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TMI Blog2018 (11) TMI 887X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 Applicant is a private limited company incorporated under the Companies Act, 1956. The registered office of the Applicant is situated at Elpro Compound, City Survey No. 4270, Chinchwadgaon, Pune - 411 033. The Applicant is a 100% subsidiary of Behr-Hella Thermocontrol GmBH, Lippstadt, Germany (hereinafter referred to as "BHTC Germany"). The Applicant is registered under GSTIN No. 271800000581ARQ. 2. In the normal course of business, the Applicant has entered into service agreements with BHTC Germany and its other overseas group entities such as Behr-Hella Thermocontrol, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ro-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 the Central Board of Excise & Customs, New Delhi dated 31 March 2017 (2nd Edition) which highlights the conceptual understanding of GST as under: Q 1. What is Goods and Services Tax (GST)? Ans. It is n destination based tax on consumption of goods and services. If is proposed to be levied at all Stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as setoff. In a nutshell, only value addition will be taxed and burden of tax is to be borne by the final consumer. Q 2. What exactly is the concept of destination based tax on consumption? Ans. The tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 "recipient of services" in terms of section 2(93) of the CGST Act. 1.9 Thus, condition provided under clause (a) and (b) of Section 2(6) of the IGST Act are satisfied in the present case. 1.10 It is not in dispute that the Applicant is receiving the consideration for the supply of the service in the form of convertible foreign exchange from the overseas group entities. Thus, condition provided under clause (d) of Section 2(6) Of the IGST Act is also satisfied. 1.11 Further, the Applicant and its overseas group entities are not merely establishments of a distinct person in accordance with Explanation 1 in Section 8 of the IGST Act. 1.12 Explanation 1 to Section 8, inter aha, provides that where a person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 been defined under Section 2(14) and Section 2(15) of the IGST Act as under: Definitions 2. In this Act, unless the context otherwise requires, - ******** (14) "location of the recipient of services" means,-- (a) where a supply is received at a place of business for which the registration has been obtained, the location of such place of business; (b) where a supply is received at a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment; (c) where a supply is received at more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the receipt of the supply; and (d) in absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 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 overseas group entities on whose behalf the Appellant has carried out the testing services. 1.26 The Applicant is required to submit a test report and the contractual obligation of the Applicant towards overseas group entities in terms of the provision of testing services is complete only when the test reports are delivered to them. In other words, the provision of service is complete only when the test report is delivered to the overseas group entities. 1.27 It is submitted that the delivery of the test report by the Applicant to its overseas group entities is the most Important part of the services rendered by the Applicant. In fact, the overseas group entities, as recipient of Services, are expecting the test report and nothing apart from that. 1.28 As stated above, GST is a destination based tax on consumption of goods and services. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the foreign clients was an essential part of testing services, the said services must be treated to be consumed abroad and therefore, falling within the ambit of "export of services" not liable to service tax. The relevant extracts of the judgment are reproduced below for ready reference: 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 abroad intended to import from India. In other words, the clients abroad were desirous of confirming the fact as to whether the goods imported complied with requisite specifications and standards. Thus, client of the respondent located abroad engaged the services of the respondent for inspection and testing the goods. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided 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 be outside India in terms of Section 13(2) of the IGST Act. 1.37 Basis the above discussion, it is submitted that the "place of supply of service" in respect of the testing Services provided by the Applicant to the overseas group entities is to be determined in terms of Section 13(2) of the IGST Act which provides that the place of supply shall be the location of the recipient of service i.e. outside India. 