TaxTMI 
TaxTMI 
2018 (10) TMI 1517
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....7) TMI 1182 - AUTHORITY FOR ADVANCE RULING - MAHARASHTRA. BRIEF FACTS OF THE CASE A. Five Star Shipping (hereinafter referred to as "Appellant") is a partnership firm in terms of (Indian) Partnership Act, 1932. Its office is located in Mumbai (State of Maharashtra). Its partnership deed inter alia records that the partnership business shall be that of consultants. B. The service by the Appellant essentially includes collecting market intelligence information and updates which is directed to the ship owners engaging the Appellant. This is the principal service of the Appellant and is known as Consultancy Service. Separately, service provided by the Appellant also includes providing Support Service to Indian/ foreign ship owners so as to identify charterers who are seeking to optimise revenue for their vessels and monitoring voyage execution, which is the ancillary service offering of the Appellant, Consultancy Service and the consequential Support Service provided by the Appellant are generically referred to as Marine Consultancy Service ("MCS") together by the Appellant. C. MCS is provided by the Appellant in terms of a typical Consultancy Agreement executed by and b....
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....rms of Chapter V of the Finance Act, 1994 ("the Act"). Hitherto, MCS provided by the Appellant was treated as "bundled service" comprising of Consultancy Service and Support Service, wherein Consultancy Service was the principal service giving essential characteristics to MCS. These services not covered under a specific rule of the Place of Provision of Service Rules, 2012 ("PPSR") . Therefore, Rule 3 of the PPSR that is, default rule under the PPSR was applicable. As per Rule 3 of PPSR, the place of provision of service was 'the place of recipient of service'. Therefore, the place of provision of service was the place of FSO, which was outside India. Tax treatment under GST K. The Appellant is providing MCS to both Indian and FSO. There is clarity regarding the GST implication on service provided to Indian ship owner as both provider and recipient of service are located in India however, there is inadequate clarity regarding the GST implication on services provided to FSO (located outside India). Therefore, the Appellant approached the Authority for Advance Ruling ('the Authority") by filing an application requesting Advance Ruling on January 19, 2018 regarding MCS provided ....
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...., on the following grounds which are without prejudice to one another. GROUNDS OF APPEAL 1. The grounds of appeal are set out in detail herein after, which are taken in the alternative and are without prejudice to one another. The supply of MCS by the Appellant constitutes 'composite supply' with the principal supply of Consultancy Service 2. The Appellant is an Indian service provider who provides supply of MCS service to foreign parties known as FSOs. The offering of MCS service by the Appellant is in the form of composite supply of services with the principal supply being Consultancy Service. The Support Service provided by the Appellant is in conjunction with the Consultancy Service rendered by it. Therefore, the offering of MCS service by the Appellant can be said to be the offering of two services in conjunction with each other, which are naturally bundled together. 3. It is submitted that in the facts and circumstances of the present case, the impugned findings that the supply of MCS by the Appellant would not constitute a "composite supply" with the principal supply being the supply of Consultancy Service, is completely erroneous and unsustainable. From 01st ....
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....ns, geographical impact on global trade in bulk commodities arising from weather, piracy, war, conflict, any other causes which have prospects to impact trade. 6. The foregoing services are provided as a single offering of Consultancy Service, failing which the provision of service will not be meaningful. Consultancy Service helps the client (i.e. FSO) with market intelligence and trade analysis, etc. which helps them in identifying potential charterers and thereafter zeroing on one or more such potential charterers. Thus, the Consultancy Service provided by FSO in tune helps the FSO to augment its business and expand its client base and all these services are provided as one service. 7. Support Services, on the other hand, provided by the Appellant to FSO (client) is a relatively newer offering, and a requirement emerging in recent times as markets became more competitive. This offering is usually at the end of the employment of vessel and involves Appellant merely monitoring voyage execution, examining the lay time calculations and arranging for reconciliation of accounts to crystalize receivables of FSO. Occasionally, support may involve postal or ministerial acts of trans....
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....consisting of Consultancy Service and Support Service will have to be construed as a supply of composite service made by the Appellant as these services (i.e. Consultancy Service and Support Service) are naturally bundled and supplied in conjunction with each other in the ordinary course of business one of which (i.e. Consultancy Service) is the principal supply. 12. The term 'naturally bundled and supplied in conjunction with each other in the ordinary course of business' is not defined in CGST Act or IGST Act but this concept has been carried forward from the Service tax law. Reference is therefore made to taxation of Services: An Education Guide (June 20, 2012), which provides that to demonstrate that a service is supplied in conjunction with each other in the ordinary course of business, the supply of services should meet some of the following criterion which are indicative, not conclusive and in fact satisfied by the Appellant: * The perception of the recipient of service i.e., a large number of service receivers expect these services to be provided as a package. Appellant is providing the service as a package as the FSO prefers to engage with one service provider to rec....
