TaxTMI 
TaxTMI 
2019 (6) TMI 719
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.... the Services rendered by the applicant? 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 any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further, for the purposes of this Advance Ruling, a reference to "GST Act" would mean CGST Act or MGST Act. 02. FACTS AND CONTENTION - AS PER THE APPLICANT The Applicant", an India-focused investment advisory firm that currently advises and manages approx. USD 1 billion of Private Equity Funds with registered office at 701/A, Poonam Chambers, 'B' Wing, Dr. Annie Besant Road, worli, Mumbai 400018, India and GSTIN 27AAGCM0997F128, in its capacity as Investment Manager has assisted in making 11 investments for 'Multiples Private Equity Fund' during the period 2011 to 2015 across various sectors including financial services, manufacturing, healthcare, media & entertainment, power exchange, etc. It has also assisted in making 9 investments for 'Multiples Private Equity Fund II LLP during the period 2015 to 2018 in sect....
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....ccepted into the Fund. After Setting up of the Fund, the Applicant is appointed as the Investment Manager of the AIF Fund, for the primary purpose of advising, managing and administering the Fund Assets by providing professional advice and investment management related services for operation and management of the AIF Fund. With regard to the Contributor's Funds pooled into the AIF Fund, the Applicant renders the various services which is summarized below - a. Advising on Investment Strategies. b. Identifying and evaluating Investment opportunities across various sectors. c. Due Diligence of the investment opportunities. d. Negotiating terms of Investments and Making Investment decisions. e. Continuous Monitoring of Portfolio Companies where the funds are invested. f. Making Divestment decisions for the Portfolio companies at the appropriate time and price. g. Preparing the communications for the contributors on a quarterly basis; providing updates on the business & financial performance of portfolio companies. h. Realizing, exchanging or distributing Portfolio Investments which will include the purchase, sub....
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....ent are distinct Persons. Hence the Advisory & Management Fees received from Overseas Contributors will be treated as Export of Services as per Sec 2(6) of the IGST Act, 2017 and will be treated as Zero Rated Supply as per Sec 16 of the IGST Act, 2017. The applicant also made Additional submissions on wherein they reiterated their earlier submissions and further have mentioned that: The Applicant does the fund-raising activity by approaching various Overseas Investors, explaining them the Investment Opportunity in India and the Indian growth story, post which, if the Overseas Investor is convinced to invest in India, he will provide his Commitment ; The Funds belong to the Overseas Contributor and the Applicant is responsible to the Overseas Contributor for obtaining such return on the Investment for which the Applicant prepares communications for the contributors on a quarterly basis; providing updates on the business & financial performance of portfolio companies ; The A IF, setup by the Applicant has no Employees and no Infrastructure. It is just an Investment Vehicle setup to satisfy SEBI requirements to pool in the funds of the Contributors and does not retain any profits. ....
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....bmissions in due course. The application was admitted and called for final hearing on 19.12.2018. The applicant requested for adjournment of the case and as requested, the hearing was adjourned to 10.01.2019 when Sh. Satish S, Sh. Akshay Arvind and Sh. D Arvind appeared and made oral and written submissions. Jurisdictional Officer Sh. Vivek Anand, Asstt. Commr. of CGST & CX, Divn-VIII, Mumbai Central also appeared and made written submissions. 05. OBSERVATIONS We have gone through the facts of the case, documents on record and submissions made by both, the applicant as well as the jurisdictional office. We find that as per Section 2 (b) of the SEBI (Alternative Investment Fund) Regulations, 2012 (AIF Regulations) an Alternative Investment Fund (ALF) means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate, which is a privately pooled investment vehicle and which collects funds from sophisticated investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors. Thus we find that the AIF has the following characteristi....
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....licit or collect funds except by way of private placement by way of issue of information memorandum or placement memorandum and investment is open to both, domestic and foreign investors. As per Regulation No. 9. (1) of the AIF Regulations, all Alternative Investment Funds shall state investment strategy, investment purpose and its investment methodology in its placement memorandum to the investors. The placement memorandum, in addition to various information, should contain information about the AIF, the Manager and background of the investment team of the manager, targeted investors, fees and all other expenses proposed to be charged, tenure of the Alternative Investment Fund or scheme, conditions or limits on redemption, investment strategy, risk management tools and parameters employed, key service providers, conflict of interest and procedures to identify and address them, disciplinary history, the terms and conditions on which the Manager offers investment services, etc and such other information as may be necessary for the investor to take an informed decision on whether to invest in the Alternative Investment Fund. A decision has to be taken on the optimum structure for ....
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....acement memorandum (PPM)" and Fund constitutive documents, approaching various investors to explain the investment opportunity and obtain commitments from them to invest into the Fund, etc. With reference to classification and the rate of tax we agree with the applicant's submission that the Investment Advisory & Management Services provided by the Applicant falls under the definition of Supply as per Sec 7 of the CGST Act, 2017 and is classifiable under Heading 997153 as per Notification 11/2017-CGST (Rate) dated 28th June 2017 with a GST Rate of 18%. However we do not agree with the applicant contention that they are providing service to the investors directly because from the submissions made by the applicant we find that they will in fact be advising and servicing the AIF based on which the AIF will take the investment or disinvestment decision on behalf of the investors who have pooled in their money. As per Regulation No. 4(i) of the AIF Regulations, the AIF Fund should clearly describe, at the time of registration the investment objective, the targeted investors, proposed corpus, investment style or strategy and proposed tenure of the fund. Thus it is clearly seen that....
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....ntributions To invest these contributions in the markets the Funds uses the services of the Manager, in this case the applicant, who advises the Fund on the strategies of investment, time of divestment, etc. We find that the applicant, even when they are providing services to the Fund by which of investment advice are billing their fees to the investors which is not proper in the normal course of business. Just because they are going to receive fees from the investors does not mean that the supply of service is made to the investors. The facts enumerated by the applicant clearly shows that their supply of services is to the AIF which is a different entity. The applicant has relied on the definition of recipient u/r 2 (93) of the GST Act which says that recipient of service is the one who is liable to pay the consideration which is reproduced below:- "recipient" of supply of goods or services or both, means- (a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration; b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made av....
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....supply of banking and other financial services, including stock broking services to any person shall be the location of the recipient of services on the records of the supplier of services: Provided that if the location of the recipient of services is not on the records of the supplier, the place of supply shall be the location of the supplier of services. It is very clear that both, the applicant and the AIF are in taxable territory and the services rendered by the applicant to the AIF are taxable and therefore GST is payable, by application of the provisions of Section 12(12) of the IGST Act, 2017. QUESTION NO. 2:- Whether GST is applicable on the Advisory & Management Fees received in Foreign Currency from Overseas Contributors located outside India for the Services rendered by the applicant? As discussed above, the Advisory and management Services are provided to the AIF, which is a separate legal entity which makes investment decisions on the advice of the applicant and therefore sub-section 12 of Section 12 of IGST Act, 2017 will apply in this case also as both supplier and the recipient of service are located in India. For the same reason, we do not agre....