TaxTMI 
TaxTMI 
TaxTMI 
2019 (2) TMI 126
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....ainst the advance Ruling No. KAR ADRG 23/2018 Dated: 19th sept 2018, = 2018 (10) TMI 597 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA Brief Facts of the case: 1. M/s. Toshniwal Brothers (SR) Private Limited is a company located at, No. 11, AECS Layout, 4th Main, 3rd Cross, Sanjay Nagar 1st Stage, Geddalahalli, Bengaluru - 560094, having GSTIN number 29AAACT2881R1ZJ, 2. The Appellant -states that he is a supplier of services to overseas clients and is engaged in the business of marketing, sales promotion and post sale support services. Appellant entered into an agreement with their customers (Service Recipients), who are located outside India (which is a non-taxable territory in terms of clause (79) of section 2 of the CGST Act, 2017) for providing marketing, sales promotion and certain post-sales support services. Consideration for these services would be received in convertible foreign exchange. 3. The services are provided respect of scientific instruments used in research and development / quality control primarily in fields of Nano Science, Material Science, Bio Pharma and Polymer Sciences. 4. The details of the service provided by them are as follows: a. Promotion and ma....
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....ective customer's name, order value, anticipated placement and expected delivery dates and long term project and prospect lists; ii. Results of regular observation of marketing conditions, information in the public domain relating to the activities of competitors; and iii. Results of participation in trade fairs. 5. The Appellant filed an application for Advance Ruling under section 98 of the CGST Act, 2017 and KGST Act, 2017 on the questions a. Whether pure and mere promotion and marketing services will be "intermediary services" for the purposes of section 12 of the Integrated Goods and Services Tax Act. 2017 for determining the place of supply of such services? b. If after sale support services are also provided under a composite contract, would it then be composite supply? What will be the principal supply for such contracts? e. Whether the above contracts would qualify as exports if the client is overseas entity, in terms of clause (6) of section 2 of the Integrated Goods and Services Tax Act, 2017 and will be a zero-rated supply as provided in section 16 of IGST Act, 2017? 6. Before the Authority for Advance Ruling, the appellant enumerated the following facts: ....
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....y bundled and supplied in conjunction with each other in the ordinary course of business. Therefore, after sale support services are provided along with promotion and marketing services and being a composite supply, one should be the principal supply. Appellant submits that the principal supply will be promotion and marketing services. 6.3. Appellant further submits that the services i.e., promotion and marketing services and after sale services as a whole, would be the export of services as provided in clause 6 of section 2 of IGST Act, 2017 because, i. The supplier of services, i.e. Appellant, is located in India; ii. The recipient of services, i.e. overseas entity, is located outside India; iii. The place of supply of service, is outside India; iv. The payment for such services will be received by the supplier of services in convertible foreign exchange; and v. The supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in Section 8 of IGST Act, 2017. Thus, they submitted that the supply of said services by the company are 'export of services' and consequently will become a zero-rated supply....
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....ent' on acceptance, rejection, non-performance or different performance of a contract and shall state decisive reasons underlying his decision, unless prejudicial to his own essential interests", Appellant should take care of interests of principal by regularly visiting the customers and prospective customers in his territory. On all contracts for the sale of goods which the Principal enters into with customers residing in the Agent's territory the Agent shall receive a commission of 12% on the value of goods as far as sales contracts are concerned that have been negotiated by the Agent and a commission of 6% for all other sales contracts. This commission is calculated based on the clause VI of the agency contract. In view of this the LAAR is of view that since the agent is having the right to receive commission from principal tar the sales contracts negotiated, Appellant can be termed as playing the role of an agent to the overseas entity. 8.3. Appellant submits that, the usage of the words 'agent' or 'intermediary' in the said agency contract should not be interpreted to mean an 'agent' or 'intermediary' as defined under the CGST Act, 2017 and Integrated Goods and Services Tax (....
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....gent) of the said agency contract, it states that the agent shall be informing the principal on the market trends, customer feedback in relation to such equipments. Further in paragraph 4 of the Sales Representation Agreement, the Appellant as a 'Representative' of the 'Manufacturer' has agreed to render Sales promotion, giving technical information, quotation follow-up, technical/ commercial negotiations, Installation and final commissioning and free services to customer during the warranty period. 8.6. Hence, in the instant case, Appellant acts does not qualify as an 'agent' as defined under CGST Act, 2017. The aforesaid services are provided on a Principal to Principal basis by the Appellant to the overseas entities. Further, there does not exist any Principal-Agent relationship during the course of rendering the aforesaid services based on the submissions made above. 8.7. Section 2(13) of the IGST Act, 2017: Definition of 'Intermediary'; "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 or more persons, but does not include a person who supplies su....
