TaxTMI 
TaxTMI 
2019 (9) TMI 990
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....for managing the job outsourced to us? 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 to the earlier, henceforth for the purposes of this Advance Ruling, the expression 'GST Act' would mean CGST Act and MGST Act. 2. FACTS AND CONTENTION - AS PER THE APPLICANT The submissions, as reproduced verbatim, could be seen thus- "We are mainly in to Management consultancy services to ship owners, logistics services through water etc in Mumbai. Previously we had applied for GST registration, however, as our turnover was not exceeding the exemption limit we have applied for cancellation of GST registration w.e.f. 28/05/2018. Now, we have been offered an outsourcing work of managing the shipping operations of Hong Kong based shipping company MSS Marine Ltd, which is involved in worldwide shipping consultancy and logistics arrangement of cargoes. Primarily their ships trade between several ports in middle east....
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.... for us. Considering the above facts, we have the following questions for advance ruling:- 1. Whether we need to apply for GST registration as the services provided are export of services? 2. Whether can we do supply of such services under LUT? 3. Whether GST is applicable on the reimbursement of expenses such as salaries, rent, office expenses, travelling cost etc.? 4. Whether GST will be applicable on the management fees charged by us to the Company for managing the job outsourced to us? Addition submissions In this connection, we wish to submit as under: Brief about the Indian Company: Maans Marine Cargo International LLP (LLPIN-AAB-8239) is mainly engaged in to Management consultancy services to ship owners, logistics services through water etc in Mumbai having registered address at 1102, Gambs Tower CHS Ltd, 4, Bunglow Road, Andheri West, Mumbai - 400 053. Applicant had applied for GST registration previously but cancelled the same with effect from 28/05/2018 as the turnover was not exceeding the exemption limit. Brief about the Hong Kong Company: MSS Marine Ltd. is involved in worldwide shipping consultancy and logistics arrangement of cargoes. Primarily their ....
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.... foreign convertible exchange. Further, as per the recent circular no. 107/26/2019-GST of CBDT dated 18th July 2019 (attached as Annexure 3), certain clarifications have been provided in relation to Information Technology enabled services ('ITes Services'), wherein ITes services which are not defined under the GST law but the definition is taken from sub-rule (e) of Rule IOTA of the Income Tax Rules, 1962 pertaining to Safe Harbour Rules for International Transaction which is as under: "information technology enabled services" means the following business process outsourcing services provided mainly with the assistance or use of information technology, namely:- (i) back office operations; (ii) call centres or contact centre services; (iii) data processing and data mining: (iv) insurance claim processing; (v) legal databases; (vi) creation and maintenance of medical transcription excluding medical advice; (vii) translation services; (viii) payroll; (ix) remote maintenance; (x) revenue accounting; (xi) support centres; (xii) website services; (xiii) data search integration and analysis; (xiv) remote education excluding education content development; or ....
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....re agent to MSS Marine Ltd. and these transactions as covered in Rule 33 of the GST rules. The rule is reproduced as under:- Value of supply of services in case of pure agent.-Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded front the value of supply, if all the following conditions are satisfied, namely,- (i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorization by such recipient; (ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and (iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account. Explanation.- For the purposes of this rule, the expression "pure agent" means a person who- (a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of ....
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....goods or services or both supplied, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rides made there under." 4. Further, recent circular (attached as Ann. 3) also clarifies that supplier of ITeS services, who is not an intermediary in terms of sub-section (13) of section 2 of the IGST Act, can avail benefits of export of services (is a zero rated supply) if he satisfies the criteria mentioned in sub-section (6) of section 2 of the IGST Act, which reads as under- "export of services" means the supply of any service when,- (i) the supplier of service is located in India; (ii) the recipient of service is located outside India; (iii) the place of supply of service is outside India; (iv) the payment for such service has been received by the supplier of service 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 I in section 8. The above said services are in nature of 'Export of Services' and the applicant shall provide general advice and assistance in relation to such services, as required, from time to....
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....ocured or supplied as pure agent of the recipient of supply; (c) does not use for his own interest such goods or services so procured; and (d) receives only the actual amount incurred to procure such goods or services in addition to amount received for supply he provides on his own account. 3. Management fees charged would qualify as export of services and no GST is payable: 4. As per legal understanding, the aforesaid services rendered by the us would qualify as "Zero Rated Supply" in terms of Section 16 of the Integrated Goods & Service Tax Act, 2017 for the reasons stated hereinafter. The provisions contained in Section 16 of the Act, ibid are reproduced below for ready reference. "16. Zero rated supply.- (1) "zero rated supply" means any of the following supplies of goods or services or both, namely: (a) export of goods or services or both; or (b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit. (2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero rated supplies, notwithstanding that such supply may be....
