TaxTMI 
TaxTMI 
TaxTMI 
2021 (1) TMI 544
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....at SPA's customers' site etc. The copy of the contract has been enclosed for reference. The relevant extract from the contract relating to scope of service is as under: "Services Stovec has agreed that it shall on behalf of and as per the instruction from SPA shall provide services with respect to: a) Installation and/or upgrades of machines sold by SPA and shall also give training at SPA's customer site in co-ordination with SPA b) Machines sold by SPA in India and which are under warranty period c) Machines which are under service contracts with SPA d) Machines which are not having warranty and/or service contracts" Apart from the above mentioned scope of services, Stovec will also receive commission for service contracts sold in India from SPA 4. The applicant submitted that they shall raise the invoice to SPA for services mentioned under Clause (a) to (c). In the case of service at (d), the Applicant shall raise the invoice to Indian Customer for such services. The relevant extract of the contract with regard to invoicing has been reproduced hereunder. The sample copies of invoices are enclosed herewith as Annexure C. "Stovec shall raise an invoice for the said ....
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....he specified transaction of the Applicant is to be reckoned as being provided to SPA or to the customers of SPA located in India? Question 3. - Whether, in the facts and circumstances, the specified transaction of the Applicant could be categorized as that of an "intermediary" as per Section 2(13) of The Integrated Goods and Service Tax Act, 2017? Question 4. - Whether, in the facts and circumstances, the specified transaction qualifies to be "Export of service" as per Section 2(6) of The Integrated Goods and Services Tax Act, 2017? Applicant's interpretation of law and/or facts PART-A Whether, in the facts and circumstances, the specified transaction of the Applicant should be categorized as individual supply or composite supply of service as per the Central Goods and Services Tax Act, 2017 and the Gujarat Goods and Services Tax Act, 2017? 1. The Applicant submitted that the activities agreed between parties in terms of the contract include services for installation or upgrades of machines sold by SPA, training to the customers of SPA, services in respect of machineries sold by SPA, which are either in warranty period or covered by separate service agreement with SPA etc.....
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....re delivered or made available, or to whom possession or use of the goods is given or made available; and (c) where no consideration is payable for the supply of a service, the person to whom the service is rendered," 6. Therefore, in cases of supply involving consideration, the person who is liable to pay consideration would be considered as the recipient of supply. In the present case, the consideration is paid by SPA and hence, the Applicant believes that SPA would be considered as 'service recipient' for the supply of services by the Applicant for the specified transaction. 7. Moreover, the Applicant submitted that the meaning of expression 'recipient of services' had arisen under the erstwhile Service Tax regime. Although the term 'recipient of service' was not defined in the Service tax legislation, 'Taxation of Services: An Education Guide' issued by Tax Research Unit Wing of CBEC stated that a person who is legally entitled to receive a service and, therefore, obliged to make payment, is the receiver of a service, whether or not he actually makes the payment or someone else makes the payment on his behalf. 8. The above statement is pari materia with the provisions m....
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....ion. Just as in case of sale of goods it is buyer who is obliged to pay for the goods purchased, in case of provision of service, it is recipient of the service who is obliged to pay for the service to the service provider. Thus the service recipient is the one who is obliged to pay for the services to the service provider and whose need is satisfied by the service or in other words, is the buyer of service. 10. In addition to above, the Applicant also relied upon the order of Hon'ble CESTAT in the case of GAP International Sourcing (India) Pvt. Ltd. vs. Commr. of S.T., Delhi 2015 (37) S.T.R. 757 (Tri. - Del.) = 2014 (3) TMI 696 - CESTAT NEW DELHI wherein the Tribunal has analyzed as to who ought to be considered as 'service recipient' in any transaction. The relevant extract of the decision is reproduced hereunder, for ready reference. "8.3 Though the term 'recipient' in respect of a service is not defined in the Finance Act, 1994 or in the rules made there under, the gap has to be filled by construction and on the analogy of the transaction of sale of goods, the service recipient in a transaction of the provision of service, has to be treated as the person - (a) on whose ins....
