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2023 (9) TMI 763
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....law, facts or circumstances supporting the original advance ruling have changed. 4. In terms of Section 104 of the Act, where the Authority finds that advance ruling pronounced by it under sub-section (4) of Section 98 or under sub-section (1) of section 101 has been obtained by the applicant by fraud or suppression of material facts or misrepresentation of facts, it may, by order, declare such ruling to be void ab initio and thereupon all the provisions of this Act or the rules made thereunder shall apply to the applicant as if such ruling had never been made. 5. At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act. M/s. AVEVA Software Private Limited, Smart work coworking spaces Pvt Ltd, Block 3, A3 and A4, North Phase, Guindy Industrial Estate, Guindy, Chennai, Tamilnadu-600032 (hereinafter called ....
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....mplementation services relating to sub-licensing of software to the End-users, upon specific request. It also promotes and markets the software products to the End-users. The Applicant provides all the services in its own name and for its own account within the territory. The Applicant acts as an authorized distributor of Central Hub while sub-licensing the software products. It has been agreed between the two parties that the Applicant does not represent itself as an agent of the Central Hub for distribution of software products, provision of the services or for any other purpose. Therefore, the applicant has stated that there is no principal and agent in terms of the said arrangement. The Central Hub grants the rights to the Applicant, to further sub-license the software products within the identified territories, the Applicant as and when required enters into a valid and binding contractual agreement with the End-users for sub-licensing the software, in its own name. Upon receipt of executed agreement, the Applicant delivers a copy of the relevant product to the-End-users in object code form only, along with the copy of product documentation. In other words, the Applicant sub-li....
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.... under section 15 of the Act, as the applicant and end users are not related persons, the amount charged by applicant for sub-licensing of software products shall be the taxable value. Q.No. 2 : Applicability of GST on the "Market Support Fee" received by applicant from Central Hub: • The Market Support fee is to compensate the applicant, where the guaranteed profit margin is not being maintained. The activity of tolerating an act by not being able to maintain the guaranteed margin upon distribution, shall be considered as 'supply of service' as it is within the ambit of clause 5(e) of Schedule II of the Act. • As the applicant and recipient are not located in the same stated the applicable GST is in terms of Section 5 of IGST Act, 2017. However, there is an exception in case where the supply of services qualifies as Zero rated Service in terms of Section 16 of IGST Act. Zero rated • From the above facts, it is seen that the said activity shall qualify as 'export of service' and as the applicant undertakes the said supply of service as a principal supplier and it is not facilitating a supply of service between central hub and any thir....
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....ermined as per Rule 28 of the Tax Valuation Rules prescribed in CGST Rules 2017 • The applicant has stated that since the central hub being supplier of service is providing distribution rights, the same shall qualify as import of service under Section 2(11) of the IGST Act. • The conditions of a service to qualify as import of service and the present case scenario is evaluated below: • To determine the value of supply for the said activity the applicant claims that as per explanation to Section 15(5) of the CGST Act, the applicant and central hub are related persons. Hence, value cannot be determined in terms of Section 15(1) of the CGST Act. The applicant has referred to Section 15(4) of the CGST Act read with Chapter IV of the CGST Rules 2017. • Rule 28 of the CGST rules contains provisions for determining the value of supplies between related persons. In terms of second proviso to Rule 28, in case where the recipient is eligible for full Input tax credit, the value declared in invoice shall be 'open market value' • The applicant has referred to the Appeal Ruling pronounced by Tamil Nadu AAAR in the case of M/s Spec....
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....ral hub, the applicant has the liberty to determine the final price at which it can sub-license the product to end-user. The price /fees is not influenced by the Central Hub The applicant will determine the price independently considering several business and economic factors such as:- i. Direct and indirect costs incurred/envisaged to be incurred by the applicant ii. Demand of the product iii. Price range of competitive products available in the market (if any) iv. Economic factors such as inflation, deflation etc. v. Government and legal regulations 3.3 Further vide their letter dated 20.05.2022, they submitted (received on 30.05.2022) submitted the following documents: • Operating agreement between AVEVA SOLUTIONS LIMITED and AVEVA SOFTWARE PRIVATE LIMITED 3.4. The applicant was sent a mail on 14.07.2022 to submit sample contractual agreement with end users, copies of invoices issued for such supply. Further, on perusal of the Operating Agreement, Schedule 7, the para No. 4.2 and 4.3 mentioned in the document was not available and hence they were asked to furnish the same. The applicant vide their letter dated 21.07....
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....02.2023 submitted the following comments in the respect of the questions raised by the Applicant:- • Regarding question 1, GST applicable on the sub-licensing of the software by the Applicant to the End-users in India and also in places other than India, which are stated in their agreement; Also all the set of services performed by the Applicant as stated in the agreement are subject to GST. • Regarding Question 2, the Market support fees is subject to GST; Apart from the Market Support fees, Market Support Service fees, 'Services Fees', which are mentioned in the agreement are also subject to GST. • Regarding their claim in question No. 2, that their activity would amount to 'Export of Services', as per their agreement, they are not to be classified as 'intermediary' in terms of section 2(13) of the IGST Act, 2017, would be applicable only with regard to sub-licensing service and not to any other service/activity; As per the provisions of Para 3.5 of the Schedule 7 read with Schedule 3, 'Market Support Service Fee' is paid by the Central Hub to the Applicant for various type of services apart from sub-licensing service. Such services apart fr....
