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2018 (12) TMI 227
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....6 (1) (a) of the Integrated Goods and Services Tax Act, 2017? (ii) If the answer to the Q (i) is in the negative, whether the impugned supply of service forming an integral part of the cross-border sale/purchase of goods, will be treated as an "intra-state supply" under section 8 (1) of the IGST Act read with section 2 (65) of the MGST Act attracting CGST/MGST? And, if so, at what rate? At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference provision under the CGST Act/ MGST Act would be mentioned as being under the "GST Act". 02. FACTS AND CONTENTION - AS PER THE APPLICANT The submissions, as reproduced verbatim, could be seen thus- STATEMENT OF THE RELEVANT FACTS HAVING A BEARING ON THE QUESTIONS 1. The facts relevant for the purposes of this application, briefly stated, are as under: The Applicant, M/s. Micro Instruments,....
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....replacement of parts etc.). Micro, however, has no contractual obligation to give such "free Service". (f) Once the P.O. is completed, the Principals at Germany issue a "Credit Note", for the "Commission", which is remitted in freely convertible Foreign Exchange, normally in Euro Currency: (sign: EUR; code: EUR) the official currency of the European Union). (g) Micro was not issuing any Debit Note or Invoices or any other document, but Accounting was done only on the basis of the Credit Note/s. 3. Now, in the circumstances, the following questions arise for consideration & decision by this Honourable Advance Ruling Authority, Maharashtra State, Mumbai: (i) Whether the "Commission' received by Micro in convertible Foreign Exchange as an "Intermediary" in International/cross boarder transaction, for acting as a Broker or facilitator, in procuring from an Indian Customer/s purchase order/s (P.O.) for importing Laboratory Equipment from Germany, is liable to GST either under CGST/SGST Act, 2017 or the IGST Act, 2017? And if so, the rate of CGST, SGST and IGST respectively. (ii) If liable to GST, whether the entire amount of "Commission" as converted in rupees, will be th....
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....on (3) to (13), which needs to be examined individually & separately. • Sub-section (8) covers the case on hand; and the same is reproduced here below - "(8) The Place of supply of the following services shall be the location of the supplier of the services, namely: (a) Services supplied by a banking company, or a financial institution, or a non-banking financial company, to account holders; (b) Intermediary services; (c) Services consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels, up to a period of one month." (v) The term "Intermediary" is defined in Section 2(13) of the IGST Act, which says: "(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". (vi) Consequently, Micro being an Agent or Broker (or Commission Agent) and facilitator between the German -seller of the goods and the Indian-buyer of the goods, it shall be covered under the defin....
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....fined" than the one that is put down in the definition. • Secondly, the definition starts by saying "when" and followed by each clause ending with a semi-colon showing close connection with each other and the last but one clause uses "and", to make it clear that all the clauses must be fulfilled concurrently and coextensively & then alone it will qualify as an "export of services". • On the superficial or flash reading, it may appear that in the present case, the condition No. (iii) in section 2/6) is not getting fulfilled because of the terminology used in section 13(8) (b) of the IGST Act, ("intermediary services") read with section 2(13) defining "intermediary" to include broker or agent who arranges or facilitates the supply of goods or services, and consequently the "place of supply" gets coincided with "the place of supplier", both in the taxable territory, India, and rendering the transaction taxable under the CGST/SGST Act, by denying the benefit of "export of services" or IGST Act legitimately due by virtue of the "recipient of Services" being in non-taxable territory, abroad. In the light Of the above discussion, one may consider that the supply ....
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....pply" is determined under Section 7 and 8 of the IGST Act, 2017 which reads: CHAPTER IV DETERMINATION OF NATURE OF SUPPLY Inter-State supply 7. (1) Subject to the provisions of section 10, supply of goods, where the location of the supplier and the place of supply are in-- (a) two different States; (b) two different Union territories; or (c) a State and a Union territory, shall be treated as a supply of goods in the course of inter-State trade or commerce. (2) Supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-State trade or commerce. (3) Subject to the provisions of section 12, supply of services, where the location of the supplier and the place of supply are in-- (a) two different States; (b) two different Union territories; or (c) a State and a Union territory, shall be treated as a supply of services in the course of inter-State trade or commerce. (4) Supply of services imported into the territory of India shall be treated to be a supply of services in the course of inter-State trade o....