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....of The Integrated Goods and Service Tax Act, 2017? 14. The term 'intermediary' has been defined under Section 2(13) of The Integrated Goods and Service Tax Act, 2017 which has been reproduced hereunder: "(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 persons, but does not include a person who supplies such goods or services or both or securities on his own account;" 15. From perusal of above, the Applicant understands that there are following attributes which should be present in any arrangement to qualify as intermediary. i. An intermediary means a broker, agent or any other person by whatever name called ii. The person arranges or facilitates the supply of goods or services or both or securities between two or more persons. iii. The person should not supply goods or services or securities on his own account The Applicant is not an "agent, broker or any other person" 16. As evident from the definition, the supplier i.e. the intermediary should 'mean', a broker or an agent or any other person, by whatever name called. It is ....
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....e listed items. 22. The Golden Rule of Interpretation enunciated and espoused by various judicial pronouncements states that the words of a statute must be given their plain grammatical meaning. If the intention of the legislature has to be gathered and deciphered in its proper spirit having due regard to the language used therein. When the words are not clear or are ambiguous, aid of other rules of interpretations must be used 23. The rule of Ejusdem Generis is applied in the following cases: * The statute enumerates the specific words; * The subjects of enumeration constitute a class or category; * That class or category is not exhausted by the enumeration; * The general terms following the enumeration; and * There is no indication of a different legislative intent. 24. The Punjab and Haryana High Court in the case of CIT v. Rani Tara Devi [2013] 355 ITR 457 (P & H) = 2013 (3) TMI 53 - PUNJAB & HARYANA HIGH COURT held as below: "The expression 'by any other name' appearing in Item (a) of clause (iii) of Section 2 (14) of the Income Tax Act has to be read ejusdem generis with the earlier expressions i.e. municipal corporation, notified area committee, town a....
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....tion needs to be cumulatively fulfilled, i.e. it should entail "arrangement" or "facilitation" of a 'main supply of goods or services' between the service recipient, i.e. the overseas entity and its customers in India. In other words, an 'intermediary' is expected to play an active role in arranging or facilitating the actual provision of service or supply of goods between the real service provider and real service recipient. Hence, there should be an interaction or facilitation with the feature of supply of the (main) service and the 'intermediary' should have a role in the main supply of goods or services being rendered by the service recipient to its customer in India. 31. As per the definition of "intermediary service", the words that have been used in the definition are (a) arranges and (b) facilitates. It would be pertinent to understand the meaning of these words: Facilitate (Verb) - Oxford English Dictionary - 'to make an action or process easy or easier" Arrange (Verb) - Oxford English Dictionary - 'organize or make plans for (a future event)' 32. From the above definitions, it is important to understand that there should be provision of service by main supplier and ....
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....20, 2012 is reproduced below: "5.9.6 What are "Intermediary Services"? ... Similarly, persons such as call centers, who provide services to their clients by dealing with the customers of the client on the client's behalf, but actually provided these services on their own account, will not be categorized as intermediaries." 37. More so, the clarification above fully recognizes an arrangement between a service provider and a service recipient, where customers of the service recipient are dealt with by the service provider, shall not qualify to be an "intermediary". This principle well covers all sub-contracting arrangements. 38. The Applicant further places reliance on the decision of CESTAT in the case of Principal Commissioner Vs. Comparex India Pvt. Ltd. [2020-TIOL-159-CESTAT-DEL] = 2020 (1) TMI 429 - CESTAT NEW DELHI wherein the question before the CESTAT was whether the services provided by the Respondent would be contemplated as intermediary services or not. In this decision, the CESTAT upheld that not only does the agreement specifically mentions that there is no relationship of principal and an agent between Microsoft and the respondent but it is also clear from the....
