TMI Blog2023 (9) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... rs; 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. Whether the said activity would be supply of goods or services? - HELD THAT:- It can be seen that a software is an intellectual property having value. GST law does not recognize or make distinction between tangible and intangible property. Under GST law, the definition of goods makes it clear that all property whether tangible or intangible capable of being moved would fall within the definition of goods. Goods has following attributes: (a) utility (b) capable of being bought and sold (c) capable of being sold, transferred, delivered, stored and possessed. If a software whether customised or non-customised satisfies the attributes mentioned above, the same could be treated as Goods . It is very essential for an article to be termed as Goods , it is its marketability. It is important to note that when a person purchases a software programme especially canned software implanted in some tangible medium, he does not become owner of such software programme, but only a license holder, i.e., he ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the taxable value for the operating fees paid to Central Hub by the applicant pursuant to the said arrangement shall be determined as per Rule 28 of the Tax Valuation Rules prescribed in CGST Rules 2017? - HELD THAT:- In the instant case the Central Hub being the supplier is located outside India, the recipient being the Applicant is located in India and the key factor to be decided is the place of supply - 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) dated 28.06.2017. Coming to the Valuation part, the Applicant and the Central Hub qualifies to be related persons in terms of Explanation to Section 15(5) of CGST Act, 2017. Hence, value cannot be determined as per Section 15(1) of the CGST Act and consequently Section 15(4) of the CGST Act read with Chapter IV of CGST Rules, 2017 i.e. Rule 27 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nadu-600032 (hereinafter called the Applicant) are registered under GST with GSTIN33AAHCS3154M1Z6. The applicant has sought Advance Ruling on the following questions:- 1. Whether GST is applicable on sub-licensing of the software by the applicant to end-users in India? If yes, then what shall be the value of supply? 2. Whether GST is applicable on the Market Support fees received by the applicant from Central Hub? 3. Whether the taxable value for the operating fees paid to Central Hub by the applicant pursuant to the said arrangement shall be determined as per Rule 28 of the Tax Valuation Rules prescribed in CGST Rules 2017? The Applicant has submitted the copy of application in Form GST ARA-01 and also submitted a copy of Challan evidencing payment of application fees of Rs. 5,000/- each under sub-rule (1) of Rule 104 of CGST rules 2017 and SGST Rules 2017. 2.1 The Applicant has stated that they are a subsidiary of AVEVA Plc, which is a multi-national company, having its headquarters at United Kingdom. AVEVA Plc is a global ultimate parent company of the Applicant and is engaged in providing engineering design and information management solutions services in addition to specialize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he software by transferring the right to use, to the End-user. For the said sub-licensing, the Applicant receives the sub-licensing fees from the End-users. In consideration the rights granted by Central Hub to the Applicant to sub-license software products, an operating fee is payable on quarterly basis by the latter to the former after retaining the cost and guaranteed margin from the value of sales. Further, in case the, Applicant is unable to retain the cost and guaranteed margin as agreed under the present arrangement, the Central Hub has agreed to make a payment to ensure that the Applicant retains the guaranteed margin. Such an act of agreeing to make the payment for guaranteed margin retention is referred as market support provided by the Central Hub to the Applicant. 2.2 On interpretation of law, the applicant has submitted the following facts: In respect of the question No. 1 the applicant s interpretation is as below:- The transaction is subject to GST as it qualifies as a Supply in terms of Section 7 of CGST Act and the GST is leviable in terms of Section 9 of the Act. Section 7 includes supply of goods or services or both. In terms of definition of goods and services u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as placed reliance on the judgement on CESTAT Mumbai in the case of Commissioner of Service Tax-VII Mumbai V/s M/s Abbott Healthcare Pvt Ltd [2019 (12) TMI 232-CESTAT Mumbai] to substantiate the fact that they shall not qualify as an intermediary. Sl.No Condition Present case 1 the supplier of service is located in India; As per Section 2(15) of IGST Act, where a supply has been made from a place where the person has obtained registration, the location of the supplier of services shall be such place of business. In the instant case, the Applicant is providing services from Chennai and have obtained