TaxTMI 
TaxTMI 
2019 (11) TMI 475
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.... MAHARASHTRA. BRIEF FACTS OF THE CASE A. The facts relevant for the purposes of these appeal proceedings, briefly stated, are as under:- (a) The Appellant is a sole Proprietary firm carrying on the business in the trade name: "MICRO INSTRUMENTS", and holds GSTIN Number: 27AHSPB0847K1Z2 under the Maharashtra Goods & Services Tax Act, 2017 (MGST Act). (b) The Appellant is an accredited Distributor of M/S Carl Zeiss Microscopy GmbH, Jena, Germany, manufacturers of Laser Scanning Microscopes and Systems. The Appellant is, inter alia, dealing in Laboratory Instruments & its spare parts, Laboratory Equipment, and carries on other related activities such as servicing, repairs and maintenance of Laboratory Instruments/ Equipment. A copy of the Dealership Agreement is enclosed with the Appeal. (c) One of its activities relates to providing services to M/S Carl Zeiss, Germany, (for brevity: "the Principals") by way of procuring/securing Purchase Orders (P.O.) from the Indian customers desirous of purchasing advanced type of Equipment, by negotiating the terms of supply including fixation of price above the floor price, fixed by the Principals. (d) If the Appellant can negotiate b....
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....r the "Commission" received by the Applicant in convertible Foreign Exchange for rendering services as an "Intermediary" between an exporter abroad and an Indian importer of an Equipment; is an "export of services" falling under section 2(6) & outside the purview of section 13 (8) (b), attracting zero rated tax under section 16 (1) (a) of the Integrated Goods and Services Tax Act, 2017?" D. During the Course of hearing before the Advance Ruling Authority, reference were made to various provisions of the IGST ACT, the basic philosophy and principles governing the GST Laws and pointed attention was drawn to the Apex Court decision in the case of RBI vs. Peerless General Finance and Investment co. Ltd. (1 SCC 424) = 1987 (1) TMI 452 - SUPREME COURT on settled principles of interpretation of statutes. E. Attention of the Learned Authority was also drawn to the case laws submitted in the Paper Book II and the other two direct decisions of the CESTAT in the case of Blue Star and ABS India Ltd., and the decision of the Delhi High Court, which had in paragraph 51, (quoted below) endorsed and approved the decision of the Customs & Excise Appellate Tribunal Larger Bench decision in the cas....
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.... claimed -Booking of order in India not indicative of rendering of services in India - Service delivered only to company located abroad - Service not to be considered as delivered in India when recipient located abroad - Benefit derived by recipient and hence, service utilized abroad - Impugned services having been exported. exemption under Export of Services Rules, 2005 admissible - Impugned order set aside - Section 11B of Central Excise Act, 1944 as applicable to Service tax vide Section 83 of Finance Act, 1994 - Rule 3(2) ibid, [para 4] G. At the end of the hearing the Learned Authority indicated that if the provisions of Section 13 (8) (b) of the IGST Act, are read literally it would mean that the 'intermediary services' would be taxable at the location of the supplier of services, i.e. the state of Maharashtra, where the Appellant /Applicant-Dealer, is registered. H. When the Department representative was called upon to make submissions, he was rather un-prepared and hence further time was given by the Learned Authority, suo motu, to place written /oral submissions on 2nd August 2018, with a direction to give an advance copy thereof to the Appellant. I. From the impugned O....
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....d by the Appellant? (e) When the expression "intermediary services" has not been defined, is it to be construed as 'Nomen Juris' or left open for multiple interpretations, meanings to be assigned by each reader, Authority? (f) When section 2 of the IGST Act starts by saying : "In this Act, unless the context otherwise requires", was it not obligatory for the Learned Authority to construe the defined term: "intermediary" as having restricted connotation to encompass only those "intermediaries" dealing in transactions involving supply of services alone & not supply of goods, as in the case on hand? (g) Whether the expression "intermediary services" in clause (b) has to be construed in conformity with the cognate clauses (a) & (c) of sub-section (8) referring to 'pure services' and in the context understood as "intermediary service" contradistinguished with "the main service"? (h) Whether the learned Authority grossly erred in law in concluding that section 13(8) (b) of the IGST Act is applicable in the facts and circumstances of the case? (i) Whether the learned Authority failed to appreciate that the burden of proof is on the taxing authority to establish that the case on ....