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....rent price. Also, the principal must know the exact value at which the service is supplied (or obtained) on his behalf, and any discounts that the intermediary obtains must be passed back to the principal. (ii) Separation of Value: The value of an intermediary's service is invariably identifiable from the main supply of service that he is arranging. It can be based on an agreed percentage of the sale or purchase price. Generally, the amount charged by an agent from his principal is referred to as "commission". (iii) Identity and title: The service provided by the intermediary on behalf of the principal is clearly identifiable. 44. In light of the above parameters of the definition of intermediary, it is to be evaluated now whether the services to be provided by the Applicant to SPA under the present agreement fulfils the parameters of intermediary or not. Sr. No. Nature of Service/ activity Criteria to qualify as intermediary Applicability in case of the applicant 1 Relation of principal and agent Yes Not fulfilled - Relationship between the Applicant and SPA is that of independent contractors or principal to principal basis and not of principal and agent 2 Power to ....
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....t the appellant cannot be called as an intermediary under Rule 2(f) and Rule 9 of the POPS Rules, 2012. 47. In the case of Commissioner of Goods and Service Tax Gurgaon-II Vs. Orange Business Solutions Pvt. Ltd. [2019-TIOL-1556-CESTAT-CHO] = 2019 (5) TMI 1351 - CESTAT CHANDIGARH, the respondent provides outsourced services and back office services for Orange group entities. The following was observed by Chandigarh CESTAT: "11. From the agreement placed before us and arguments adduced before us, we find that the activity of computer networking is networking service which is an application running at the network application layer and above, that provides data storage, manipulation, presentation, communication or other capability which is often implemented using a client-server or peer-to-architecture based on application layer network protocols. 12. In view of the above, we do not find any arrangement or facilitation of the main service between two parties by a third person under the category of computer networking services. 13. We further find that the mandate from the group involves various companies more than two. So it is delivered to third entity on the direction of one M....
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....les, 2012. 50. In the case of M/s Godaddy India Web Services Pvt. Ltd. [2016-TIOL-08-ARA-ST] = 2016 (3) TMI 355 - AUTHORITY FOR ADVANCE RULINGS, the Applicant proposed to engage in promotion and marketing of GoDaddy US services in India, supervision of quality of third party customer care center services and payment processing services. The question for determination of AAR was that while providing business support services to GoDaddy US, is the Applicant providing any service to customers of GoDaddy US in India. The AAR observed the following: "Applicant proposes to provide support services in relation to marketing, branding, offline marketing, oversight of quality of third party customer care centre and payment processing, on principal to principal basis. These services are proposed to be provided with the sole intention of promoting the brand GoDaddy US in India and thus augmenting its business in India. Therefore, these services proposed to be provided by the applicant, would support the business interests of GoDaddy US in India." 51. Apart from above, it is important to note that there is no privity of contract between the Applicant and the customers of SPA located in Indi....
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....e that Sub-section (3) and sub-section (8) would be relevant for discussion: "(3) The place of supply of the following services shall be the location where the services are actually performed, namely:- (a) services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services: ........ (b) services supplied to an individual, represented either as the recipient of services or a person acting on behalf of the recipient, which require the physical presence of the recipient or the person acting on his behalf, with the supplier for the supply of services." 56. From the perusal of the above, it can be understood that these provisions are applicable only when the goods are made physically available by the recipient of services or requires physical presence of the recipient of services. However, in the present case, as discussed in Part B, the Applicant believes that the recipient of services for the specified transaction is SPA and not the customers of SPA located in India. Therefore, we believe that Section 13(3)....