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....* Elements are normally advertised as a package. Appellant in all cases enters into an agreement with FSO to provide MCS consisting of Consultancy Service and Support Service. Appellant is not a conduit between the FSO and the Charterer. Generally, as discussed above, change in industry dynamics post globalization and increased competition both domestic and overseas, has made it necessary for Appellant to provide the entire gamut of service as a package. * Different elements not available separately. Neither FSO approach Appellant to provide only Consultancy Service or only Support Service, nor is the Appellant able to or actually engaged to provide each of the elements of service separately. In fact, the Appellant has in the past not provided these two services separately and always provided these conjointly. The FSOs (industry) require, generally, the provision of services (MCS) as a bundle of service being based outside India and owing to this expect Consultancy Service and Support Service together as MCS and as a result it is commercially inexpedient for Appellant to so offer it. * Different elements are integral to one overall supply. Service recipient's end objective is....
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....nding transactions of this kind. The general practice is that an FSO avails Consultancy Service and Support Service bundled together as MCS from the same supplier as it increases effectiveness and helps in cost economization. 16. Further, the Agreement annexed shows the general arrangement between parties in transactions of this nature and is the standard form of contract employed by the industry for transactions of this nature. The Authority has acted in an arbitrary manner by resorting to an isolated reading of the "Independent Contractor Clause" present in the Agreement to determine whether the MCS service supplied by the Appellant would qualify as "composite supply" or not. The Authority has failed to apply its mind soundly to the issue at hand by not taking into consideration the legal principle that a contract must be looked at as a whole to ascertain the business meaning attributed to it by the. Reliance in this regard can be placed on Mumbai Metropolitan Region Development Authority v. Unity Infraproject Ltd. 2008 (5) Bom CR 196 = 2008 (2) TMI 925 - BOMBAY HIGH COURT. In this case, the Hon'ble Bombay High Court has held that- Para 11 "In interpreting a contract, th....
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..... Regardless of this option given to and opted by the FSO, the FSO remit the consideration agreed under the Agreement and availing of such option by the FSO does not affect the consideration that he is obliged under the Agreement to pay to the Appellant. The Impugned Order has failed to appreciate and factor this aspect in its findings, thereby rendering the Impugned findings unsustainable. 18. Without prejudice, it is relevant to note that the Authority has concluded that the Agreement is in respect of a particular contract (MV AM OCEAN PRIDE/ MARUBENI CEMENT CHARTER PARTY CONTRACT DATED 3RD MARCH 2017) and not a general agreement. Therefore, a generalization regarding the perception of an FSO on the basis of the clause on 'Independent Contractor Status' present in the Agreement was uncalled for and is flawed and bad in law for this reason. In this regard, the Appellant is submitting another sample agreement entered between the Appellant and an FSO which too is a template agreement that the Appellant enters into with the FSOs. 19. At any rate, the Authority ought to appreciate that the intention behind the transaction is relevant to ascertain the true nature of an agreement.....
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.... is therefore important that the true nature of transaction should be looked into also keeping in mind the industry practice while characterizing MCS. Reliance on a single clause of an agreement and isolating the other indicative parameters like market practice, how consideration is charged and collected, etc. renders the Impugned Order erroneous and unsustainable. 22. Further, the observation of the Impugned Order that there exists no service which can be identified to be a principal supply of service from the services listed in the exhibit to the Agreement is erroneous and flawed. Consultancy Service provided by Appellant to FSO augments its business viability and profitability. It is the Appellant's advice on vessel positioning, bunker trends, commodity market, etc. which helps FSO to reach out to potential charterers which is the main objective of FSO's business. The Appellant by utilizing the market intelligence gathered by the research analysts employed by it, with respect to vessel positioning, bunker trends, commodity market, inter alia others, suggests potential charterers that may require the services of the FSO. Thereafter, FSO indulges in negotiation of terms of the ....
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....ntified two categories in the Notification under which MCS can be classified. The Notification provides for the GST rate for service based on the classification of services read with Annexure to the Notification. Heading 9967 at Serial No. Il(ii) of this Notification deals with "Support Services in transport, other than GTA". Given that MCS service provided by Appellant to FSO is in relation to transportation of goods by vessel only, the Appellant held the opinion that Heading 9967 under which SAC 996759 at Serial No. 148 of the Annexure to the Notification ("other supporting services for water transport nowhere else classified") is the specific entry which provides the appropriate description of activities provided by Appellant. Therefore, MCS will be classified therein and leviable to GST at the rate of 18%. Explanatory notes to the Scheme of Classification of Service 28. Explanatory notes to the scheme of classification issued by the Central Board of Indirect taxes and Customs provide which "indicate the scope and coverage of the heading, groups and service codes of the Scheme of Classification of Services. These may be used by the assessee and the tax administration as a ....