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....nt, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another: 18. Since Micro does not supply or receive goods / services on behalf of anyone, Micro carries on business of its own, it is certainly not an "Agent" as defined in section 2 (5) of the CGST Act, 2017. • But surely, the activities of Micro are in the nature of "intermediary" as defined in section 2 (13) of the IGST Act, for bringing together the Principals abroad (Germany,) and the Indian Customer (M/s. Panama Laboratory), who wants to buy a high-end product. • What is received by Micro may be called "brokerage for the sale of goods. Even if it is called "commission" it is specifically understood as being in respect of and in relation to the transaction of sale of goods directly made by the German-seller and the Indian buyer, and which at the hands of the Indian-buyer, M/s. Panama Laboratory, is an Import in every sense of the term. • In other words, the nature of supply is intended to be and actually an international or cross-border transacti....
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....rovisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder. 20. Now, the crucial question is: what is the true meaning & purport of the expression "intermediary services" appearing in section 13 (8) (b) of the IGST Act. It may be added that the term "intermediary" has been defined in section 2(13) of the IGST Act, but the expression '"intermediary services." appearing in section 13 (8) (b) has not been defined. 21. What is the significance of use of the two terms/ expressions, apparently looking similar, by the Legislature in the GST statutes. One thing is clear that they are not synonymous terms or expressions, having the same meaning as another word or phrase in the same language. 22. One has to construe the true meaning of the undefined expression, namely, "intermediary services", which is not simply a coined expression, but seems to have acquired a well set connotation. This expression is not used for the first time by the Legislature. 23. It may be added that this precise expression: 'Intermediary service was adopted by the Delegated Legislation while framing the Place of Provision of Service Rules, 2012 (POPS Rules, 2012). In th....
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....own account. UNQUOTE: ---Rule 2(1) defines intermediary' to mean a broker, any agent or any other person, by whatever name called, who arranges or facilitates a provision of a service(hereinafter called the 'main service') between two or more persons (it doesn't include a person who provides service on his own account). Thus an intermediary service is involved with two supplies at one time. In other words, the expression "intermediary" connotes distinctness/detachment from the "main" service. The expression "intermediary service" is thus, a nomen juris ("nomen juris," literally term of law; a technical legal term) and its use is having a specific legal concept and connotation. When that expression is used in any subsequent legislation, it has to be interpreted and understood in the same sense & nothing less or more. (VIDE The Madras General Sales Tax Act, 1939 (Madras Act 9 Of 1939) was enacted in pursuance of the powers contained in entry 48 of List II of Seventh Schedule of the Government of India Act, 1935 which deals with sale of goods. The corresponding entry in the Constitution is entry No. 54 in List 11 of Seventh Schedule. It was in exercise of the powers under thi....
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....(f) of the POPS Rules, 2012. The pivotal issue in the case on hand turns on the interpretation of the expression: "intermediary services" in Section 13 (8) (b) of the IGST Act. 29. At this stage, it is necessary to refer to some well known Rules of Interpretation of statues before embarking on the interpretative process: (i) Legislative enactment is an edict. One has to read what is expressly stated in the enactment. (ii) It is not necessary to survey innumerable Apex Court decisions on the Statutory Rules of Interpretation. Suffice it to quote one: • Raghunath Rai Bareja And Another vs Punjab National Bank and Others (CASE NO. Appeal (civil) 5634 Of 2006 Decided on 6 December, 2006 = 2006 (12) TMI 479 - SUPREME COURT OF INDIA (a) It may be mentioned in this connection that the first and foremost principle of interpretation of a statute in every system of interpretation is the literal rule of interpretation. (b) The other rules of interpretation e.g. the mischief rule, purposive interpretation etc. can only be resorted to when the plain words of a statute are ambiguous or lead to no intelligible results or if read literally would nullify the very object ....
