new facts presented by the appellant and noted that the GAAR's ruling was based on a different set of facts. Given the discrepancy and the provisions of Section 103(2) and 104(1) of the CGST Act, 2017, the appellate authority found it appropriate to remand the matter back to the GAAR for a fresh decision. The GAAR was instructed to reconsider all aspects of the matter and issue a new ruling following the principles of natural justice.Judgment:The Advance Ruling in question was set aside, and the case was remanded back to the Gujarat Authority for Advance Ruling (GAAR) for a fresh decision after hearing the appellant afresh.