TMI Blog2019 (2) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... but excludes a person who supplies such goods or services or both on his own account. The phrase ‘such goods or services’ used in the definition of ‘intermediary’ implies that the person should not be supplying on his risk and reward entirely, the very goods or services whose supply he is arranging or facilitating - In the instant ease, the Appellant is facilitating the supply of the products of Brabender between the Principal in Germany and the Principal’s customer in India. He is not supplying the products of Brabender on behalf of the Principal. He is only arranging the contact between the Principal and the Principal’s customer and the actual supply of the products is done by the Principal directly to the customer. The service of facilitating a supply of goods between the Principal and the customers is provided by the Appellant to the overseas client. The Appellant is not supplying such goods on his own account. The argument of the Appellant that the promotion and marketing services are supplied to the Principal on their own account and hence they fall within the exclusion clause of the definition of intermediary is not a correct interpretation of the law - the Appellant is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f place of supply of services where the location of the supplier or the location of the recipient of services is outside India are contained in Section 13 of the IGST Act, 2017. Thus. the entire issue is intrinsically related to determination of ‘place of supply’ of service by the applicant - It is evident from the above that determination of place of supply is not a question on which an advance ruling can be sought. The Authority for Advance Ruling has been constituted in exercise of the powers conferred by section 96 of the Karnataka Goods and Services Tax Act, 2017, which Act extends to the whole of the state of Karnataka. The AAR is a creature of statute and has to function within the legal boundary mandated by the Acts. As the ‘place of supply’ is not covered by Section 97(2) of the Acts, the AAR was right in refraining from answering this question on the grounds of of jurisdiction - AAR ruling upheld. AAR ruling upheld. - KAR/AAAR/06/2018-19 - - - Dated:- 9-1-2019 - SHRI. A.K. JYOTISHI, AND SHRI. M.S. SRIKAR, MEMBER Represented by: Sri Badarinath, Chartered Accountant PROCEEDINGS (Under Section 101 of the CGST Act, 2017 and the KGST Act, 2017) At the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the following activities: i. Applicant advertises the details of the goods to the prospective customers; ii. Provides demonstration of the products to the various prospective customers located in India; iii. Communicates and corresponds about all the relevant information to the prospective customers in connection with the goods; iv. Communicates with the overseas clients about comments and queries of the prospective customers; and v. Reviews the credit rating of the prospective customers of the overseas entity on regular basis; b. After sale support services: The prospective customers who are desirous of importing the said equipment will issue a purchase order to the overseas supplier and agree on the pricing and supply details. On the basis of the order issued by the prospective customer to the overseas entity, the overseas entity supplies the products to their customer in India. The appellant submits that the company is not involving in any of these processes but will provide the following support services: i. Advice and assist the customers of the overseas entity in installation, initial start-up of products and demonstration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s directly to the overseas entity (Service recipients) on principal-to-principal basis. Appellant will not enter into any agreement with the Indian customer for the supply of products of the overseas entity whereas overseas entity himself will directly deal With Indian customer regarding obtaining the purchase order, price negotiations and finally supply the goods. Appellant is involved only in the promotion and marketing of the goods of the overseas entity on his own account. Hence the activity undertaken by the Appellant, by way of promotion and marketing services are not intermediary services, In support of this. Appellant had drawn the attention of the Learned Authority for Advance Ruling (in short LAAR) to the Advance Ruling pronounced under the Service tax provisions in the case of GoDaddy India web Services (P) Ltd. (Ruling No. AAR/ST/08/2016, dated 4 th March 2016 Application No. AAR/44/ST/15/2014) = 2016 (3) TMI 355 - AUTHORITY FOR ADVANCE RULINGS wherein the Authority has clearly demarcated the meaning of intermediary services and ruled that pure marketing and promotion services would not be intermediary services . 6.2. The appellant also submitted before the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces and the services provided are of the nature of facilitating the supply of goods, and hence would amount to intermediary services for the purposes of determination of place of supply of such services. 7.2. The after-sale services provided are not in the nature of a composite contract and they are independent from the services of promotion and marketing and hence there is no question of determination of what will the principal supply. 7.3. The third question cannot be answered as it is not in the purview of jurisdiction of the Authority as it amounts to determination of the place of supply. 