GST registration. Therefore, the location of the supplier of service shall be Chennai i.e India 2 the recipient of service is located outside India; As per Section 2(14) of IGST Act, the location of the recipient of services shall be the respective place of business or fixed establishment, if a supply has been received at a registered place of business or registered fixed establishment. However, in other cases, the usual place of residence of the service recipient shall be the location of the service recipient. In the instant case, the Central Hub is not registered in India and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll ITC. Hence, the valuation in such case shall be determined as per second proviso to Rule 28 of CGST Rules. Hence, the Applicant has submitted that it shall be eligible for full ITC of the tax discharged under RCM on payment of operating fees, to Central Hub. Therefore, value of supply in the said case shall be the value invoiced by Central Hub. Sl.No Condition Present case 1 The supplier of service is outside India The central hub is located outside India 2 The recipient of Service is located in India As applicant is located in India, the condition is satisfied 3 The place of supply of service is within India the place of supply of the said activity shall be determined by applying general rule since it is not covered in sub -section (3) to (13) of Section 13 of the IGST Act, hence, the place of supply shall be location of recipient of service i.e India 3.1 The first personal hearing in this regard with the applicant consent was held on 19.04.2022. The Authorised Representatives (AR) Shri. Thirumalai, Advocate and Shri Sagar Shah, Senior Manager, Deloitte Haskins Sells, LLP appeared for the hearing and reiterated the submissions made. They submitted that the software is supplied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Shri. Thirumalai, Advocate, Shri Sagar Shah, Senior Manager, Deloitte Haskins Sells, LLP, Mr. Kiran Gala, Manager(Taxation), M/s Aveva Software Pvt. Ltd., and Mr. Ashwath Baji, Assistant Commissioner, Guindy Division(Jurisdictional Officer). They reiterated their submissions already made. They relied on CBIC Circular No. 178/10/2022-GST dated 03.08.2022 to claim that Market Support Fee proposed to be received as per the Composite Agreement with Central Hub will be in the nature of Compensation not attracting GST. 3.6. The Applicant vide their letter dated 13.02.2023, submitted the following pursuant to the personal hearing 10.01.2023:- 1. Copy of the model agreement with end-users 2. Note on Market Support fees payable by Central Hub to Aveva. Further they also submitted the following note: That there are two risk factors in the contract viz as legal risk and financial risk. While the former lies Aveva, the latter lies with the Central Hub and they quoted certain clauses in their agreement to support their claim. In their note on Market Support Fees received by them from Central Hub, they placed reliance on CBIC Circular No. 178/ 10/2022-GST dated 03.08.2022 to claim that Market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 The State Jurisdictional Authority vide their letter dated 28.04.2022 has submitted that there are no pending proceedings in the applicant s case in their jurisdiction. DISCUSSIONS AND FINDINGS: 5.1. We have carefully examined the statement of facts, supporting documents filed by the Applicant and the additional submissions made during the hearing. The applicant has sought Advance Ruling on the following questions:- 1. Whether GST is applicable on sub-licensing of the software by the applicant to end-users in India? If yes, then what shall be the value of supply? 2. Whether GST is applicable on the Market Support fees received by the applicant from Central Hub? 3. Whether the taxable value for the operating fees paid to Central Hub by the applicant pursuant to the said arrangement shall be determined as per Rule 28 of the Tax Valuation Rules prescribed in CGST Rules 2017? 5.2. We intend to take the questions one by one. The first question raised by the Applicant is 1. Whether GST is applicable on sub-licensing of the software by the applicant to end-users in India? If yes, then what shall be the value of supply? 5.2.1. The Applicant had submitted that they and Central Hub, who is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (whether or not for a specified period) for cash, deferred payment or other valuable consideration . 