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....stated that they provide implementation services relating to sub-licensing of software to the End-users, upon specific request. It also promotes and markets the software products to the End-users; Also they provide all the services in its own name and for its own account within the territory and act as an authorized distributor of Central Hub while sub-licensing the software products. 5.2.2. It is imperative to peruse the Operational Agreement(OA) entered into between the Applicant and the Central Hub to decide whether the activity would amount to supply. The relevant portions of the agreement is extracted and given below:- 2.1. The Central Hub hereby appoints the Local Operating Entity: 2.1.1. as a non-exclusive distributor of the Products within the Territory to: (b) grant sub-licences and distribute the products within the Territory on its own account including to resellers and other distributors. The definition of 'Supply' as per Section 7(1) of CGST Act, the expression 'Supply' includes: (a) All forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to....
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....he use or enjoyment of any intellectual property right are treated as services. But, if a pre-developed or pre-designed software is supplied in any medium/ storage (commonly bought off-the-shelf) or made available through the use of encryption keys, the same is treated as a supply of goods classifiable under heading 8523." 5.2.6. Further, the Explanatory notes for the Scheme of Classification of Services. The explanatory notes indicate the scope and coverage of the heading, groups and service codes of the Scheme of Classification of Services. 997331 Licensing services for the right to use computer software and databases. This service code includes:- - licensing services for the right to reproduce, distribute or incorporate computer programs, program descriptions and supporting materials for both systems and applications software. This applies to various levels of licensing rights such as rights to reproduce and distribute the software, rights to use software components for the creation of and inclusion in other software products; - licensing services for the right to reproduce, distribute or incorporate databases (i.e. compilations of facts/in....
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....ion value which the applicant has charged the end user for sub-licensing the software. 5.3. We take up the next question raised by the Applicant, which is • 2. Whether GST is applicable on the 'Market Support fees' received by the applicant from Central Hub? 5.3.1. It is observed from the submissions of the Applicant that if the Applicant is unable to retain the cost and guaranteed margin as agreed under the arrangement, the Central Hub has agreed to make payment to ensure that the Applicant retains guaranteed margin. The Applicant has stated that the activity of tolerating an act by not being able to maintain the guaranteed margin upon distribution, shall be considered as a "supply of service" since it squarely falls within the ambit of clause 5(e) of Schedule II of CGST Act. However, it is the contention of the Applicant that, since the Applicant and Central Hub are not located in same state, GST on the same shall be applicable in terms of Section 5 of IGST ACT, further there is an exception to the same in case the supply qualifies as zero-rated in terms of Section 16 of the CGST Act. 5.3.2. On perusal of the Operating Agreement(OA) entered between Aveva Sol....
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....tional operating fees payable by the Applicant - 3700 Derived by (1-2-3-4) 6 Market support fees representing shortfall in profit margin guaranteed 1100 Derived by (2+3+4) -1 5.3.4. From the above facts, it is clear that the Market Support fees is nothing but a compensation provided by the Central Hub to the Local Operating Entity, whenever the guaranteed profit margin is not earned by the Local Operating Entity, and therefore, it is nothing but an additional consideration received by the Applicant from the Central Hub for an agreed obligation as per the Operating Agreement. In this connection, the Applicant has claimed that, compensation received is not liable to GST, as clarified in Circular No. 178/2022-GST dated 03.08.2022. But, as per Para No. 7.2 of the said circular, it has been clarified that compensation paid by the Government to prior allottees for cancellation of coal blocks pursuant to the order of the Hon hie Supreme Court of India was not taxable, as no promise or offer was made by the prior allotees to the Government. Hence, it is not applicable to the issue of the Applicant. 5.3.5. 'Consideration' as defined in Section 2(31) of t....
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....GST Act: Place of supply of services where location of supplier or location of recipient is outside India.- (1) The provisions of this section shall apply to determine the place of supply of services where the location of the supplier of services or the location of the recipient 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 In the current case, the said activity is not covered by Sub Section (3) to (13) of the IGST Act. Hence, the place of supply is the location of recipient of Service viz. India. The value for the said activity is determined as per Section 15 of the CGST Act 2017. 5.4.3. The conditions as envisaged in Section 2(11) of the IGST Act are satisfied, the distribution rights granted by the Central Hub to the Applicant shall qualify as 'import of services' in the hands of the Applicant. If the supplier of service is located in a non-taxable territory, the recipient of services located in the taxable territory is liable to pay GST under reverse charge as per Notification No. 13/2017-CT(Rate) and 10/2017-CT(Rate) dat....