8. Aggrieved by the said Ruling of the Authority (herein after referred to as impugned order ), the appellant has filed an appeal under section 100 of the CGST Act, 2017 and KGST Act, 2017 on the following grounds. 8.1. The Advance Ruling Authority has erred in holding that the services provided is of the nature of facilitating the supply of goods, and Would amount to intermediary services for the purposes of determination of place of supply of such services. Further, after-sale services provided are not in the nature of a composite contract and they are independent from the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt of goods or services or both on behalf of another; The term business of supply or receipt of services must not be literally interpreted since one has to analyse the nature of the transactions carried out by an agent on a case to case basis. In other words, for a person to qualify as an agent under GST, the person has to render the services on behalf of the principal and not on its own account. If the agent render a service on behalf of the principal it does not require distinguish skill set to render such services, suppose if the agent render service on its own account it require distinguish skill set to render the same since it will be an extension to the activities undertaken by the service recipients. In the instant case, Brabender GMBH CO. KG is one of the Original Equipment Manufacturer (OEM) of scientific equipment and is engaged in the said services, which as a supply chain process, is nothing but an extension of the manufacturing activity, viz, promotion of goods, sale of goods and finally post-sale support for the goods so sold. It must be noted that Appellant is merely a provider or supplier ofsaid services and is not involved in buying and selling or s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d post-sale support services to the overseas entities which is part of main services. There exists a direct interaction between the customers and overseas entities with regard to price negotiations and delivery of equipment and Appellant has no role with regard to the same since there is no contractual agreement entered into on behalf of overseas entities. This can be substantiated vide the Para 3- Nature of Representative of the copy of the Sales Representation Agreement (which has been reproduced below: - The MANUFACTURERS intends to direct requests received from the territory to the REPRESENTATIVE for further attention and follow up and keeps the REPRESENTATIVE informed of the orders received directly from the customers in the Territory. .. On successful negotiation of prices with the overseas entities, the customers place the orders directly with the overseas entities which can be substantiated with the sample copies of Purchase orders. Further, majority of the customers of Appellant are research institutes or R D centres. Under the Customs law, such customers are eligible for exemptions/concessions with respect to customs duties on import of goods. Accordingly, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant stated that the LAAR has completely failed to consider the above judgement and submits that the facts and circumstances of the said ease and Appellant s business are same and wholly comparable and thus, the ratio of the said Ruling should be squarely applied to Appellant s case. 8.11. Appellant further submits that the words used in the definition of intermediary services viz., arranging or facilitating has apparently not been defined in the GST provisions and there is no reference to these expression in the allied laws, viz., commodity tax laws such as Service Tax, Central Excise or VAT laws. Therefore, the meaning given to such expressions in the legal dictionaries may be relied upon. Arrange means to make preparation or to place in a desired order and facilitate , means to render easier or absence of difficulty or that which promotes the ease of any action. Thus, only such of the services which will impact as above would qualify as services of arranging or facilitating supply of goods . 8.12. The following factors also help in determination of whether or not; the services provided would be intermediary services: Intermediary cannot alter the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by him under the ambit of Business Support Services under the HSN Code: 9983 based on the analogy adopted in the case of Advance ruling of GoDaddy India Web Services Ltd. Ruling No. AAR/ST/08/2016, Application No. AAR/44/ST/15/2014) = 2016 (3) TMI 355 - AUTHORITY FOR ADVANCE RULINGS and the definition of Support Services of Business or Commerce . 