TaxTMI 
TaxTMI 
2019 (2) TMI 126
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....reinafter referred to as 'Appellant') against the advance Ruling No. KAR ADRG 23/2018 Dated: 19^th 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 prov....
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..... These business reports would normally include: i. Short and medium term forecasts detailing prospective 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 provi....
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....ce agreement for a single price and these two different elements of the services are not available separately. These services are naturally 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....
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....be free to conclude or to refuse the conclusion of a contract negotiated by the Agent and it is binding on the Principal to inform Appellant who is acting as 'Agent' 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 ....
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.... submits that the relationship between the overseas entity and the Appellant that of Principal to Principal as it is narrated in paragraph 2 of the Clause Il (Duties of Agent) 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 w....
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....ase of IN RE: Five Star Shipping dated 18.04.2018 GST-ARA-18/2017-18/B-26 = 2018 (7) TMI 1182 - AUTHORITY FOR ADVANCE RULING - MAHARASHTRA Considering the analogy adopted in the said 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....
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....liers (recipients of Appellant's services) and the opening of LC and exchange of other documents directly takes place between the overseas supplier and the Indian customer; • Appellant is not engaged in preparation of any such documentation and/or 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, i....
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.... following grounds: 9.1. The two taxable services are naturally bundled: Appellant submits that in accordance with the E-FIyer published by the CBEC on 15.03.2018 with respect to composite supplies and mixed supplies submits, enlists the indicators based on business practices 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....
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....services. 9.3. Further, the appellant has stated that In the instant case, the promotion and marketing services and after sale support services are being provided on single contractual arrangement entered into with the customer and hence such services are naturally bundled, as mentioned supra, and supplied in the conjunction 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 pro....
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....ces, under a bundled contract will be the overseas entity, which is located outside India. 10.2. Determination of place of supply of services: The Appellant submits that place of supply shall be determined as provided in Section 13 of IGST Act, 2017 because location of supplier is in India and location of recipient is outside India. As per section 13(2) of IGST Act, 2017, the place of supply of services shall be the location of the recipient of services. Further, 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....
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....nder a composite contract will be termed as a composite supply. If so, what will be the principal supply? 15. The Authority for Advance Ruling in their Order dated 19^th Sept 2018, held that the 'promotion and marketing services' provided is in the nature of facilitating the supply of goods and hence would amount to 'intermediary service', Further, the AAR held that the 'after-sale support service' is independent from the promotion and marketing service and is not a composite 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 ....
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....e supply of goods or Services or both or securities'. (ii) The supply arranged or facilitated must be between two or more persons. (iii) He is not the person who supplies such goods or services or securities on his own account. Though the term 'broker' and 'agent' are fundamentally different, a broker being a middleman whose job is only to facilitate Whereas an agent acts on behalf of the Principal, yet, these terms have been put under one umbrella in the definition of intermediary. 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 faci....
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....ring sales orders in respect of the goods or services of the client and like activities. 18.4. When we apply the general understanding of the term 'arranging or 'facilitation' to the instant ease, we find that the Appellant does in fact 'arranges' or 'facilitates' the supply of goods by Brabender, Germany to the customers in India. It is contained in the Agency contract of Brabender, Germany, that the Appellant is assigned the job of promoting the business of the overseas entity in the assigned territory by visiting 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....
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....reference to the taxable territory and with reference only to such goods that are intended to be sold in India. Devoid of the product and the taxable territory, there is no appreciation which can be had of the supply or the engagement which the Appellant creates. In effect, the basic contention of the Appellant is that the services supplied by him in the form of marketing, market penetration, consolidation, market building and support activity for the goods supplied by a foreign entity in the domestic territory (India) 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 co....
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....ny and the Principal's customer in India. He is not supplying the products of Brabender on behalf of the Principal. He is only arranging the contact between the Principal and the Principal's customer and the actual supply of the products is done by the Principal directly to the customer. The service of facilitating a supply of goods between the Principal and the customers is provided by the Appellant to the overseas client. The Appellant is not supplying such goods on his own account. 18.9. The argument of the Appellant that the promotion 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 ....
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....that the service of promotion and marketing of the products of the overseas client is in the nature of facilitating the supply of the products of the overseas client and is appropriately classified as an 'intermediary service' as defined under Section 2(13) of the IGST Act. Having concluded that the service supplied by the Appellant is classified as an 'intermediary service' as defined under Section 2(13) of the IGST Act, it automatically flows that the place of supply of such service will be in terms of Section 13(8) of the IGST Act. 19. 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. ....
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....ts supplied by the Appellant, the Principal will decided whether to conclude a contract with the customer in India. The decision of the Principal regarding the conclusion of the contract with a customer or its rejection will be informed to the Appellant. In case the Principal agrees to a contract with a customer, the Appellant get a commission which is agreed upon as 12% of the value of the goods sold. While the Agency contract states that the commission is for all the services provided by the Appellant which includes pre-sales, marketing, installation and warranty period services, it has been 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 s....