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.... considered the issues involved on which Advance Ruling is sought by the applicant. 64. At the outset, we would like to state that the provisions of both the Central Goods and Services Tax Act, 2017 and the Gujarat Goods and Services Tax Act, 2017 are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the GGST Act. 65. We observe that the applicant is supplier of products in textile and graphics printing market and engaged in manufacturing of Rotary screen printing machine and also offer products for conventional and digital engraving methods. The applicant have entered into a contract with SPG Prints Austria GMBH (herein after referred as 'SPA') to provide particular services to customers of SPA in India, as per SPA's instruction. Such services shall include installation / up-gradation of machines sold by SPA, training at SPA's customers' site etc. The relevant extract from the contract relating to scope of service is as under: "Services Stovec has agreed that it shall on behalf of and as per the instruction from SPA shall provide services with resp....
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....first we decide whether the supplies are naturally bundled & in conjunction with each other as required by the definition of "composite supply". Hence, we refer to the definition of `Composite Supply' as mentioned in sub-section (30) of Section 2 of 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'. Under the GST Act, a composite supply would mean a supply 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. We find that applicant proposes to provide more than two taxable supplies to the recipient. In respect of supply which consist of more than two taxable supplies and to fall within the ambit of composite supply, it will be necessary for us to determine whether a particular supply is naturally ....
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....the ordinary course of business. Each case has to be individually examined in the backdrop of several factors some of which are outlined above. 69. Thus, for a supply to qualify as a 'composite supply', the following needs to be satisfied: (i) There should be more than two supplies of goods or services or both; (ii) They should be naturally bundled and supplied in conjunction with each other in the ordinary course of business; and (iii) There should be one principal supply. 70. The above conditions have been examined in the present case, as under: 70.1 There should be more than two supplies of goods or services or both: The applicant is providing services for installation or upgrades of machines, training to the customers of SPA in respect of machineries sold by SPA, which are either in warranty period or covered by separate service agreement with SPA etc. The consideration agreed with SPA is based on hourly rate for activities such as travelling, regular work or overtime hours and based on the time spent for each of the activities. Accordingly, they are providing more than two services i.e. installation or ugradation of service, training to the customer for the operation....
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....specified transaction to be considered as provided to SPA or to the Customers of SPA located in India. To determine the recipient of service we refer to sub-section (93) of Section 2 of CGST Act, 2017 which is read as under: (93) "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 available, or to whom possession or use of the goods is given or made available; and (c) where no consideration is payable for the supply of a service, the person to whom the service is rendered, and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied; 72. The Applicant, has argued that person who is liable to payment of goods and service is an recipient of service. While developing the above line of argument, applicant fails to appreciate the true meaning of t....
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.... definition of the "intermediary" as provided under Section 2(13) of the Integrated Goods and Services Tax Act, 2017 is examined and the clause reads as under: "(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 persons, but does not include a person who supplies such goods or services or both or securities on his own account;" The intermediary means, as per the above clause, the following persons - (a) A broker by whatever name called, or (b) An agent by whatever name called, or (c) Any other person by whatever name called. Hence the terms broker and agent are elucidatory, but involves any person and the second part of the definition qualifies the first part. The term 'broker' has not been defined under GST Act. However, the term 'agent' has been defined in Section 2(5) of the CGST Act 2017 to mean a person including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on b....
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....e IGST Act, the terms 'broker' and 'agent' are fundamentally different. They do not form any category or class. When such is the case, the phrase 'any other person, by whatever name called' cannot draw its colour from the preceding words which are altogether different. The phrase cannot also be interpreted by applying the principle of ejusdem generis as the preceding words 'broker' and 'agent' do not form a distinct category or class to constitute a genus. Therefore, the phrase 'any other person, by whatever name called' will also include persons who are not necessarily similar to 'broker' or '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. When the term "other" is related to the other names given for a class of persons, then the principle of ejusdem generis is applicable. But in the definition, it is clear that the word "other" is used as an adjective to the person and hence it is commonly understood to exclude the other persons who are preceding it and hence the argument of the applicant cannot be accepted. 75.2 T....