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....e Learned Authority has not discussed or distinguished any Court or Tribunal decisions laying down some sound principles of law. While the case laws were based on the law prevailing on the date the GST regime was ushered in, yet the GST law is nothing but a compendium of various laws which were subsumed without touching the core principles of VAT system of taxation, best described in the following words of the Supreme Court:- "It is clear that Service Tax is a VAT which in turn is destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on services provided within the country. Service tax is a value added tax". {All India Federation of Tax Practitioners and Ors. v. Union of India (UOI) and Ors. 2007 (7) S.T.R. 625 (S.C.)} = 2007 (8) TMI 1 - SUPREME COURT 5. The impugned Order no doubt reproduces the submissions urged in the Application filed on 15th May 2018 under section 97 of the CGST Act, but it takes no cognizance of the grounds & reasons mentioned therein, nor does it notice additional submissions placed before the Learned Authority after it had tentat....
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....her form, currency or denomination for which a separate consideration is charged; But the phrase or expression "intermediary services" has not been defined in any of the GST Laws (CGST/MGST/UGST or IGST) and consequently, one has to apply canons of construction to arrive at its true meaning and purport. Several aspects have to be examined to construe its meaning and purport on the contextual background & its setting in sub-section (8) which applies to "services" simpliciter; and not where the person renders "services" by facilitating or arranging the sale/purchase of goods. xxxx 10. Coming to the juxtaposed words, "intermediary services", there are two ways to read: one, as an adjective + noun, or secondly, as a compound word. Incidentally, there are three types of 'compound words' in English language:- (i) Closed form: Two words are joined together to create a new meaning (firefly, softball, redhead, keyboard, makeup, notebook). (ii) Hyphenated form: Words are joined together by a hyphen (daughter-in-law, over-the-counter, six-year-old). (iii) Open form: Words are open but when read together; a new meaning is formed (post office, real estate, full moon). It is evident th....
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....termediary" engulfed "both, goods or service" effective 14-10-2014, or under the IGST Act [sec. 2(13)] it makes no difference, because the phrase or expression has to be construed in the same sense, manner, as it had acquired in the predecessor legislation, namely, "intermediary services" as distinguished from the "main services". In other words, when the "intermediary" is acting as such for the goods, there are "two supplies" at one time, not "two services" at one and the same time. The term "intermediary" in the case on hand is a go-between the cross-border supply of goods; and not "services". 14. The term "intermediary" as defined in section 2 (13) of the IGST Act encompasses both categories, intermediary for "goods" or intermediary for "services"; but the defined word carries the same meaning as defined, in the enactment, unless the context otherwise requires. Section 2 of the definition section reads:- 2. Definitions.- In this Act, unless the context otherwise requires, - (13) "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 pers....
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....s the claim for "exemption" must be proved by the assessee by showing that his case falls strictly in the four corners of law, the claim of the Department must also be proved beyond any shed of doubt that the Appellant's case falls in the "exception" in clause (b) of sub-section (8) of section 13 of the Act; otherwise the benefit of doubt goes to opposite party. If there is any ambiguity or failure of the Department to claim that the Appellant's case falls in Rule 13(8) (b) of the Act, the benefit of doubt must be in favour of the Appellant. A reference may be made to the Constitution Bench decision handed down on the 30th July 2018: 'We may emphatically reiterate that if in the event of ambiguity in of taxation liability statute, the benefit should go to the subject/assessee. But, in a situation where the tax exemption has to be interpreted, the benefit of doubt should go in favour of the revenue.' Vide: Constitution bench of the Supreme Court in Commissioner of Customs (Import), Mumbai vs. M/s. Dilip Kumar and Company = 2018 (7) TMI 1826 - SUPREME COURT, 17. The above discussion shows that the expression or phrase, "intermediary services" is a nomen juris and has to be constru....