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.... which is generic in nature. Reference in this regard may be made to the basic principle of classification in terms of which a specific entry will prevail over a generic entry which has been upheld by the Hon'ble Supreme Court in the case Moorco (India) Limited vs. Collector of Customs, Madras [(1994) 74 ELT 5 (SC)] = 1994 (9) TMI 68 - SUPREME COURT OF INDIA. The same principle was reiterated in the case Coastal Container Transporters Association vs. Union of India [(2018) 65 GST 413 (Gujarat)] = 2018 (1) TMI 501 - GUJARAT HIGH COURT. As this is a generic entry, it is submitted that the specific entry of SAC 996759 would prevail. The Authority has failed to answer a question permissible under Section 97(2) of CGST Act. 33. The Authority has failed to appreciate that determination of classification, which is permissible question under Section 97(2) of CGST Act, is necessary to ascertain the place of supply of service, which in turn would equip the Appellant to determine whether the supply of MCS by the Appellant to an FSO would qualify as an export of service under Section 2(6) of the IGST Act, and subsequently the tax liability on the supply of MCS. Export of service is de....
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....nd consequentially the taxability of a transaction is flawed and bad in law. Non-consideration of the question relating to place of supply which has direct nexus with the taxability of the transaction has caused grave hardship to the Appellant. GST cannot be levied on a transaction which is outside the jurisdiction of GST law 37. In arguendo, if the Appellant's services that is, Support Services is characterized as an "intermediary service", it must not be lost sight of that - • The service provided by the Appellant in this case would be in relation to employment of a vessel (i.e. service provided) by the Appellant located outside India • The destination of Appellant's service is outside India • To the charterer located outside India, and • Contract for plying of vessel between FSO and the charterer is signed outside India and executed outside India. 38. Therefore, as the service of Appellant is provided in relation to a service which is intangible in nature and is initiated, executed and concluded outside India, between parties located outside India in relation to a vessel located outside India, and the service of Appell....
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....terms of Section 2(30) of CGST Act, there would be no bundling of Consultancy Service and Support Service. Essentially, both the services would be provided independent of each other and the consideration for the services rendered would be obtained separately. Since, both the service would be availed separately by the FSO, the Support Service provided by the Appellant cannot be termed as an "intermediary service" as it would not be for the facilitation of any other supply of service but would be a service provided independently on his own account. 42. The Impugned Order is erroneous and misdirected, in as much as that the supply of Support Service provided by the Appellant would not qualify as an "intermediary service" within the terms of Section 2(13) of IGST Act. An intermediary service in terms of Section 2(13) of the IGST Act, is extracted below: "Section 2(13) - "intermediary" means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account." 43. A....
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....be said to facilitating service between the provider and recipient of goods and services. Thus, the Support Service provided by the Appellant cannot qualify as an "intermediary service" within the terms of Section 2(13) of CGST Act. 45. In the facts of the present case, the Appellant provides MCS service to the FSO on a Principal to Principal ("P2P") basis. Further, the Appellant has no role to play in negotiating the terms of the contract between the FSO and potential charterer. The Appellant's role involves the provision of market intelligence to the FSO which helps the FSO in identifying potential charterers that would be interested in contracting with it and thereafter to provide Support Service for the transport of goods by ship. 46. The Appellant enters into a contract with the FSO for the supply of MCS service which consists of Consultancy Service and Support Service, and the fee for the provision of service will be a percentage of the gross revenue of the transaction and would be predetermined by the FSO and the Appellant and would be paid only on the successful completion of the voyage of the vessel chartered. The Appellant employs research analysts who gather the re....
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....Further, the applicant was provided remuneration by GoDaddy US and received no payment of any kind from the customers of GoDaddy. The Authority for Advance Rulings, New Delhi held that service provided by the applicant would not be considered as an "intermediary service" under Rule 2(f) of the Place of Provisions of Services Rules, 2012. In Applicant's case, the Applicant is not authorized to enter into any contract or arrangement on behalf of the FSO. The Applicant scouts for potential charterers in the market and provides this information to the FSO who then directly negotiates, enters into contracts, and renders service to the charterers who may be located in India or abroad. Remuneration for service is provided by the FSO to the Applicant and no payment is received from the charterers who are the customers of the FSO. 50. Similarly, reference is made to the decision of the Authority of Advance Ruling in the case of In Re : Universal Services India Pvt. Ltd [2016 (42) S.T.R. 585 (A.A.R.)] = 2016 (5) TMI 750 - AUTHORITY FOR ADVANCE RULINGS. In this case, the service provider providing payment processing facilities to a domain service provider was held not to be a provider of "....