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....d judgement that to qualify as an intermediary, there should be two supplies at any one time: (i) the supply between the principal and the third party; and (ii) the supply of his own service (agency service) to his principal, for which a fee or commission is usually charged. The validity of the definition of intermediary services in the instant case should be analysed as the pre-sale and marketing services precedes the actual supply of goods, viz., the supply of goods from the overseas principal to the Indian customer and the supply of services by Appellant to the overseas supplier do not and never take place at the same point in time, as envisaged and required under the law - as outlined in the education guide. Therefore, one supply of service i.e. promotion and marketing services precedes the other i.e. supply of equipment and at no point of time, the two services are supplied at the same time as explained in the Education Guide. 8.9. Appellant has also drawn the attention of this authority to the Advance ruling pronounced by the Authority of Advance rulings under Service Tax provisions in the case of GoDaddy India Web Services Ltd. Ruling No. AAR/ST/08/2016, Application No.....
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....r movement of goods; Thus, they submitted that the services provided by them cannot be said to be intermediary services, by any stretch of imagination, 8.14. Appellant further submits that not all marketing activities will be 'intermediary services'. Only such of the marketing activities (and non-marketing services) which result in 'arranging or facilitating supply of goods' would be termed as 'intermediary services'. In this regard, Appellant drew the attention to the following provisions under the erstwhile Service tax provisions: In Explanation to Section 65(19) of the Finance Act, 1994(Service tax provisions), a commission agent was defined to mean 'a person who causes a sale or purchase of goods . .. for a consideration'. It is important to note that this was different, separate and distinct from 'intermediary services', since both co-existed under different provisions. Applying the above to Appellant's case, it becomes important to note that Appellant is merely causing a buying or selling (supplying) of goods from the overseas principal to the customer in India. Appellant is most certainly not engaged in 'arranging or facilitating supply of goods by the overseas principa....
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....tices to ascertain whether the two or more supplies of goods/services are naturally bundled or not. The relevant extract is as follows: "Whether services are bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators, some of which are listed below: * The perception of the consumer or the service receiver. If large number of service receivers such bundle of services reasonably expects such services to be provided as a package, (hen such a package could be treated as naturally bundled in the ordinary course of business. * Majority of service providers in a particulars area of business provide similar bundle of services. * The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature el services is such that one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoy....
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....tion With each other and thus qualifies the condition of 'Composite supply' under GST. 9.4. The promotion and marketing services can be termed as 'Principal supply'. The Appellant submits that the principal supply Will be promotion and marketing services because of the following reasons: * Marketing activities is the first step in the complete process; * After sale support services can be given only once product is sold; * Customer will place order to the service recipients on the -basis of promotion and marketing services provided by Appellant- it is only after the products are sold that after sale services arises; * The supply of the product by the overseas entity to the customer in India embeds within itself, the provision of after sales support; * Marketing determines the very sale of the product and as a complete offering, post-sales support is ancillary and incidental to the sale," * The essential characteristic of the services provided by the Appellant are marketing, sales promotion and brand building; coordination and providing all other support once the product is sold are by products of the sale of the product; * In terms of service agreement, promotion and....
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....urther, the location of the recipient of services is a place outside India. Therefore, the place of supply for promotion and marketing services shall be the place outside India. 10.3. Further the appellant has reiterated the grounds filed before the AAR the provisions of clause 6 of sec 2 of IGST Act, 2017 and stated that, the supply of said services is 'export of services' and consequently will become a zero-rated supply as provided in Section 16 of IGST Act, 2017. However, it is to be noted that the LAAR has not commented on the same since it is not in the purview of the jurisdiction of the said Authority as it amounts to determination of place of supply. PERSONAL HEARING 11. The appellants were called for a personal hearing on 15/11/2018 and they were represented by Sri. Badrinath, Chartered Accountant, who reiterated the arguments in the grounds of appeal. The appellant argued that Appellant's acts do not qualify as an 'agent' as defined under CGST Act, 2017. The services of marketing, sales promotion and post sale support services are provided on a Principal to Principal basis by the Appellant to the overseas entities, Further, there does not exist any Principal-Agent rela....
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.... supply, 16. The Appellant also sought a ruling on a third question i. e whether the contracts in question would qualify as exports in terms of Section 2(6) of the IGST Act and whether they will be treated as 'zero-rated supply' in terms of Section 16 of the said Act. On this question, the AAR refrained from giving a ruling on the grounds that the question warrants determination of place of supply, which aspect is outside the purview of the AAR. 17. Aggrieved by the above ruling of the AAR, the Appellant is before us in appeal on all the three questions. The Appellant has placed before us the Agency Contract entered into with Brabender GmbH & Co.KG, Germany. We have gone through the contract in detail and the discussions made hereunder are keeping the terms of this contract in mind. We find that in terms of the Agency Contract, the Appellant has been accorded exclusive agency in the territory of lndia and Bangladesh with respect to all measuring and test instruments produced by Brabender GmbH & Co. KG for the food industry business. On going through the Agency contract, it is seen that the Appellant has been appointed as an agent to negotiate business transactions on behalf of th....
