TMI Blog2018 (11) TMI 887X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Status of taxability of the testing services provided by them to their overseas clients and would therefore require detailed examination. Section 13 of the IGST Act contains the provisions for determining 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. As per Section 13(2) generally, the place of supply of services shall be the location of the recipient of services except in case of the services specified in sub-sections (3) to (13) of Section 13 of the IGST Act. In the subject case the prototypes are made physically available by the recipient of services (the overseas clients) to the supplier of services (the applicant). The applicant is providing testing services on physical product samples i.e. prototypes, made available to them in India by their overseas clients in respect of prototypes after due examination and testing of these prototypes. From a reading of the agreement it is very clear that the testing activities that are carried out include Functional tests, Electrical tests, Mechanical tests, Life cycle tests, Endurance tests, Illumination tests, Environmental tests, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to as the CGST Act and MGST ] by Behr-Hella Thermocontrol India Pvt. Ltd., the applicant, seeking an advance ruling in respect of the following question. Whether in the facts and circumstances of the case, the Applicant is liable to pay Integrated Goods and Services Tax on the testing services provided to its overseas group entities, being a zero-rated supply? At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act 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 same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the GST Act . 02. FACTS AND CONTENTION - AS PER THE APPLICANT The submission (Brief facts of the case), as reproduced verbatim, could be seen thus - Statement of the relevant facts having a bearing on the question(s) on which the advance ruling is required (refer Sl. No. 15 of Form ARA-01) 1. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment containing the applicant s interpretation of law and/or facts. as the case may be. in respect of the questions(s) on which advance ruling is required In light of the facts of the case (as explained in Annexure I) and the question in respect of which the Applicant seeks an Advance Ruling, the Applicant s interpretation of facts and law in respect of the aforesaid questions is as follows: Question: Whether in the facts and circumstances of the case, the Applicant is liable to pay Integrated Goods and Services Tax on the testing services provided to its overseas group entities, being a zero-rated supply? Applicant s submissions 1.1 With effect from 01 July 2017, indirect tax regime in India has shifted from multiple taxes by multiple authorities at multiple times to a consolidated Goods and Services Tax ( GST ) regime. 1.2 Conceptually, GST is a destination based tax on consumption of goods and services , meaning thereby that the tax would accrue to the taxing authority which has jurisdiction over the place of consumption which is also termed as the place of supply . In this regard, a reference is made to the Frequently Asked Questions on GST issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson 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. ********* (105) supplier in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied. ********* 1.8 In the facts and circumstances of the present case, it is not in dispute that the Applicant is the supplier of services in terms of Section 2(105) of the CGST Act, and the overseas group entities, being liable to pay the consideration for the services supplied by the Applicant, are the recipi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and are exported after repairs without being put to any other use in India, than that which is required for such repairs; *********** 1.18 The terms location of the recipient of services and location of the supplier of services have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... location of the recipient of services in terms of Section 13(2) of the IGST Act, except in case of the services specified in sub-sections (3) to (13) of Section 13 of the IGST Act. 1.22 The Applicant understands that sub-sections (4) to (13) of Section 13 of the IGST Act are irrelevant in the present case for the purpose of determination of the place of supply of the testing services provided by the Applicant to its overseas group entities, 1.23 It is further submitted that the case of the Applicant does not fall within the ambit of Sub-section (3) of Section 13 of the IGST Act as well. 1.24 In terms of section 13(3)(a) of the IGST Act, the place of supply of services provided in respect of goods which are required to be made physically available to the supplier of services shall be the location where the services are actually performed. 