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2023 (7) TMI 868
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....tter and decide the case afresh following the principles of natural justice. 12. In view of the foregoing, the Advance Ruling in question is set aside and the case is remanded back to the Gujarat Authority for Advance Ruling (GAAR) to issue necessary ruling after hearing the appellant afresh." 2. Briefly, the facts are that the applicant, M/s. Hilti Manufacturing India (P) Ltd., is engaged in the manufacture and supply of diamond cutting tools, other innovative tools required by the construction industry and providing in-house research & development service on diamond inserts. 3. The applicant is located at Plot No. 423, G1DC Estate, PO Kabiilpore Navsari, Gujarat-396424. Their additional manufacturing facilities are Iocated at Plot No. 244 to 251, 48 & 29(Unit-I) and Plot No. C-IB, 53/54-1 & 2, GIDC Industrial Estate, Sisodra, Navsari (Unit-3). The applicant has a separate Research and Development [for short - 'R&D'] unit wherein activities are carried out for their own purposes as well as for other customers; that they carry out R&D activities on behalf of entities situated outside India i.e. on the product samples/goods sent by the foreign entities for R&D....
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....ceived from HAG; that they further are consumed in the process of R&D ; • prototypes on which testing activity is done gets exhausted in the process and is not supplied by the applicant to M/s. HAG; • that it is not mentioned in the agreement dated 18.3.2014 that the goods on which the applicant needs to carry out the R&D activities are supposed to be supplied by HAG; • that the applicant raises periodic invoices & the consideration is received by the applicant in convertible foreign currency. 8. On the merits, the applicant has stated as follows viz:- • a conjoint reading of sections 2(52), 2(102), 9(1), 7(1)(a), of CGST Act, 2017, & section 5(1) of the IGST Act, 2017, clearly show that scientific R&D carried out by the applicant is not movable property & hence would qualify as service; • that it would fall within the ambit of section 13(2) of the IGST Act. 2017 as service under GST; • 'location of supplier' & 'place of supply' will determine whether the transaction is an intra-state supply or inter-state supply; • R&D services provided to HAG by the applicant does not fal....
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....cant is in India in terms of section 2(15)(a) of IGST Act, 2017; • the recipient of services are located outside India in terms of Section 2( 14)(d) of the IGST Act; • the export of service shall qualify as 'zero rated supply' and can be supplied without payment of IGST; • that R&D services provided by the applicant would qualify as zero-rated supply in terms of section 16 of the IGST Act. 2017; • as per section 13 of the IGST Act, place of supply of services shall be the location of the recipient in terms of Section 13(2), except for services specified under section (13)(3) of the IGST Act; that section (13)(3) of the IGST Act does not apply in this case; • that as per section 13(3)(a) of the IGST Act, place of supply of service shall be the location where services are performed in case it is 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. 9. The following questions were raised before the Authority of Advance Ruling viz ....
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....ivity on such goods provided to them by the foreign customer; • that the goods on which R&D services are carried out are manufactured in India by the appellant and the detailed report is provided to the foreign customer after carrying out R&D testing thereon; • that there has been significant change in the facts of the case presented before the GAAR and now made before the appellate authority; • The appellant having presented new facts, which were not been placed before the GAAR; that the ruling given by the GAAR was based on different facts; that as the appellant have got the subject advance ruling based on different set of facts, the advance ruling given is not valid in view of the provisions of Section 103 (2) and 104 (1) of the CGST Act, 2017. On the aforementioned findings, the matter was remanded back to the GAAR with the directions as mentioned in para (1) supra. 13. The applicant vide his submission dated 28.2.2023, has now stated as follows viz:- • that he is required to conduct R&D, testing and engineering activities for developing new products & process; the result are then communicated to HAG; the prototypes requ....
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....~80 hrs of use Sharpening Plate Used for cutting blade prototype development. (Available in the local market.) ~100 blades sharpened Concrete Block For checking prototype performance under higher or lower abrasive concrete conditions. (Available locally.) ~50 mins of cutting Setplate Part of cold press equipment; used in developing prototypes with differing properties. ~one set of blade prototypes Above listed materials are imported from HAG to support faster execution (immediate availability) for the development project. Listed products (except for set plate) can be purchased in India. • that in addition to the above consumables/goods supplied by HAG for the said VORTEX 2.0 project, a substantial amount of consumable/goods are procured directly by the applicant from third parties, which are consumed in the process for providing R&D activity; • that during the span of such project which was for approximately 2 years, more than 900 items were procured during the year 2019 - 2021 for multiple projects (including VORTEX 2.0) whereas only 6 items were sourced from HAG. Moreover all these items (both directly procured and sourced f....
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....f a notification issued under the provisions of this Act; (c) determination of time and value of supply of goods or services 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 applicant is required to be registered; (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. [emphasis added] INTEGRATED GOODS AND SERVICE TAX ACT, 2017 "2 (6) "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 for in Indian rupees wherever permitted by the Reserve Bank of India]: and (v) the supplier of service and the recipient of service are not merely e....
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....nt of services is outside India. (2) The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services: Provided that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services. (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: Provided that when such services are provided from a remote location by way of electronic means, the place of supply shall be the location where goods are situated at the time of supply of services: [Provided further that nothing contained in this clause shall apply in the case of services supplied in respect of goods which are temporarily imported into India for repairs or for any other treatment or process ....