1.38 In view of the above, it is submitted that the testing services provided by the Applicant to its overseas group entities qualify as export of services and therefore, zero rated supply as defined under Section 16 of the IGST Act. Further, the Applicant can supply the said testing services to its overseas group entities without payment of IGST in terms of Section of the IGST Act. TESTING SERVICE AGREEMENT Effective as of January 1, 2014 BETWEEN Behr-Hella Thermocontrol GmbH, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; 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 as agreed in the beginning of each calendar year with BHTC. These services will be provided from BHTCIN facility or on-site as per requirement of BHTC or its affiliates. b. BHTCIN will track its resources in the manner agreed with BHTC and will ensure that the time booking is done properly on respective projects, BHTCIN is expected to take care that their own project hours are not captured on BHTC projects. BHTC will receive corresponding documentation which will be a matter of a separate, operational notification. c. BHTCIN will enter the hours in SAP system or any other tool as may be defined in consultation with BHTC on fortnightly basis under the respective project codes. At the end of each month, the same will form basis of invoicing by BHTCIN. The due dates for the closing of the monthly accounts will be adhered to. d. BHTCIN will have administrativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 assignment on site at BHTC Lippstadt or at any other location. (BHTC will receive corresponding documentation) Except as expressly agreed with BHTC, BHTCIN shall bear all of its own expenses arising from its performance of its obligations under this Agreement, including (without limitation) expenses for facilities, work spaces, training, utilities and the like. 4. Ownership and Rights In relation to jobs received by BHTCIN from BHTC, all original and intermediate written material, including programs, documentation, CDs, diskettes, listings and any other material generated by BHTCIN personnel for BHTC shall belong exclusively to BHTC. 5. Confidentiality a. Except as provided by clause 5(b) herein below, BHTC and BHTCIN shall at all times during the currency of this Agreement and thereafter: i. Use their best endeavours to keep all Restricted Information confidential and accordingly not to disclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 period, then either Party may by giving a notice to the other, terminate this Agreement provided that Such termination shall be without prejudice to existing rights and obligations at the date of the termination. 11. Severability Clause If a provision of this agreement is or becomes illegal, invalid or unenforceable in any jurisdiction, the contract shall be construed as if the same had not been inserted. The Parties hereby agree to make an amendment to the contract containing a legal, valid or enforceable provision. 12. Amendments and Modifications All amendments or modifications to this Agreement must be in writing, identified as an amendment to this Agreement and signed by an authorized representative of each Party 13. Governing LAW This Agreement Shall be subject to the laws of the Federal Republic of Germany. For all claims arising out of or in connection with this Agreement -- as far as statutorily allowed -, the courts competent for Behr-Hella Thermocontrol GmbH domicil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the Applicant is not complete until the report is delivered to the overseas group companies, i.e., the recipients of services. The said recipients of services are interested in the result of the testing of the prototypes based on which the mass production can be undertaken; (iii) All the conditions as prescribed under Section 2(6) of the IGST Act for the purpose of qualification of "export of services" are satisfied and hence the services rendered to the group companies qualify as export of service. B. Without prejudice to the submissions made in the Application, it is submitted that the issue regarding the place of supply / place of provision of service in case of Technical Testing and Analysis Services, where the report is delivered outside India, is settled by various decisions of the Hon'ble High Court and Hon'ble Appellate Tribunal. C. It is submitted that the Hon'ble High Court and the Hon'ble Appellate Tribunal have taken a consistent view that service tax being a destination based consumption tax, the place of supply/ place of provision of the said services are outside India and the said services qualify as export of services. D. Under the service tax regime, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation based consumption tax and the services with regard to the said testing were being consumed outside India, The Frequently Asked Questions (FAQs) to the Central Goods and Services Tax Act, 2017 published by the CBI&C states that Goods and Services Tax is also a destination based consumption tax and hence, the same intent should be applicable to the Goods and Services Tax law as well. The copy of the Export of Service Rules, 2005 (prior and post the amendment of 2011) is annexed at page numbers 6 to 16 Of the second compilation of documents. The copy of the FAQs to the Goods and Services Tax Act is annexed at page 19 of the first compilation of documents. H. w.e.f. 01 July 2012, i.e., post the implementation of negative list based taxation of services, the qualification of Export of Service was determined by Rule 6A of the Service Tax Rules, 1994, read with Place of Provision of Services Rules, 2012. The provisions of said Rule 6A of the Service Tax Rules, 1994 are substantially identical to the Section 2(6) of the IGST Act and the provisions of Rule 4 of the Place of Provision of Service Rules, 2012 are identical to the provisions of Section 13(3) of the IGST Act. The relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the clients located abroad intended to import from India. In other words, the clients abroad were desirous of confirming the fact as to whether the goods imported complied with requisite specifications and standards. Thus, client of the respondent located abroad engaged the services of the respondent for