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....rvices between the FSO and charterer by the Appellant and must be perceived as ministerial acts carried out by the Appellant in the course of fulfilling the contractual obligations that exist between the Appellant and FSO. Personal Hearing 54. A personal Hearing in the matter was conducted 03.10.2018, when Shri Ranjeet Mahtani, Advocate, appearing on behalf of the Appellant, reiterated their written submissions made during the time of filing the present appeal. He further deposed that their principal supply is the consultancy service and not the intermediary services as envisaged by the Advance Ruling Authority as they do not represent, or act on behalf of, the Foreign Ship Owners ( herein after referred to "FSO")while negotiating the terms and conditions of the contracts/agreements, related to the chartering of the vessels entered between FSO and their clients, thereby, not facilitating or arranging for the said supply of the vessels chartering services by the FSO to their clients in any manner. They are just suggesting the name of the potential charterers of the vessels to the FSO by way of the market research and analysis undertaken by the various professionals/experts emp....
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....findings of the Advance Ruling Authority, wherein the members of the AAR have observed that since, the determination of the place of supply of a service is not covered under the spectrum of the specific issues/questions, which may be raised before the Advance Ruling Authority for the purpose of the clarification, as provided under the Section 97(2) of the CGST Act, 2017. 59. Coming to the issue no. 1, first of all, we will discuss the meaning of the 'Composite Supply'. As per Section 2(30), "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 are supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. 60. Here, the Appellant has submitted that they are providing the consultancy services and the Business Support Services to the FSO, one after the another i.e. first they are first providing the consultancy services by way of the provision of the list of the potential charterers of the vessels owned by the FSO, after doing all the professionals driven research and analysis....
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....nsultancy Services as being pleaded by the Appellant. To decide this issue, first we would like to discuss the scope of the intermediary services, which is being reproduced herein below as provided in the Section 2(13) of the IGST Act, 2017:- 2(13) "Intermediary" means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account; Thus, necessary conditions for any activity to be an intermediary service are asunder:- (i) There should be supply of goods or services or both; (ii) There should be the involvement of three persons (i) the supplier of the goods or services or both (ii) the receiver of the supply of the goods or services or both and (iii) the intermediary who arranges or facilitates the said supply of goods or services or both subject to the condition the said supply is not made by the intermediary himself on his own account. 64. Applying these above conditions/parameters to the instant case, it is expressly understood that th....
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....ssels chartering process include the following activities: 1. Circulation by the charterers' broker of "cargo orders", outlining charterers' forthcoming cargo transportation requirements. 2. Circulation by the owners' broker of "position lists" or "tonnage lists", detailing expected "open" dates and positions of available ships. 3. Study of market reports by brokers. 4. Negotiations on main terms between brokers on behalf of their respective principals, with offers and counteroffers by either side; if main terms cannot be resolved, there is little or no point in negotiating further details. 5. Negotiations "on subjects", e.g. "subject stem", "subject receiver's approval", etc., where the main terms have been agreed, but final agreement is subject to various secondary conditions being agreed. 6. Fixture, i.e. the full and final agreement, with all "subjects" removed. Following fixture is a "post-fixture" or follow-up period during which the broker may undertake various administrative functions on behalf of his principal, such as (in some cases) collection of freight or hire. Shipbrokers are remunerated by commission, called "brokerage", payable by the ship ow....
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....O for providing these services i.e. 1.25 % of the gross receipt from the charterers and considering the market practice and trends in vessel chartering industries, it is revealed that the Appellant has framed the agreement in such a manner so that their activity as intermediary is not revealed at any stage by projecting themselves as mere consultant to the FSO, with an intent to avoid the levy of GST on the services provided to the FSO. However, the fact is that all the activities, they are doing, is clearly pointing to their role as intermediary not only at the first stage, when they are introducing the FSO to their potential charterers, out of which the final agreements in respect of the chartering of the vessels are being done, but also at the later stages, when they are called upon their principal i.e. the FSO, for rendering the voyage execution, on the behalf of the their principal i.e. the FSO. Thus, the Appellant is actually facilitating the supply of the main services i.e. chartering of the vessels by the FSO to their clients i.e. charterers, thereby clearly acting as an intermediary, as the chartering of the vessels is not the main service of the Appellant, but their princ....