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....and hence taxable in India. USER In India Outside India USE In India 1 (Taxable) 2 (Taxable) Outside India 3 (Taxable) 4 (Export) Unquote: * The GST law also adopts the principles agreed at Uruguay Round. * Based on the leading case of Kesavananda Bharati it can be said that in case the language of domestic law (law enacted by the Parliament or State legislatures) are not clear, then the Court must rely on the International law (parent authority based on which the domestic law was enacted). (Also Article 263) 20. The VAT/GST law and its implementation in the Member country (India) cannot deviate from the basic guidelines. Here is the legal frame work: LEGAL FRAMEWORK The GATS covers governmental measures that would influence trade in any and all services (excluding services supplied in the exercise of governmental authority). The GATS defines 155 service sectors based on categories developed by the GATT Secretariat, and specifies four modes of trade in services (see Figure 11-2): 1) Cross-border supply (supply of services from the territory of one Member into the territory of another Member); 2) Consumption abroad (supply of services in the ter....
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....h company the service of transporting goods from the US to China. Even though the transport takes place fully outside the EU, this supply is taxable in Sweden, at the place where the customer is established. Sweden may make use of the effective use and enjoyment rule in order to avoid taxing such a transport taking place outside its territory and outside EU. * Each Member State is responsible for the implementation of the effective use and enjoyment rule. The use made of the rule must be verified with the Member State concerned. Subsection 10: Prevention of double taxation or non-taxation * Article 59a In order to prevent double taxation, non-taxation or distortion of competition, Member States may, with regard to services, the place of supply of which is governed by Articles 44, 45, 56 and 59:- (a) consider the place of supply of any or all of those services, if situated within their territory, as being situated outside the Community if the effective use and enjoyment of the services takes place outside the Community; (b) Consider the place of supply of any or all of those services, if situated outside the Community, as being situated within their territory if the effec....
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....e read as it is, without any addition or deletion or modification to suit assumed objectives or purposes. (iii) It may be mentioned that the literal rule of construction is to read the text of the legal provision as it exists, by taking into consideration rules of grammar of the English language in which the law is enacted. A reference is invited to the Privy Council dictum: In Ram Rattan v. Parma Nand reported in AIR 1946 PC 51 = 1945 (12) TMI 5 - PRIVY COUNCIL, the Hon'ble Mr. S. R. Das, held as follows:- "The cardinal rule of construction of statutes is to read the statutes literally, that is, by giving to the words their ordinary, natural and grammatical meaning. If, however, such a reading leads to absurdity and the words are susceptible of another meaning, the Court may adopt the same. But if no such alternative construction is possible, the Court must adopt the ordinary rule of literal interpretation". (iv) If one looks to grammar, the word "intermediary" is capable of being used in two senses:- First Known Use of intermediary Adjective: 1777, in the meaning defined at sense 1 Noun: 1791, in the meaning defined at sense 1a * Examples of intermediary in a Sentence ....
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....consistent with the purpose of the provision, having regard to the great consequences of the alternative constructions. (c) In State of Haryana v. Suresh reported in 2007 (3) KLT 213 = 2007 (6) TMI 544 - SUPREME COURT, the Supreme Court held that, One of the basic principles of Interpretation of Statutes is to construe them according to plain, literal and grammatical meaning of the words. If that is contrary; to or inconsistent with any express intention or declared purpose of the Statute, or if it would involve any absurdity, repugnancy or inconsistency, the grammatical sense must then be modified, extended or abridged, so far as to avoid such an inconvenience, but no further. The onus of showing that the words do not mean what they say lies heavily on the party who alleges it must advance something which clearly shows that the grammatical construction would be repugnant to the intention of the Act or lead to some manifest absurdity. 25. It may be added that as recently the CBIC has reiterated the position vide Flyer no. 21 dated 1st January 2018, excerpts from it are reproduced below: Integrated Goods and Services Tax Act C.B.E. & C. Flyer No. 21, dated 1-1-2018 The in....
