TaxTMI 
TaxTMI 
2019 (9) TMI 990
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.... be applicable on the management fees charged by us to the Company 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....
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....it will make our quotation high and non-competitive compared to other competitors and if we pay the same out of our pocket we would be under loss and the whole business would be unviable 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 ....
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....marine Cargo International LLP will charge them USD 25,000/- per ann. for Export of Management & consultancy services & for the other expenses like rent, electricity, payroll etc. i.e. reimbursement of expenses, it shall be reimbursed on actual basis by MSS Marine Ltd. All the payments would be received in 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;....
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....ses. The expenditure would be purely incurred for MSS Marine Ltd. & shall be reimbursed on actual basis which shall be received in foreign convertible exchange. For payment of such expenses, applicant will take prior approval of MSS Marine Ltd and also as per compensation for services, the applicant will raise separate invoices for reimbursement of expenses & Management Fees as stated in the draft outsourcing agreement attached as Annexure 2. We are acting as pure 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 th....
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.... exempt supply. (3) A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely:- (a) he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilized input tax credit; or (b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on 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,- (....
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....ent 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 goods or services or both; (b) neither intends to hold nor holds any title to the goods or services or both so procured 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 qualif....
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....ave complied with all the conditions for export of services and hence covered under the definition of "Zero Rated Supplies". 3. CONTENTION - AS PER THE CONCERNED OFFICER The submission, as reproduced verbatim, could be seen thus- 1. "This office does not possess any records relating to the Cen. Excise registration and/or Service tax registration or disputes, if any for the past period on the issue under consideration. So, it is not in a position to provide requisite details sought vide notice under AR provisions or comment on any past practice/status. The position including disputes if any, on the issue in question for past period therefore may kindly be caused to be disclosed by the party. As such, the submissions hereinafter are being made without prejudice to any position under the existing law. 2. At the outset 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 earning....
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....f supply of such services shall be the location of the supplier of services. In this view, the services to be provided by the applicant do not qualify to be regarded as 'Export of service when read with Section 2(6) of the Act ibid and therefore they would be liable to obtain registration under GST and discharge tax on services so provided. (iii) Without prejudice to above, it is also forthcoming from their submission that the ships would trade between several ports in middle east countries of Saudi Arabia, UAE and other Asian countries including India, Thailand, China, Korea, Taiwan, Singapore and few vessels in Europe. Here, it would be apt to consider concept of 'Supplies to territorial waters' which clarifies that where the location of the supplier or place of supply is in the territorial waters of India then such location or place is deemed to be in the coastal state or Union territory 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 p....
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....rdingly. Considering the above submission and facts available on records, Honourable ARA may take the decision based on merit as deemed fit. 4. HEARING Preliminary hearing in the matter was held on 07.05.2019. Sh. Manthan A. Ruparelia, C.A. appeared and requested for admission of their application. He has withdrawn question nos 1 and 2. Jurisdictional Officer was not present for the preliminary hearing. Application was admitted & called for final hearing on 02.08.2019. Sh. Manthan A. Ruparelia, C.A., appeared, made oral and written submissions. Jurisdictional Officer Sh. Rajesh Sharma suptt., also appeared and made written submissions. 5. 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. Their queries are in respect of a proposed transaction to be undertaken by them. The question numbers 1 and 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, offic....
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....o various countries at principals cost to meet with port agents, shippers, charterers to discuss operational efficiency, etc. It is very clear from a reading of the work to be provided that the applicant is arranging or facilitating the supply of goods or services or both between various persons. As defined under Section 2[13] of the IGST Act, 2017) "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. It is evident that the applicant is arranging or facilitating the business of its foreign client by liaising with their customers for the purpose of commercial relationships between the service recipient and vessel Owners, shippers, consignees, various port agents. From their submissions, it 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 o....
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....ual basis done with prior approval of MSS Marine Ltd. Hence along with other arguments, the applicant has contended that such reimbursements are received by them in the capacity of a pure agent and is therefore not taxable under GST laws. As per Rule 7 of Draft Determination of Value of Supply Rules the expenditure or costs incurred by the supplier as a pure agent of the recipient of supply of services shall be excluded from the value of supply, if all the following conditions are satisfied:- 1. The supplier acts as a pure agent of the recipient of the supply, when he makes payment to the third party for the services procured as the contract for supply made by third party is between third party and the recipient of supply. 2. The recipient of supply uses the services so procured by the supplier service provider in his capacity as pure agent of the recipient of supply. 3. The recipient of supply is liable to make payment to the third party. 4. 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....