TaxTMI 
TaxTMI 
2021 (11) TMI 816
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.... Post, Whitefield Road, Bengaluru 560048 (herein after referred to as Appellant) against the Advance Ruling order No. KAR ADRG 31/2021 dated 1st July 2021. Brief Facts of the case: 3. The Appellant is a Private Limited Company and operating as a subsidiary of Airbus Invest SAS, France. The Airbus Group (of which the Appellant is a part) generally procures parts, components or services from both domestic and international markets which are required for manufacturing and assembly of aerospace products like aircrafts, helicopters, etc. The Airbus Group has a specialized global sourcing team which is responsible for sourcing of relevant products from various international market. Airbus France has entered into an "Intra-Group Services Agreement" with effect from Pt April 2020 with the Appellant in terms of which the Appellant is required to perform two functions; i.e (i) Procurement Operations - rendering of various technical advisory and business support services in relation to supplier development activities; and (ii) Procurement Transformation & Central Services - procurement ethics & compliance, procurement process and key projects management, strategy, business intelligence and ....
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....ntract, ordering, delivery and payment) are all handled, administered and decided directly by Airbus France; that the Appellant's major function is to review potential suppliers as well as supplier's operations/quality standards and report the observations to Airbus France and provide relevant expertise from time to time which is an independent service by the Appellant to Airbus France. They submitted that at no point of time is the Appellant directly involved in any activity which could result in an exposure to 'intermediary services' of facilitating supply of goods between the vendor and Airbus France; that for the most part, the supplier is not even identified; there are no three parties involved in the transaction and the services are provided to Airbus France only. They submitted that the Appellant is expressly prohibited from carrying out certain functions such as deciding the supplier from whom the merchandize will be sourced, communication to supplier about his selection, making decisions regarding continuing the relationship and procurement with supplier who has been identified or reported for any unethical behaviour/activity in the supply chain, negotiating with the suppl....
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....ncipal transaction. They also submitted that they are not covered under the pharse "any other person" contemplated in the definition; that the same has not been disputed by the lower Authority. They relied on the rulings given by the AAR New Delhi in the case of M/s GoDaddy India Web Services Pvt Ltd and M/s Universal Service India Pvt Ltd to contend that their service will not qualify as intermediary service. In addition, they also relied on the following judicial decisions to substantiate their claim that the impugned ruling is not legally sustainable: M/s Evalueserve.com Pvt Ltd vs CST, Gurgaon - 2018 (3) TMI 1430 CESTAT Chandigarh M/s Verizon India Pvt Ltd vs CST - 2019 TIOL 2268 CESTAT DEL M/s Lubrizol Advanced Materials India Pvt Ltd vs CCE, Belapur - 2019 (1) TMI 720 (Tri-Mum) M/s Microsoft Corporation (I) Pvt Ltd vs CST, New Delhi - 2014 (10) TMI 200 (Tri-New Delhi LB) M/s AMD India Pvt Ltd vs CST, Bangalore - 2017 (12) TMI 772 (Tri-Bang) M/s CSG Systems International India Pvt Ltd vs Commissioner of Central Tax, Bangalore - 2021 TIOL 422 CESTAT BANG 6.3. The Appellant submitted that their activities do not amount to 'arrangement' or 'facilitation' of main supp....
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.... Airbus France entirely on their own account and hence the ruling the Appellant acts as intermediary is not sustainable. 6.4. On the point of remuneration, they submitted that the same is received on a cost plus mark-up basis and when such is the case, their service cannot be considered as 'intermediary service'. They relied on the following judicial decisions in this regard wherein it has been held that the assesses do not qualify to be an 'intermediary' in a situation wherein the consideration was received on cost plus mark-up basis: M/s Lubrizol Advanced Materials India Pvt Ltd vs CCE, Belapur - 2019 (1) TMI 720 (Tri-Mum) M/s Beaumanoir India Pvt Ltd vs CCE, Gurgaon-I - 2019 (6) TMI 630 (Tri- Chandigarh) M/s Verizon India Pvt Ltd vs CST - 2019 TIOL 2268 CESTAT DEL 6.5. The Appellant further submitted that Paragraph 3.2.2 of the Services Agreement clearly mandates that the Appellant has to implement all necessary means to ensure a good quality of services provided to Airbus France in addition to ensuring that the relevant personnel and third party providers are properly qualified and capable; that consequently it emerges that the Appellant cannot be called as an 'intermed....