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....eriod c) Machines which are under service contracts with SPA d) Machines which are not having warranty and/or service contracts" Service Area a) Stovec will service SPA's machines in India b) Stovec shall not actively solicit service customers having their place of business or in default of such place, their place of residence, outside India" Customer Contact/Service Process In case of service request for any machine, customer can directly contact either SPA or Stovec. In case the customer contacts Stovec first then SPA has to be informed and as per SPA's instruction action be initiated from Stovec. Stovec will in co-ordination with SPA's area co-ordinator, directly solve the problem of customer, whereas the release of an action towards the customer will come from SPA's area co-ordinator. This is valid for service mentioned under Clause 1(a) to (d). Stovec shall raise an invoice for the said services: - to SPA, if the service belongs to service mentioned under Clause 1(a) to Clause (c) - to the Indian Customer, if the service belongs to service mentioned under Clause 1(d)" Obligation of SPA a) SPA shall provide necessary training and documentation to Stove....
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....) ----------------- d) Prices for end customer must be in line with SPA Global Price list. The final price to the customer shall include import duties and other local charges over and above the SPA GLOBAL price list (Landed cost to customer should be the same, regardless if SPA delivers directly to customer or Stovec delivers to customer). 76. Further, we members have visited the Annual Report for the Year of 2018 of the applicant. The relevant clause of the said reports are read as under: Relevant extract of Annual Report 2018 Statement containing information required to be given as per Section II of Part II of Schedule V to the Companies Act, 2013 I. General Information: 1. Nature of Industry Manufacturing of perforated nickel rotary screens, rotary screen printing machines, anilox rollers, engraving chemicals, engraving equipment's, rotamesh screens and rotaplate at its factory situated at N.I.D.C. Nr. Lambha Village, Post: Narol, Ahmedabad, Gujarat. 2. Date of Commencement of commercial production The commercial production has already begun and the Company is not a new Company. 3. Financial Performance for the financial year ended 31.12.2018 Turnover : Rs. 1930.....
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....NR 154,070,894/- Estimated Related Party Transaction for the financial year 2019 & 2020, as a % of Annual Consolidated Turnover of the Company. During mentioned financial years, Related Party Transaction with SPGPrints B.V. with respect to purchase of raw materials and components shall not exceed 20% of Annual Consolidated Turnover of the Company as per last audited financial statements of the Company. Note: For determining Material Related Party Transactions for the financial year 2019, the Annual Consolidated Turnover of the Company for the financial year 2018 will be considered and for determining Material Related Party Transactions for the financial year 2020, the Annual Consolidated Turnover of the Company for the financial year 2019 will be considered. 76.1 From the above clauses of the Annual report it is observed that the applicant M/s. Stovec Industries Ltd. is a holding company of M/s. SPG Print, B.V, Netherlands. M/s. SPG Print B.V, Netherlands is having their plants and offices in multiple countries including Austria and India. On the basis of agreement and Annual Report of the applicant, it can be concluded that, the applicant is a holding Company of M/s. SPG Print ....
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....ices for SPA's machine,. Applicant must purchase all consumables/parts from SPA (It is not allowed to purchase locally); Prices for end customer must be in line with SPA Global Price list. The final price to the customer shall include import duties and other local charges over and above the SPA GLOBAL price list (Landed cost to customer should be the same, regardless if SPA delivers directly to customer or Stovec delivered to customer). The entire gamut of the activities performed by the Appellant as mentioned in the agreement shows that applicant is completely working as per the instruction and recommendation of SPG Print (SPA) in all the cases either in case of providing services to the customer, schedule of services to be provided, training of employee of customer's employee, or purchase of parts & consumables from SPG Print (SPA) only, maintaining of stock of parts & consumables, timely submission of service and commission Invoice to SPA's area co-odinator, price of parts and consumables in line of SPA Global price. The above clause of agreements clearly states that the applicant is facilitating and arranging services on behalf of SPA to the SPA's customer in India. Hence this ....