1.25 In the present case, having regard to the nature of services rendered by the Applicant to its overseas group entities, it is mandatory for the overseas group entities to provide prototype goods to the Applicant. Further, the Applicant would be conducting tests in India and thereafter sending the test reports outside India to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the actual consumption of the testing services performed by the Applicant is happening outside India in the form of the test reports. 1.32 The aforesaid position is further substantiated by the second proviso to Section 13(3)(a) of the IGST Act which provides that even though the repairing of goods is done in India, the place of supply shall be outside India if the goods after repairs are exported out of India. The rationale behind such exclusion appears to be that no GST should be levied as the goods will be ultimately used or consumed outside India. 1.33 The above contention is also supported by the judgment of the Hon ble Bombay High Court in the case of Commissioner of Service Tax, Mumbai - II v. SGS India (P.) Ltd. reported in 2014 (34) S.T.R. 554 (Bom.) = 2014 (5) TMI 105 - BOMBAY HIGH COURT , wherein the Hon ble Bombay High Court held that service tax is a destination based consumption tax and therefore, even though the testing of goods has happened in India, the service will be treated as export of service as the benefit of service is accruing outside India. In a nutshell, the Hon ble Bombay High Court held that since the delivery of the test report to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and circumstances of the present case. 25. The view taken by the Tribunal therefore, cannot be said to be perverse or vitiated by an error of law apparent on the face of the record. If the emphasis is on consumption of service then, the order passed by the Tribunal does not raise any substantial question of law. 1.34 The aforesaid judgment of the Hon ble Bombay High Court has been followed by it in the case of The Pr. Commissioner of Mumbai Commissionerate v. QIndia Investment Advisory Pvt. Ltd. reported in 2017-TIOL-2171-HC-MUM-ST = 2017 (10) TMI 754 - BOMBAY HIGH COURT . 1.35 Since GST is also a destination based consumption tax on goods and services, relying upon the judgment of the Hon ble Bombay High Court in SGS India Ltd, (supra) and Qlndia Investment Advisory Pvt. Ltd. (supra) , it is submitted that the place of supply in case of the testing Service provided by the Applicant to its overseas group companies is also outside India. 1.36 In this regard, it is further submitted that even if the services are provided from India, since the actual consumption of the testing services is taking place outside India, the place of supply of services ought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in different geographics. Activities carried out broadly include: Functional tests Electrical tests Mechanical tests Life cycle tests Endurance tests Illumination tests Environmental tests - Software tests Product robustness tests All the test activities are carried out using climate chambers, test measuring equipments etc. Above tests will result in respective test report generation. Deliverables in this case includes test reports, compliance reports, conformance/ non conformance reports etc. Testing is carried in manual mode and also in automated mode c) BHTCIN is interested in accepting such engagements from BHTC and willing to provide services related to man and machine resources as per requirement of BHTC (hereinafter referred to as Services ); and d) BHTC and BHTCIN mutually desire to set forth in this Agreement certain terms and conditions applicable to all such engagements; Now it is hereby agreed as follows: 1. Scope, Duties and Responsibilities of BHTCIN a. BHTCIN shall recruit and maintain duly qualified, skilled and experienced resources to provide services to BHTC and its group companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will define the initial training roadmap and also the time period after which they will be considered eligible for working on the projects. Such training costs will be bome by BHTCIN 3. Invoicing BHTCIN Shall submit invoices to BHTC on Time basis once a month based on available resource hours for BHTC projects. All invoices shall be due and payable within thirty (30) days of presentment, subject to the approval and acceptance by BHTC and shall be addressed to BHTC s Technical Coordinator, The invoice will mention the brief description of the project as well as the project number (TCE number or similar as requested by BHTC). In case resource available for BHTC projects are not fully utilized, the appropriate cost code will be provided by BHTC to BHTCIN to enable invoicing for the same. The hourly rate to be considered for invoicing Shall be reviewed between the parties in the beginning of each calendar year commencing from January 2014 and shall be notified separately. BHTC will pay the hourly rate plus travel expenses (Air ticket, Transportation, Lodging, Meals or allowance), which will be approved in advance by BHTC for each Professional on project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sedes the Service Agreement between BHTC and BHTCIN dated January 1, 2012 and amendments thereof and shall come into force on the date of its execution and shall lasts until 315 December 2015 and will be automatically renewed if none of the parties terminates within ninety (90) days in advance. b. If BHTCIN Commits any act of insolvency or any provision for winding up is admitted against BHTCIN, BHTC shall be entitled to forthwith terminate this Agreement. c. If BHTCIN commits a material breach of the provisions of this Agreement which is not cured within thirty (30) days of the date of receipt of a cure notice by BHTCIN, BHTC shall be entitled to terminate this Agreement. 