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.... after going through the ARA application it appears that applicant has not submitted copy of any draft agreement/contract or offer letter received from the customer MSS Marine Ltd., Hong Kong to evaluate the terms of the contract/outsourcing job from GST perspective on merits. Terms of the contract could provide vital details of supply and nature of earnings to be received etc. Therefore application filed by the applicant is incomplete/unsubstantiated. 2.1 Ongoing through details furnished by the applicant on the nature of activity in statement to application, it is inter-alia forthcoming that with respect to job to be outsourced to the applicant management fees would be deceived by them. In addition they would also be getting reimbursement of establishment expenses to be incurred here in the taxable territory. The comments on question placed before the ARA are as follows: 3. Whether they need to apply for GST registration as the services to be provided considered as "export of services?? 3.1 (i) In this regard, it may be stated that the applicant has described nature of their service/supply under Sr. 12B (Description) of the Application form ARA-01 as. BPO work on behalf of the....
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....erritory where the nearest point of the appropriate baseline is located. Since the nature of services to be provided as declared are related to vessel owners, shippers, charterers, consignees, port-agents etc. who or such vessels could also be located within Indian territorial waters/territory while providing service. In that case and to that extent, location or place of supply would be deemed to be Indian territory itself. 3.2 Whether they can supply such services under LUT? As the place of supply of services as discussed in previous para becomes location of the supplier, hence being taxable, answer to this question is in the negative. 3.3 Whether GST is applicable on reimbursement of expenses such as salaries, rent, office expenses, travelling cost etc.? The reimbursement shown is pertaining to establishment cost i.e office expenses etc. which would be incurred for running office by the supplier in India. The same would be recovered in addition to management fees from their clients, therefore it is an additional consideration for the supply. As such, the same needs to form part of the taxable supply/value as per Section 15(2)(c) of CGST Act and GST would be applicable on the ....
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....d 2 have been withdrawn by the applicant and therefore we will take up for discussion, the issues in the question nos. 3 & 4 raised by the applicant which are as under:- 3. Whether GST is applicable on the reimbursement of expenses such as salaries, rent, office expenses, travelling cost etc.? 4. Whether GST will be applicable on the management fees charged by us to the Company for managing the job outsourced to us? The applicant has submitted that they propose to enter into an outsourcing agreement through which they will provide backend services in respect of foreign business carried out by MSS Marine Ltd in Hong Kong and the job includes : handling all communications between vessel Owners, shippers, consignees, various port agents. Passing information to all parties with regards to vessel schedule and her operations. Drafting contracts of shipments and sending the same to ship owners and shippers or charterers as the case maybe, Preparing reports on time used per voyage and presenting to shippers reports on additional time used per shipment, Preparing invoices on behalf of clients as per contract and presenting them to charterers as per approval from principals, Reconciling....
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.... is seen that certain activities are undertaken by the applicant on behalf of their foreign client, and they are seen as fulfilling the criteria of the Agent as defined under Section 2(5) of the CGST Act, 2017. It is also seen that the nature of the supply in this case does not show that the supply is being undertaken by the applicant on their own account, for example, when the applicant's personnel travel to various countries to meet with port agents, shippers, charterers to discuss operational efficiency they would be actually facilitating the supply of services between such persons. The travel to the various port agents, shippers, charterers would be on behalf of their client namely MSS Marine Ltd, Hong Kong and would report back the concerns, ideas, etc of port agents, shippers, charterers to MSS Marine Ltd, Hong Kong. These services are not rendered on their own account. Further, handling communications between Vessel Owners, shippers, consignees, various port agents, passing information to all parties with regards to vessel schedule, etc is nothing but facilitating the supply between such persons. We do not agree with the applicant's submission that they are not arranging or ....
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....The recipient of supply authorizes the supplier to make payment on his behalf. 5. The recipient of supply knows that the services for which payment has been made by the supplier shall be provided by the third party. 6. The payment made by the supplier on behalf of the recipient of supply has been separately indicated in the invoice issued by the supplier to the recipient of service. 7. The supplier recovers from the recipient of supply only such amount as has been paid by him to the third party and 8. The services procured by the supplier from the third party as a pure agent of the recipient of supply are in addition to the supply he provides on his own account. We have already found that the applicant is not a pure agent. In the subject case the applicant is making payments to vendors for supply received by them. The applicant is not making payment to the third party for the services rendered by such third party to the recipient of supply, under a contract for supply. In the subject case the recipient of supply is not liable to make payment to third parties and therefore it can be said that the applicant is not making payments on behalf of the recipient of supply. Hence i....