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....ood as excluding "consignment agent", which stands defined in section 2(5) of the CGST Act. (iii) As laid down by the Apex Court (Delhi Transport Corporation vs. D.T.C. Mazdoor Congress on 4 September, 1990 = 1990 (9) TMI 334 - SUPREME COURT), the doctrine of reading down is applied where the provisions of the statute are vague and ambiguous and it is possible to gather the intention of the legislature from the object of the statute, the context in which the provision occurs and the purpose for which it is made. (iv) In the case on hand, the section 13(8) of the IGST Act is intended to apply to specified "services", and clauses (a) and (c) relate to "pure services". Clause (b) Cannot take in its fold "services in relation to goods"; because the entire GST Law maintains dichotomy between the "goods" and "services". (v) Further, it is well settled that every word or phrase in a clause takes colour from the other related clauses in the same section, namely, sub-section (8), section 13 of IGST Act. (vi) As stated earlier, if the Legislature wanted to have wider meaning of "services", it would have used the phraseology "services of intermediary" rather than "Intermediary ser....
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.... Since the term "intermediary services" is nomen juris, the CSI* Law when it uses it, then it must be understood in that sense only. (d) It therefore, follows that the section 13(8) (b) cannot be held as taking away the benefit of export service to Micro as the supplier of service is in the Taxable Territory and the recipient is in the non-taxable territory. Therefore section 7 (5) (a) of the IGST Act: (5) Supply of goods or services or both, - (a) when the supplier is located in India and the place of supply is outside India; Will apply, and consequently "zero-rated tax" benefit under section 16 would be available. PRAYER: 33. The Applicants most respectfully pray that the application be allowed, and (a) that it be held that there will be no CGST/SGST applicable on the services provided by the Intermediary (Micro) acting as a Broker to facilitate Imports of goods by the Indian Customer from the Seller-supplier (Germany) under the cross-border transaction, (b) If in the unlikely event it is held that either CGST/SGST or IGST is payable, then: (i) the rate of GST payable, (ii) and the "taxable value", gross or net commission (aft....
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....defined in Section 2(13) of the IGST Act: "(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". (vi) Consequently, the Applicant being a Broker (or Commission Agent) and facilitator between the German -seller of the goods and the and the Indian-buyer of the goods, shall be covered under the definition of Intermediary" under Section 2 (13) of the IGST Act bringing about a deal for export-import of goods/equipment, a cross-border transaction in the nature of inter state sale under IGST Act. IV-STATUTORY PROVISIONS: RULES OF INERPRETATION: 8. At this stage, it is necessary to refer to well settled Rules of Interpretation of statues: (i) Legislative enactment is an edict. One has to read what is expressly stated in the enactment. (ii) It is not necessary to survey innumerable Apex Court decisions, suffice it to quote one: Thus, in Madamanchi Ramappa & Anr. Vs. Muthaluru Bojjappa AIR 1963 SC 1....
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.... in relation to either the "goods" or "services" or even both. 11. Section 13(8) (b) has, however, adopted the expression: "intermediary services" which expression was prevalent prior to 2014-Amendment of POPS Rules, 2012, which distinguishes it from the "main service". There are other weighty reasons: (i) As laid down by the Apex Court (Delhi Transport Corporation vs. D.T.C. Mazdoor Congress on 4 September, 1990 = 1990 (9) TMI 334 - SUPREME COURT), the doctrine of reading down is applied where the provisions of the statute are vague and ambiguous and it is possible to gather the intention of the legislature from the object of the statute, the context in which the provision occurs and the purpose for which it is made. • In the case on hand. the title of section 13(8) of the IGST Act shows that it is meant to "apply to specified services", and clauses (a) and (c) relate to "pure services". Clause (b) cannot take in its fold "services" in relation to "goods"; because the entire CSI* Law maintains dichotomy between the "goods" and "services". Section 2(102) of the CGSST Act: "services" means anything other than goods, money and securities but includes... (ii) ....