5.2.3. It can be seen that a software is an intellectual property having value. GST law does not recognize or make distinction between tangible and intangible property. Under GST law, the definition of goods makes it clear that all property whether tangible or intangible capable of being moved would fall within the definition of goods. Goods has following attributes: (a) utility (b) capable of being bought and sold (c) capable of being sold, transferred, delivered, stored and possessed. If a software whether customised or non-customised satisfies the attributes mentioned above, the same could be treated as Goods . It is very essential for an article to be termed as Goods , it is its marketability. It is important to note that when a person purchases a software programme especially canned software implanted in some tangible medium, he does not become owner of such software programme, but only a license holder, i.e., he cannot use of its own will. 5.2.4. Notification No. 1/2017-IT (Rate), read with Notification No. 1/2017-C.T. (Rate), stipulates that if pre-developed or pre designed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loped and predesigned software and made available through the use of encryption keys and hence it satisfies all condition of the definition goods . Further, it is observed that goods which are supplied by the applicant cannot be used without the aid of the computer and has to be loaded on a computer and then after activation would become usable and hence the goods supplied qualifies to be Computer Software and more specifically cover under Application Software . Supply of software license qualifies to be Supply of Goods on the grounds that as per the explanatory notes to the scheme of classification of services the SAC 997331 excludes the services of limited end-user licence as part of packaged software. Hence, the supply made by the Applicant is covered under Supply of goods and GST shall be applicable on the same in terms of Section 9 of CGST Act, 2017. 5.2.8. Now, considering the next part in question 1, i.e. the value on which GST shall be applicable. It is pertinent to see Section 15 of CGST Act, which states the Value of Taxable supply means: the value of supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with paragraph number 4 of schedule 7. As per Clause no. 15.7, the Market Support Service fees shall be invoiced by the Local Operating Entity in the relevant currency which will be settled by the Central Hub in relevant currency or such other currency as may be agreed. Relevant currency as per the definition clause is the functional currency of the Local Operating Entity. As per the definitions provided in schedule 7, return on sales means 3% of revenues for such month. As per Clause paragraph number 3.4 of the schedule 7 of the said agreement, in any month where there is an operating loss or operating Profit is less the Local Operating Entity s return on sales for that period (plus the base fees referred to in Paragraph 4.2), then the difference between the operating loss or Operating Profit and the local operating entities return on sales (plus such base fee) shall be payable as market support fee by the Central Hub to the Local Operating Entity. 5.3.3. This calculation portion has been explained by the Applicant in vide additional submissions made on 18.04.2023, as detailed below; Sl.No. Particulars Period 1 (in Rs.) Period 2 Remarks 1 Value of supplies made by the Applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration charged towards the supply in this case which will form part of the value of supply as per the provisions of section 15 of the GST Act. 5.4. We take up the next question raised by the Applicant, which is,- Whether the taxable value for the operating fees paid to Central Hub by the applicant pursuant to the said arrangement shall be determined as per Rule 28 of the Tax Valuation Rules prescribed in CGST Rules 2017? 5.4.1. The Applicant pay an amount as Operating fee to the Central Hub in lieu of various rights, collectively may be referred to as distribution rights , granted by the Central Hub to the Applicant and in terms of Section 5(3) of the IGST Act, whether the same shall qualify as import of service . 5.4.2. The relevant provisions of import of service in IGST Act is as given below:- 2(11) import of services means the supply of any service, where- (i) the supplier of service is located outside India; (ii) the recipient of service is located in India; and (iii) the place of supply of service is in India; In the instant case the Central Hub being the supplier is located outside India, the recipient being the Applicant is located in India and the key factor to be decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30 or rule 31, in that order: Provided that where the goods are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to ninety percent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person: Provided further that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services. 5.4.6. Based on the above Rules, in case where the open market value is available, then valuation of the supply shall not be governed by clause (b) or (c) of Rule 28 of CGST Rules. Further, in case, where the recipient of service is eligible to claim the full ITC, the value shall be determined as per the second proviso to Rule 28 of CGST Rules. In view of the above, we give the following ruling: RULING 1. For Question 1: The activity performed by the Applicant i.e. sub-licensing of the software by the Applicant to end-users in India would squarely fall under Supply of goods , and GST shall be applicable on the same in terms of Section 9 of CGST Act, 2017 and the taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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