10. Force Majeure If the performance of this Agreement is impeded or there are reasonable grounds for anticipating that the same is or threatens to be impeded or rendered impossible by Force Majeure, such imminent outbreak of existence of hostilities or war like operations, whether declared or not, international or civil, involving the Government or either of the parties to this Agreement or the Major Powers, or Force Majeure of any other kind and such situation continues for a prolonged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st reports, the overseas group companies then make the suggested alterations to the product design and manufacture products based thereon. SUBMISSIONS : A. We refer to and reiterate the Submissions made in para 1.1 to 1.38 of the application. The Said submissions are summarized as follows: (i) The services of testing of the prototypes provided by the Applicant to its group companies are appropriately classified under Section 13(2) of the Integrated Goods and Services Tax Act, 2017 ( IGST Act ); (ii) The services of testing of prototype and providing the report based on which mass production is undertaken is more in the nature of advisory/ consultancy service, rather than the services prescribed under Section 13(3) of the IGST Act which, inter alia, entail provision of service on the goods made available physically by the recipient of service and which are subsequently returned to the recipient. The classic examples of services prescribed under Section 13(3) of the IGST Act are repair of car, maintenance of machines etc.; (ii) The service of the Applicant is not complete until the report is delivered to the overseas group companies, i.e., the recipients of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provider in convertible foreign exchange; E. A bare perusal of the above makes it clear that even under the Export of Services Rules, 2005, the Technical Testing and Analysis Services, as defined under Section 65(105)(zzh) of the Finance Act, 1994, were deemed to be exported only if such services were performed outside India. It is submitted that the said provisions are substantially similar to the provisions of the Place of Supply Rules as provided under Section 13 of the IGST Act. F. Further, w.e.f. 01 April 2011, Rule 3(2) of the Export of Services Rules, 2005 was amended and condition for the Technical Testing and Analysis Services for qualifying as export of services was changed from the place of performance of service to the location of the recipient of service. G. The aforesaid amendment indicates that the intention of the legislature at all times was to treat the said testing and analysis services, the report for which was issued to the overseas service recipient as export of service, based on the location of the recipient of service. The key factor being that service tax was a destination based consumption tax and the services with regard to the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... half of the receiver, with the provider for the provision of the service. I. In view of the aforesaid, it is submitted that the provisions of Section 13(3) and 2(6) of the IGST Act are substantially identical to the provisions of the erstwhile Finance Act, 1994 (supra). Hence, the ratio of the judgments of the Hon ble High Court and the Hon ble Appellate Tribunal issued under the erstwhile Finance Act, 1994 remain applicable to the present case and the same cannot be brushed aside merely on the grounds of being issued under the erstwhile Finance Act. J. The judgment of the Hon ble Bombay High Court in Commissioner of Service Tax, Mumbai-Il v/s. SGS India Pvt. Ltd. reported in 2016 (34) STR 554 (Bom.) = 2014 (5) TMI 105 - BOMBAY HIGH COURT is a leading judgment on the prevalent issue wherein, the Hon ble Bombay High Court while interpreting the Export of Services Rules, 2005 has held as follows: 24. In the present case, the Tribunal has found that the assessee like the respondent rendered services, but they were consumed abroad. The clients of the respondents used the services of the respondent in inspection/test analysis of the goods which the clients located ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid two judgments are issued under the Export of Services Rules, 2005. The Hon ble Tribunal, in Commissioner of Central Excise, Pune-l v/ s. Sai Life Sciences Ltd. reported in 2016 (42) STR 882 (Tri.