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....he guidelines issued by the CBIC vide Instruction F.No. 390/Misc./3/2019-JC dated 21st August 2020. The Appellant was represented by Shri. G. Shivdass, Senior Advocate and authorised representative. 7.1. The Advocate explained in detail the activities of the Appellant which are being undertaken in terms of the Service Agreement entered into with Airbus SAS France. He explained that the role of the Appellant is limited to two functions namely: (a) PY function wherein the Appellant identifies potential suppliers in India and provides the information to Airbus France regarding the potential supplier's operations and quality standards; and (b) PO function wherein the existing suppliers to Airbus France are assessed and monitored on their business performance, delivery and product quality performance and a report is shared with Airbus France. For this activity, the Appellant is remunerated by Airbus France with a service fee which is equal to the cost incurred in performance of the service plus a mark up of an agreed percentage. The Advocate emphasised that as per the agreement, the Appellant is not authorised to participate in the bidding process, negotiate the pricing and ....
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....given in the said Circular and submitted that applying the same to the case of the Appellant proves that they cannot be considered as 'intermediary'. 7.4. The Advocate relied on the Advance Ruling given in the Service Tax regime in the case of GoDaddy India Web Services in support of their case. He also drew attention to the Karnataka Appellate Authority for Advance Ruling orders given in the case of Rajendra Santosh and Infinera India Pvt Ltd to establish that the Appellants' activities are different and hence cannot be considered as 'intermediary'. 7.5. The Advocate submitted that the activities undertaken by the Appellant are essentially support services which are exported and prayed that the appeal be allowed. He also undertook to submit a written summary of the submissions made during the personal hearing. DISCUSSIONS AND FINDINGS 8. We have gone through the entire case records and considered the submissions made by the Appellant in their grounds of appeal, the additional submissions as well as the submissions made at the time of personal hearing. We have also gone through the impugned Advance Ruling wherein it was held that the services rendered by the Appellant in terms ....
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....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;" Thus, in order to qualify as an 'intermediary', the service provider should satisfy the following aspects which make up the definition of "intermediary": (a) The person should be a broker, an agent or any other person, by whatever name called; (b) Such person should arrange or facilitate the supply of goods or services or both, or securities between two or more persons; (c) Such person should be supplying such goods or services or both or securities on his own account. 11. Taking the first limb of the definition, an intermediary means a broker, agent or any other person, by whatever name called. The term 'broker' has not been defined under GST law. The general understanding of the term 'broker' in the context of business, is one who acts as a middleman and arranges or negotiates a transaction between two persons for a commission. In this case, the Appellant is responsible for identifying poten....
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....to a 'broker' and 'agent' but brings within its ambit even 'any other person, by whatever name called'. The Appellant has argued that the expression 'any other person, by whatever name called' cannot be given a different meaning because it lies in the company of the words 'broker' and 'agent'. They have also argued that the principle of ejusdem generis would be applicable in interpreting the definition of 'intermediary' whereby the phrase 'any other person, by whatever name called' should be read in conjunction with the terms 'an agent' or a 'broker' and hence the scope of the term 'intermediary would get limited to only such persons who act similar to an agent or a broker or such class of individuals. In this regard, they have placed reliance on the decisions of the Supreme Court in the case of Siddeshwari Cotton Mills (P) Ltd - 1989 (39) ELT 498 (S.C) and the decision of the Punjab & Haryana High Court in the case of Commissioner of Income Tax, Panchkula vs Smt Rani Tara Devi & Smt Shakuntla Devi - 2013-TIOL-166-HC-P&H-IT. We have gone through the said judicial decisions and considered this argument of the Appellant. We find that the principle of 'ejusdem generis' cannot be made ....
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....s whether a person is an intermediary or not. An intermediary, thus, can be a broker or agent or any other person whose role is limited to arranging or facilitating the supply of goods or services or both between two or more persons. The act of arranging or facilitating envisages two distinct supplies: (1) A main supply of either goods or services between two principals; and (2) An ancillary supply which is the service of facilitating or arranging the main supply between the two principles. The ancillary supply is the supply of intermediary service. In other words, an intermediary is a person between the supplier and the recipient who arranges or facilitates such supply and is given a consideration for this activity. The terms 'arrange' and 'facilitate' have not been defined in the GST Acts. Merriam Webster Dictionary defines the two words as: Facilitate: to make (something) easier; to help cause (something); to help (something) run smoothly and effectively. Arrange: to bring about an agreement or understanding concerning; to make preparations; to move and organise (things) into a particular order or position; to organise the details of something before it happens; to plan....
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....reness of Airbus ethics and compliance guidelines to the suppliers, identify and report any unethical or non-compliant behaviour / activity in the supply chain, * provide support to the European team in their contractual negotiations with Indian suppliers. 17. In respect of the PO function, which is in relation to the existing suppliers who have already entered into a contract with Airbus, France, the following services are rendered by the Appellant to Airbus, France: * provide support to tier 1 and tier 2 supplier operations (Running activities/Recovery/Transfer of work/assessments) on requirements of commodities and on agreed level of delegation. All activities shall be in line with Airbus quality standards and processes * Providing support on driving improvement of supply chain through continuous onsite assessments, coaching & action plan review with the suppliers with a focus on Procurement Operations or commodities operational priorities * Providing continuous update of supplier operations and industrial maturity to Central commodities/Global Head of supplier development * Carry out risk review from Indian supplier landscape while assessing impact on Airbus programs....