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.... However, an intermediary would not only be a person who is a broker or an agent but also 'any other person, by whatever name called'. The use of the expression 'or any other person, by whatever name called' tends to delimit the scope of the intermediary to apply only to broker or an agent. The words agent, and broker (used in definition of the word 'intermediary' in the IGST act) are only in the broad construct of being an intermediary or a representative, but are not substitutes for each other. In addition. the third part of the definition expands rather than limits the meaning of who an intermediary is to one who is only an agent or a broker. 18.2. Furthers the phrase "who arranges or facilitates the supply goods or services or both, or securities, between two or more persons" in the clause defining 'intermediary' gives a clear indication of intendment in as much as it ascribes a quality to the person who is to be construed as an intermediary. In Grasim Industries Limited v, Collector of Customs, Bombay [CASE NO.: Appeal (civil) 1951 of 1998, DATE OF JUDGMENT; 04/04/2002] = 2002 (4) TMI 52 - SUPREME COURT OF INDIA, the Supreme Court held that in matters of interpretation one sh....
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....iting the customer or the prospective customer, providing them with technical information of the product, furnishing the quotation, negotiating the price of the product with the customer either personally or through correspondences. All these activities performed by the Appellant in the assigned territory are to be regularly informed to the Principal along with the documents. Based on this information, the overseas entity will either contact the customer and negotiate the contract with the customer or the Appellant himself can negotiate the Contract with the customer on behalf of the Principal; for the sale of the product of the overseas entity. However the Principal shall be free to conclude, or to refuse the conclusion of a contract negotiated by the Appellant and it is binding on the Principal to inform the Appellant about the acceptance, rejection, non-performance or otherwise of a contract, and shall state the decisive reasons underlying his decision unless such statement is prejudicial to his own essential interests. For all contracts of sale of goods which the Principal enters into with customers residing in the Appellant's territory and which have been negotiated by the App....
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....) should not be levied to tax. However, when a similar activity by similarly placed entity (in India) acting to fulfill the same function for another Indian entity would normally be exigible to GST, the Appellant's contention goes against the grain of the expressed intention of the legislature. Upholding such a result, will not be tenable. This would happen only when we ignore the fundamental idea of GST being a destination based consumption tax and insist on applying the rule of Noseitur a sociis inappropriately to certain words/ phrases used in Section 2(13) of the IGST Act. It is an accepted fact that GST is destination based tax in the sense that it is levied on commercial activities and it is not a charge on the business but on the consumer. 18.7. The definition of 'intermediary' as given in Section 2(13) of the IGST Act excludes a person who supplies such goods or services or both on his own account, It is the contention of the Appellant that the services of promotion and marketing are being provided to Brabender. Germany on their own account and they are not engaged in buying or selling or supplying goods on behalf of the Principal. It would be worthy to analyze the definit....
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....motion and marketing services are supplied to the Principal on their own account and hence they fall within the exclusion clause of the definition of intermediary is not a correct interpretation of the law. The language of the exclusion clause is such that it is applicable to those persons who supply such goods or service (or both) on their own account. If a person either 'facilitates' or alternately 'arranges' any supply of goods or service (or both), between two or more persons. and does not supply such goods or service (or both) on his own account, he would be regarded as an 'intermediary'. At the risk of being repetitive, the Appellant is clearly facilitating the supply of the products of the overseas client directly to the client's customers in the territory of India and is not supplying such goods on his own account. Therefore, the Appellant does not fill within the ambit of the exclusion. 18.10. The Appellant in his grounds of Appeal has relied heavily on the ruling given by the Authority of Advance Rulings under the Service Tax provisions in the case of GoDaddy India Web Services (P) Ltd Ruling No. AAR/ST/08/2016 = 2016 (3) TMI 355 - AUTHORITY FOR ADVANCE RULINGS wherein t....
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.... Coming to the second question - whether the after-sales service provided under a composite contract would amount to a composite supply and if so what would be the principal supply? Before proceeding any further, let us understand Composite supply as defined in sub section 30 of section 2 of the CGST Act, 2017 which is as under; "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. 19.1. The following parameters are to be applied to the facts of the case to determine whether the supply is a composite Supply or not: * two or more taxable supplies of goods or services or both, or any combination thereof * these taxable supplies are naturally bundled * these taxable supplies are supplied in conjunction with each other in the ordinary course of business * one of these taxable supplies is a principal supply 19.2. In the instant case there is no dispute that the Agency contract in question involves two taxable suppl....
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....en stated therein that 25% of the commission is attributable to the installation and warranty period services. By the Appellants own admission, the after-sales support installation service are not required in every case of sale since there are equipments which are typically in the nature of plug-and-play. Further, there are equipments which do not require installation but need to be configured remotely and the same is done by the manufacturers themselves, Therefore, the provision of after sales support by way of installation does not arise in each and every case. It is for this reason that the service recipient has earmarked only 25% of the commission payable as being towards the after sales support service since the same does not arise in every sale made to the customer. Therefore the question of being naturally bundled does not arise for the reason that every promotional activity with prospective customer does not result in a sale. Further, every sale does not necessarily mean that installation support or after sale support is required. Therefore, we are of the view that the after sales support service, although rendered in a composite manner with the promotion and marketing serv....