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.... i.e. (i) goods & individual (ii) immovable property related (iii) event related 5.1 at more than one location including a location in the taxable territory, Its place of supply shall be the location in the taxable territory where the greatest proportion of the service is provided. 5.2 in more than one State its place of supply shall be each such state in proportion to the value of services so provided in each State 6 Banking, financial institutions, NBFC Intermediary services, hiring of vehicles services etc. Location of the supplier of service 7 Transportation of goods. The place of destination of the goods 8 Passenger transportation. Place where the passenger embarks on the conveyance for a continuous journey 9 Services on board a conveyance. The first scheduled point of departure of that conveyance for the journey. 10 online information and database access or retrieval services" The location of recipient of service. ii. For the rest of the services other than those specified above, a default provision has been prescribed as under. Default Rule for the cross border supply of Services other than nine Specified Services S. No. Description of supply Place ....
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....lso be further evident from the text Chit and the context as we shall presently see. "33. Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be co....
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....t the appellant (MI) is providing services to its principal 'Carl Zeiss GmbH' in Germany in terms of procuring orders from customers in India for procurement of advanced laboratory instruments from its principal. The floor price is fixed by the principal and MI negotiates with customers in India for terms of supply and consideration / price above the floor price, for which they receive the commission from principal. After completion of the negotiations, the customers in India arranges for the foreign remittance for imports, and directly place the order to the foreign principal, who in turns directly supplies the instruments (goods) to the Indian customers. In most of the cases where the Indian Customers are entitled for the discounts, in kind ("discount in kind", like "Free of cost items", such as: a TV set, a Computer or a Camera etc.) with respect to the material purchased by them, are to be provided by the appellant. In view of the above contended facts, documents, namely copy of the agreement, two invoices raised by foreign supplier and two credit notes, advance ruling was sought with regard to the 'commission' received in foreign convertible currency from foreign supplier. 33....
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....[section 13(2)] be held as applicable. 35. The appellant had placed the following question for decision before the Advance Ruling Authority:- (i) "Whether the 'Commission" received by the applicant in convertible foreign exchange for rendering services as an "intermediary' between an exporter abroad and an import of an equipment, is an 'export of services' falling under section 2(6) and outside the purview of section 13 (8)(b), attracting zero-rated tax under section 16(1) (a) of the IGST Act, 2017? (ii) 'If the answer to the question (i) is in the negative whether the impugned supply of services forming an integral part of the cross border sale/purchase of goods, will be treated as an 'intra-state supply' under section 8(1) of the IGST Act read with section 2 (65) of the MGST Act attracting CGST/MGST? And if so, at what rate? 36. The Advance Ruling authority decided that applicant is an 'intermediary' and the place of supply of 'Intermediary Services', as per Section 13(8)(b) being the location of the supplier of services, the said intermediary services cannot be treated as export of services under the provisions of the GST Act. Further, the Advance Ruling Authority held tha....
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.... (a) Classification of any goods or services or both under the Act; (b) Applicability of a notification issued under the provisions of the Act; (c) Determination of time and value of the goods or service or both; (d) Admissibility of input tax credit of tax paid or deemed to have been paid; (e) Determination of the liability to pay tax on any goods or services or both; (f) Whether the applicant is required to be registered under GST; (g) Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term. On perusal of the above provision, we find that question on determination of the place of supply has not been covered in the above set of questions, on which the advance ruling can be given. Therefore, we cannot give any opinion or verdict on the question which involve the determination of the place of supply of the goods or services or both. 39. Coming to the present case, we observe that in order to determine which levy, whether export, or CGST or IGST, will be imposed on the said supply of 'intermediary services' of the Appellant, we will ha....