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....at sense only. (State of Madras vs. Gannon Dunkerley & co. = 1958 (4) TMI 42 - SUPREME COURT OF INDIA) 12. In conclusion, it is respectfully submitted: (a) The defined term or phrase must receive the same meaning throughout the statute, unless context compels otherwise. (b) When the Legislature uses a particular phraseology, full meaning must be given by following the rules of English grammar. In that sense, the word: "intermediary" being an adjective of services, in section 13(8) (b), the defined word: "intermediary" cannot be brought-in to inject the concept of services relating to goods. (C) The expression, "intermediary services" had acquired definite connotation when the POPS Rules, 2012 were brought in to play, namely, the services differentiated from the '*main services". Since the term "intermediary services" is nomen juris. it must be interpreted in its legal sense only: (d) It therefore. follows that the section 13(8) (b) cannot be held as taking away the benefit of export service as defined in section 7 (5) (a) of the IGST Act. Consequently "zero-rated tax" benefit under section 16 would be available. VI-PRAYER: 13. In the circumstances, the....
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.... (d) admissibility of input tax credit of tax paid or deemed to have been paid; (e) determination of the liability to pay tax on any goods or services or both; (f) whether applicant is required to be registered; (g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term. Whether a transaction is Export of Services or not is dependent upon the fact as to whether Supply of Services is out of India or Not. Consequently, if the MAAR proceeds ahead with examination and consideration of this fact, discussion and finding on aspect of place of supply will be inevitable. The Act limits AAR to decide issued earmarked for it under Section 97(2) of MGST/CGST Act. Therefore, where a question also involves examination of place of Supply (which is not amongst the issued which can be decided by AAR), the question cannot be taken by the authority for lack of jurisdiction. (Ref. Decision by Haryana Authority for Advance Ruling HAR/HAAR/R/2018-19/6) = 2018 (7) TMI 1334 - AUTHORITY FOR ADVANCE RULINGS HARYANA. • Secondly, we may ref....
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.... Sh. Rishikesh Wagh, Asstt. Commr. of S.T. (D-906), Mumbai appeared and stated that they would be making submissions immediately. 05. OBSERVATIONS We have gone through the facts of the case, submissions made by the applicant and the documents on record. The applicant, Ms Vishaka Prashant Bhave, is the proprietor of the firm M/s. Micro Instruments (hereinafter referred to, as 'MI') and had made the subject application in her capacity as a proprietor. Briefly stated, MI is providing services to its Principals at Germany, by way of procuring Purchase Orders (P. O.) from the parties in India who desire to purchase advanced type of Laboratory Equipment from their Principals. A floor price is fixed by the Principals for the said equipments and MI negotiates the terms of supply including fixation of price above such floor price, for which they receive commission in convertible foreign exchange". After the negotiations are concluded, the prospective customer in India places the order directly on the Principals at Germany, arranges for remittance of purchase price arrived at and the material is directly supplied to them by the foreign Principals. The applicant has submitted that in....
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.... stated that the services provided by them in the subject case would be termed as "taxable services" under the GST Regime, because they do some activity for which monetary consideration, that is, "Commission" amount is received by them, in this case, in freely convertible currency. We agree with this contention of the applicant that they are providing taxable services in the instant case. Since the applicant, being the supplier of service is located in India and the recipient of Service i.e. supplier of goods is located outside India, Section 13 of the IGST Act, 2017 would be applicable to determine the place of service. As per Section 13 (8) (b) of the said Act, the place of supply of Intermediary Services shall be the location of the supplier of services, in this case, the applicant. Since the place of supply of services in the instant case is in taxable territory, the said intermediary services cannot be treated as export of services under the provisions of the GST laws. In order to classify as 'export of service', as per section 2(6) of the Integrated Goods and Service Tax Act, 2017, one of the crucial condition as contained under sub-clause (iii) requires that the place ....
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....ection. shall be treated to be a supply of goods or services or both in the course of inter-State-trade or commerce. As per intra-state provisions contained in Section 8(2), the said provisions are subject to the provisions of section 12 of the IGST Act. As per section 12, the provisions of section 12 would be applicable only for determining the place of supply of service where the location of supplier of services and the location of recipient of the services is in India. When recipient is located outside India the said provisions of section 12 cannot be made applicable and since provisions of section 8(2) are inter-linked with provisions of section 12, the same cannot be made applicable in case the recipient of service is located outside India. Thus we find that in case the intermediary services are provided to the recipient located outside India, the inter-state provisions as contained under section 7(5) (c) shall be applicable and hence IGST is payable under such transaction. 06. In view of the extensive deliberations as held hereinabove, we pass an order as follows : ORDER (under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Go....