- Mum.) = 2016 (2) TMI 724 - CESTAT MUMBAI relying upon the judgment of SGS India Pvt. Ltd. (supra) has held that even for the period post 01 July 2012, i.e., post the insertion of the Place of Provision of Services Rules, 2012 and the negative list based taxation of services, the testing services provided to overseas entities wherein the report is sent outside India qualify as export of services. A copy of the said judgment of Sai Life Sciences Ltd. (supra) is attached at page 35 of the first compilation of documents. M. As submitted above, the said Rule 4 of the Place of Provision of Services Rules, 2012 and Section 13(3) of the IGST Act are identical and hence, the judgment of the Hon ble Appellate Tribunal in the case of Sai Life Sciences (supra) is squarely applicable to the facts of the present case. N. Without prejudice to the above it is submitted that the aforesaid judgments are binding judicial precedents. Merely because an appeal has been preferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 and are exported after repairs without being put to any other use in India, than that which is required for such repairs; (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. The applicant has entered into service agreement with BHTC Germany. The prototype goods are supplied by BHT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. Suyog Bhave Advocate appeared and requested for admission of application as per contentions in their application. The jurisdictional officer Sh. Ramesh Phadtare, Dy. Commr. S. T. (PUNE-BST-E-001), Pune Division, Pune appeared and stated that they will be making detailed submissions in due course. The application was admitted and final hearing was held on 29,08.2018, Sh. Mihir Mehta, Advocate along with Sh. Suyog Bhave Advocate and Sh. Sandeep Deshmukh, D G M Finance appeared and made oral and written submissions and requested time for further submissions before 06.09.2018. The jurisdictional officer, Sh. Ramesh Phadtare, Dy. Commr. S. T. (PUNE-BST-E-001), Pune Division, Pune appeared and made written submissions. 05. OBSERVATIONS 5.1 We have perused the records on file and gone through the facts of the case and the submissions made by the applicant and the department. 5.2 facts of the subject matter are that the Applicant has entered into service agreement for providing testing services in relation to the prototype goods supplied by their overseas clients. The tests are directly carried out on the prototype goods provided by the overseas group entities and ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is outside India. We agree with the applicant that the place of supply is relevant to decide the taxability and the Status of taxability of the testing services provided by them to their overseas clients and would therefore require detailed examination. 5.7 Section 13 of the IGST Act contains the provisions for determining 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. As per Section 13(2) generally, the place of supply of services shall be the location of the recipient of services except in case of the services specified in sub-sections (3) to (13) of Section 13 of the IGST Act. We agree with the applicant that sub-sections (4) to (13) of the said Section 13 are irrelevant in the present case for the purpose of determination of the place of supply of the testing services provided by them to their overseas clients and therefore we restrict ourselves to the provisions of sub-section (3) of Section 13 of the IGST Act, which is as under:- Section 13 (3) The place of supply of the following services shall be the location where the services are actually performed, namely:- (a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... totypes is in respect of verification of traits, characteristics and defects, if any, in respect of prototypes sent to the applicant and this service of testing is over once on the basis of examination and verification of prototype, the test report is generated and sent via mail as stated by the applicant and therefore provision of testing service is over and it is clear as per detailed discussions above, that the service is completed and is clearly provided in India. Thus the event and provision of testing service is over and the service is clearly provided in India as per Section 13(3) of the IGST Act, 2018. The applicant s main arguments are that the service is completed only when it is used by the applicant in manufacture of goods and their upgradation or removal of defects if any, on the basis of this test report is not sustainable and maintainable as the agreement between the applicant and the service recipient is only with respect to conducting of tests and providing of test report and is not with respect to its further use or otherwise by the service recipient as we can clearly see that even if the findings of test report are not used in any way by the service recipie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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