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....rvice of installation/ upgradation of machines on behalf of and as per the instruction of SPA. If a person either 'facilitates' or alternately 'arranges' any supply of goods or services (or both), between two or more persons, and does not supply such goods or services (or both) on his own account, he would be regarded as an 'intermediary'. From the agreement clause it is ample clear that parts/ consumables of the machine are purchased by the applicant only from SPA and supply the same in the line of Global price of SPA also SPA is providing training to the applicant staff to execute the work as per the instruction and on behalf of the SPA. This clearly shows that the Appellant is clearly facilitating the supply of the service on behalf of the SPA directly to the client's customers in the territory of India and is not supplying such services on his own account. Therefore, the Appellant does not fall within the ambit of the exclusion part of the definition of "intermediary. 78. The argument of the applicant that he received fixed consideration based on number of hours spent and they do not negotiate on behalf of SPA hence he cannot be termed as intermediary. The said contention of t....
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.... on behalf of SPA to their Indian Customer The type of consideration received is not a condition that would make the applicant to exclude him from the definition of "intermediary". 79.1 Hence in view of the above discussion we members are of the view that applicant specified transactions are squarely covers under the definition of "intermediary" as defined under Section 2(13) of the IGST Act, 2017. 80. The applicant has taken the support on the various decisions of the advance ruling authorities of the erstwhile service tax regime have been examined and analyzed and it is found that are all related to the service tax era and has no applicability during the GST regime. Hence the same needs to be verified in light of the GST Act. 81. We also rely on the following Rulings of Advance Authority, which are squarely applicable in the instant case: (i) Karnataka Advance Authority in case of M/s. MCAFEE SOFTWARE (INDIA) PVT. LTD {Advance Ruling No. KAR ADRG 56/2019, dated 19-9-2019} = 2019 (10) TMI 787 - AUTHORITY FOR ADVANCE RULING, KARNATAKA has held that, "Intermediary Service - Scope of - Supply by subsidiary in India to principal located abroad - Applicant pleading that since he....
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....nge of activities ranging from marketing or sales promotion of the goods or services of client, locating prospective buyers for client's products or locating sources of supply of goods or services required by client, price negotiation with the prospective buyer/prospective supplier, procuring sales orders in respect of goods or services of the client and like activities. 81.1 On careful reading of the above Rulings of Advance Authority it is observed that they are squarely applicable in the applicant case. In view of the said Rulings, it can be concluded that applicant's activity falls within the ambit of "intermediary" as defined under Section 2(13) of IGST Act, 2017. 82. We take up the fourth question of the applicant that whether the specified transaction qualifies to be "Export of service" as per Section 2(6) of The Integrated Goods and Services Tax Act, 2017 or otherwise. In this regard Hon'ble High Court of Kerala in the case of M/s. SUTHERLAND MORTGAGE SERVICES INC. Versus PR. COMMR. OF CUS., CGST & C. EX., KOCHI Reported in ELT 2020 (35) GSTL 40 (ker.) = 2020 (3) TMI 186 - KERALA HIGH COURT has held that, "Export of Services - Hyper technical view taken by AAR not to ad....
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....tion is satisfied as such the supplier of service is M/s. Stovec Industries who is a located in India. The second condition that recipient of service should be located outside India. The recipient of service has already been discussed in detailed in reply of question No. 2 and it is concluded that recipient is Indian customer to whom service is supplied in India. Hence second condition is not satisfied. The third condition that place of supply of service should be outside India. This has already been discuss and concluded with regard to question No. 3 above that for the specified transaction applicant is qualified as "Intermediary" in terms of Section 2(13) of IGST Act, 2017. Further place of supply for "intermediary" is defined under Section 13(8) of IGST Act which is read as under: 8) The place of supply of the following services shall be the location of the supplier of services, namely:- (a) -------------- (b) intermediary services; 86. Hence the place of supply of service for specified transaction is India and not Out of India in terms of Section 13(8) of IGST Act, 2017. Hence third condition is not satisfied. The fourth condition that supplier of service should received....