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....ny, to account holders: (b) intermediary services: (c) services consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels, upto a period of one month. Explanation. - For the purposes of this sub-section, the expression,- (a) "account" means an account bearing interest to the depositor, and includes a non-resident external account and a non-resident ordinary account; (b) "banking company" shall have the same meaning as assigned to it under clause (a) of section 45A of the Reserve Bank of India Act, 1934; (c) "financial institution" shall have the same meaning as assigned to it in clause (c) of section 45-1 of the Reserve Bank of India Act, 1934; (d) "non-banking financial company" means, - (i) a financial institution which is a company; (ii) a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner; or (iii) such other non-banking institution or class of such institutions, as the Reserve Bank of India may. with the previous....
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....Act, 2017, we are mindful of the fact that rulings under AAR can be sought only on seven issues, listed under sub-clauses 2(a) to (g). 'Export of services' is further defined under section 2(6) of the IGST Act, 2017. We are also aware of the directions in the appellate order asking us to take into consideration all aspects of the matter and decide the case afresh following the principles of natural justice. 19. Thus, ideally, AAR cannot admit an application seeking a ruling on a question pertaining to place of supply, more so since it does not find a mention under section 97(2) of the CGST Act, 2017. We are of the considered view that being a creature of the Act, we cannot go beyond the diktats of what is spelt out in the Act. However, having said so we are also mindful of the fact that in the first round when the application was made before the Authority, the same was entertained and a ruling was given. In-fact we are also aware of the fact that no appeal was preferred against the ruling dated 9.7.2021 challenging the jurisdiction of the AAR to rule on the question of place of supply. This being the factual position, we proceed to decide on the merits of the matter in t....
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....rs or for other treatment or process further holding that clause 13(3) shall not be applicable in such cases. Section 13(3)(b) further deals with a situation wherein services are 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. 24. On the other hand, section 13(2) of the IGST Act, 2017, states that the place of supply of services shall be the location of the recipient of services, except for the services specified in sub-sections (3) to (13). The only proviso in this sub-clause goes on to state that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services. 25. In this regard, we find that vide circular No. 103/22/2019-GST dated 28.6.2019, following clarification has been issued viz 2 Doubts have been raised about the place of supply in case of supply of various services on unpolished diamonds such as cutting and polishing activity which have been tempora....
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....s of the Services rendered by HMI to Hilti according to Article 1 is provided in Appendix I. 4. Right to Results 4.3 If Results are eligible for intellectual property right protection Hilti shall be entitled to file or apply for the relating intellectual property rights, both first filings and or foreign filings in its own name and at its own cost and expense. HMI shall notify Hilti in writing of any and all Results that may be eligible for intellectual property right protection immediately in writing. Upon Hilti request HMI shall transfer to Hilti any such Result that was generated by HMIs employees free of charge. HMI shall ensure that is has the power to dispose or transfer such result to Hilti. HMI will do such acts and deeds necessary including making any filings with any governmental authority and executing any instruments or agreements that may be required or as may be requested by Hilti, to transfer such Result to Hilti. 4.6 If Results are subject to a copyright or similar right, HMI hereby grants to Hilti the sole and exclusive, worldwide, perpetual and unlimited right of use in these copyrights for any and all types of use, whether with or witho....
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....the Services Fee payable by Hilti by HMI Hilti shall compensate HMI in accordance with the cost plus approach. Based on the concept described below, all costs and expenses incurred by HMI in the provision of the Services for, Hilti shall be invoiced to Hilti including a mark-up. Cost basis The cost basis for the calculation of the Service Fee shall include the following direct and indirect costs of all HMI departments involved in the provision of the Services,- • Employee compensation costs (salaries, wages, social security charges and similar payroll cost) • Training expenses for internal or in housing training. • Overhead and administrative expenses • Rents for office space • Travel expenses (airfares, transportation, lodging, food, etc.) • External consulting costs • External training costs • Telecommunication and other communication expenses • Costs for material, testing equipment, office equipment and office supplies • Charges / cost reimbursements from other related parties • Other relevant expenses A spec....
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....esting & engineering activities related to OEMs. In providing this service, it is the applicant's say that some of the materials are being provided by the recipient ie HAG. Further, the applicant is on record before us that a substantial amount of consumable/goods/capital goods are procured directly from third parties. What is interesting is also that these materials get consumed in the process of the said R&D activity as stated by the applicant. Thus we find that the parameter listed out in sub-clause 3, as mentioned above is not met viz that the prototype is developed by the applicant and is not supplied by HAG [recipient]. We find that it would not make much of a difference since what is supplied by the applicant is only some materials which go into making of the prototype and not the entire prototype. The question therefore that pops us is whether it would make a mark-able difference if the entire materials is supplied by the recipient (HAG in this case). Would it then put this supply under sub-clause 3 of the Section 13, ibid ? We have no hesitation in answering that even in such a situation, since the prototype on which R&D is conducted and whose report is supplied to HAG....
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....ted in India will be considered as a separate "person" under the provisions of CGST Act and accordingly, would be considered as a separate legal entity than the foreign company. Clarification: 5.1 In view of the above, it is clarified that a company incorporated in India and a body corporate incorporated by or under the laws of a country outside India, which is also referred to as foreign company under Companies Act, are separate persons under CGST Act, and thus are separate legal entities. Accordingly, these two separate persons would not be considered as "merely establishments of a distinct person in accordance with Explanation 1 in section 8". 5.2 Therefore, supply of services by a subsidiary/ sister concern/ group concern, etc. of a foreign company, which is incorporated in India under the Companies Act, 2013 (and thus qualifies as a 'company' in India as per Companies Act), to the establishments of the said foreign company located outside India (incorporated outside India), would not be barred by the condition (v) of the sub-section (6) of the section 2 of the IGST Act 2017 for being considered as export of services, as it would not be treated as sup....