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....acilitating a supply between two persons i.e between the Indian supplier and Airbus France. 19. During the personal hearing, the Advocate for the Appellant has forcefully put forth the argument that there is no supply of goods or services made by the Appellant's principal Airbus France to India; that the principal in France is the recipient of a supply from the Indian Vendors with who the Appellant has no contractual obligation; that in the absence of any supply made by their principal in France, the Appellant cannot be termed as an intermediary of the principal. We find this argument unconvincing and without any legal basis. The definition of 'intermediary' as given in Section 2 (13) of the IGST Act does not in any way give the impression that the intermediary only arranges or facilitates the supply of goods or services by its Principal to a third party. Such an interpretation is untenable. The requirement as per law is that the intermediary should arrange or facilitate the supply between two or more persons. This supply (main supply) is between two principals and an intermediary renders his service in arranging or facilitating this main supply. In this case, the main supply is a....
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....not be covered as an intermediary. The Illustrations 1 and 3 given in the said Circular is reproduced below: Illustration 1 A' is a manufacturer and supplier of a machine. 'C' helps 'A' in selling the machine by identifying client 'B' who wants to purchase this machine and helps in finalizing the contract of supply of machine by 'A' to 'B'. 'C' charges 'A' for his services of locating 'B' and helping in finalizing the sale of machine between 'A' and 'B', for which 'C' invoices A' and is paid by 'A' for the same. While A' and 'B' are involved in the main supply of the machinery, 'C', is facilitating the supply of machine between 'A' and 'B'. In this arrangement, 'C' is providing the ancillary supply of arranging or facilitating the 'main supply' of machinery between 'A' and 'B' and therefore, 'C' is an intermediary and is providing intermediary service to 'A'. Illustration 3 An insurance company 'P', located outside India, requires to process insurance claims of its clients in respect of the insurance service being provided by P ' to the clients. For processing insurance claims, 'P' decides to outsource this work to some other firm. For this purpose, he approaches 'Q', locat....
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....ance claims processing service from 'R' in India to 'P'. For this intermediary service, Q charges P a commission or service fee. It is stated that in such a case, the supply of insurance claims processing service by 'R' in India to 'P' outside India, is the main supply and Q is arranging or facilitating this main supply. It may be noted that even in this illustration case, there is no supply by 'P' outside India to any client in India. This illustration validates our opinion that in the case before us, the Appellant is rendering a service to Airbus France by arranging and facilitating the supply of goods from an Indian supplier (main supply). 23. Coming to the last condition, the definition of 'intermediary' as given in Section 2(13) of the IGST Act excludes a person who supplies such goods or services or both on his own account. It is the contention of the Appellant that the services being provided to Airbus France are on their own account and they are not engaged in supplying services on behalf of the Principal. The Appellant has placed reliance on the Education Guide 2012 issued by the CBIC under the Service Tax regime and contended that none of the conditions required for qual....
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....e Appellant is not supplying such goods on his own account and hence, the Appellant does not fall within the ambit of the exclusion contained in the definition of 'intermediary'. Therefore, we find that the Appellant is clearly playing the role of intermediary for Airbus France, as envisaged under Section 2(13) of the IGST Act, 2017 and we uphold the findings of the lower Authority in this regard. 25. The Appellant has relied heavily on the ruling given by the Authority of Advance Rulings under the Service Tax provisions in the case of GoDaddy India Web Services (P) Ltd Ruling No AAR/ST/08/2016 wherein the Authority therein has ruled that pure marketing and promotion services would not be intermediary services. We have gone through the said ruling. The facts in the said case are that GoDaddy India provides a gamut of services to its client GoDaddy US and provides support services to assist GoDaddy US to develop its brand in India. A ruling was sought whether the various support services provided by GoDaddy India are naturally bundled as a single service being Business support service. The Authority in the said case, after taking note of the fact that the applicant (GoDaddy India) ....
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....ntermediaries and brokers under this heading. The Appellant has contended that their activity is classifiable under Heading 998399 as "Other professional, technical and business services n.e.c". The Explanatory Notes describe the said Heading as follows: 998399 Other professional, technical and business services, n.e.c - This service code includes drafting services (detailed layouts, drawings, plans and illustrations of buildings, structures or components from engineering and architectural specifications, done by architectural draftsmen or engineering technicians); compilation services of facts and information (i.e databases) n.e.c. From the above description, we do not find any merit in the Appellant's contention of classifying their activity under Heading 998399. It is trite law that in classification matters, a specific heading is preferred to a general heading. In this case, the services of intermediaries is specifically covered under Heading 998599 and hence the intermediary service rendered by the Appellant is correctly classifiable under the said Heading. 27. The Appellant has also made a plea that the services provided by them to Airbus France will amount to an export o....