inspection and testing the goods. The goods were tested by the respondents in India. The goods were available or their samples were drawn for such testing and analysis in India. However, the report of such tests and analysis was sent abroad. The clients of the respondent were foreign clients, paid the respondent for such services rendered, in foreign convertible currency. It is in that sense that the Tribunal holds that the benefit of the services accrued to the foreign clients outside India. This is termed as 'export of service'. In these circumstances, the Tribunal takes a view that if services were rendered to such foreign clients located abroad, then, the act can be termed as 'export of service'. Such an act does not invite a service tax liability. The Tribunal relied upon the circulars issued and prior thereto the view taken by it in the case of KSH International Pvt.Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment of the Hon'ble Bombay High Court in the case of SGS (supra), the ratio of the said judgment cannot be said to be in jeopardy, as no Stay has been granted against the same. In this regard, reliance is placed on the following judgments: (i) Union of India v/s. Kamlakshi Finance Corporation Ltd. reported in 1991 (55) ELT 433 (SC) = 1991 (9) TMI 72 - SUPREME COURT OF INDIA; (ii) Mycon Construction Ltd. v/s. Union of India reported in 2017 (350) ELT 514 (Bom.) = 2017 (3) TMI 347 - BOMBAY HIGH COURT; (Ill) Shree Sai Vamika Industries v/ s. Union of India reported in 2017 (347) ELT 93 (Gau.) = 2015 (12) TMI 1778 - GAUHATI HIGH COURT The copies of the said judgments are attached at pages 31 to 36 of the second compilation of documents. In view of the aforesaid, it is submitted that the place of supply of the testing services provided by the Applicant is outside India and the testing services qualify as export of service in terms of Section 2(6) of the IGST Act. 03. CONTENTION - AS PER THE CONCERNED OFFICER The submission, as reproduced verbatim, could be seen thus- M/s. Behr Hella Thermocontrol India Pvt. Ltd. have raised the following question on which advance ruling is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsumption of test reports takes place outside India. Hence this office is of the opinion that section 13(3) is not applicable to the applicant. Subsections (4) to (13) of section 13 are also not applicable to the applicant. The transaction of applicant falls under subsection (2) of section (13) and the place of supply is outside India. "Export of Service" is defined u/s (20)(6) of IGST Act as under: (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; and (v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8; The applicant satisfies the clauses of sec(2)(6) and as the place of supply of service is outside India, this office is of the view that the applicant is not liable to pay Integrated Goods and Services Tax on the testing services provided to its overseas group entities. The applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent back and the Applicant receives the consideration in convertible foreign exchange. The issue that has been raised by the applicant is with respect to 'place of such supply' of services rendered by them. They are contending that the place of supply is outside India and therefore such services have been exported by them and accordingly they have made their submissions in support of their contention. Therefore we find that the basic issue before us is to ascertain whether such supply of services provided by the applicant are export of services or not. 5.3 In the subject case it is seen that the supplier of service is in India and the receiver of the service is outside India and therefore as per Section 7(5) of the IGST Act we find that the supply of service in this case shall be treated as a supply of service in the course of Inter-State trade, 5.4 Now we take the opportunity to discuss whether the supply of service by the applicant in this case attracts the provisions of Section 2(6) of the IGST Act, so as to be treated as an export of service so as to qualify as "Zero rated supply" under the provisions of Section 16 of the IGST Act. 5.5 An exporter of services in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. 5.8 We find that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is used by the service recipient. Thus the applicant's argument does not hold any ground and we are of the opinion that in the present case it can safely be inferred from a reading of the provisions of Section 13(3) that the services supply of which has been rendered by the applicant to their overseas client as per the agreement is taxable under IGST Act. 5.10 Further we specifically find that in the SGS case cited by the applicant, the facts are different. In that case the overseas clients of SGS used the services of SGS in inspection/ test analysis of the goods which the clients located abroad intended to import from India. The tests were conducted on sample goods and the said goods were not made physically available by their overseas client. In fact the overseas clients would import the goods only after the goods were tested by SGS and a report was sent to that effect. The import would occur only the reports sent were found to confirm that the goods imported complied with requisite specifications and standards, In the subject case the situation is different. Here the overseas client had made the goods physically available to the applicant in order to enable them to conduct th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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