9. In respect of the question No. 2 the appellant submits that the LAAR has completely failed to consider the submissions made by Appellant. In contrary to the above, the LAAR has considered the copy of the agency contract entered into by Appellant with Brabender GMBH Co. KG which was part of the advance ruling application wherein clause IV of the agency contract mentioned about Agent s Right to a Commission in which In sub-clause 6 it is seen that the consideration is payable for the services which include pre-sales, marketing sales, installation and warranty period services. The agreement quotes the principal as declaring to the agent as under; From our experience for business in your territory it would be commensurate to allocate 25% of total commission earned in each fill system case to address installation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take post-sales support; This is for the reason that the person who markets the product is best suited to even assist in post-sales support; This would maintain a connect with the pre-sale discussions and the post-sale situation. In other words, there would be a balance between the expectations of the end customers and the discussions during the sales promotion. This expectation may be viewed and understood from both, the perspective of the overseas manufacturer and the Indian customer. For the reasons indicated supra, specifically in a B2B transaction (unlike a B2C transaction) the expectation that the person who markets the product is the person who assists in the immediately post-sale activities is a normal phenomenon. It is a normal business practice to combine the pre-sale marketing and post-sale support under a single contract as a bundle. Keeping in line with this normal industry practice, even in Appellant s ease, the same are bundled as a single contract. 9.2. Supply of services are in conjunction with each other: i. In this regard, the Appellant submits that one should not interpret the meaning of conjunction used in the definition of composite supply und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion 3 Appellant submits that Clause 6 of Section 2 of Integrated Goods and Services Tax (IGST) Act, 2017, defines the meaning of export of services. which reads as under: 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 I in section 8 of IGST Act, 2017. clause 93 of section 2 of CGST Act, 20179 reads as under: Recipient of supply of goods or services or both, means- i. Where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration ; ii. 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 iii. Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sales promotion and marketing services and after sale Support services are being provided on a single contractual arrangement entered into with the customer and hence such services are naturally bundled and supplied in the conjunction with each other and thus qualifies the condition of Composite supply under GST. The principal supply Will be promotion and marketing services. 12.1. The Appellant argued to substantiate that the services provided by the Appellant like sales promotion, marketing and after sales service to the overseas entity is export of services and consequently will become a zero-rated supply as provided in Section 16 of IGST Act, 2017. FINDINGS AND DISCUSSIONS 13. We have taken into consideration all the submissions made by the Appellant in writing as well as the detailed arguments made by their representative during the personal hearing. Briefly stated the facts are that M/s. Toshniwal Brothers (SR) Private Limited, is a company engaged in the business of providing marketing, sales promotion and post sale support services to their clients located outside India. The said services are provided to the foreign client in terms of an agreement and the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritory. It is the duty of the Appellant as an agent to visit the customers and prospective customers and inform the Principal when he learns of any demand. As part of negotiating business transactions on behalf of the Principal, the Appellant promotes and markets the products of the Principal in India which includes advertising the details of the goods, demonstration of the products to the prospective customers, communicating with the prospective customers about the goods, informing the Principal about the queries and comments of the prospective customers and reviewing the credit rating of the prospective customers. Once the order is finalized between the Principal and the customer and the goods are imported by the customer, the Appellant provides support services by way of installation, initial start-up of the products and demonstration of its satisfactory performance. 18. In the above scheme of activities, the first point for determination is whether the promotion and marketing activities undertaken by the Appellant for the overseas Principal, are to be classified as intermediary services . Let us look at the definition of intermediary service under GST law, Section 2(13) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o little attention to other words. No provision in the Statute and no word in any section can be construed in isolation. Where the words are clear and there is no obscurity, and there is no ambiguity the intention of the legislature is clearly conveyed, there is no scope for the Court to take upon itself the task amending or alternating the statutory provision. Whatever the language is clear the intention the legislature is to be gathered from the language used. 18.3. An intermediary, thus can be a broker or agent or any other person and is only a facilitator for the supply of goods or services or both. The act of arranging or facilitation gives rise to two supplies: (1) Supply between the Principal and the third party (2) Supply by the intermediary to the Principal for a commission/fee. In other words, an intermediary is a person between the supplier and the recipient who arranges or facilitates the supply for a commission. The terms arrange and facilitate have not been defined in the Act. Merriam Webster Dictionary defines the two words as: Facilitate : to make (something) easier; to help Cause (something); to help (Something) run smoothly and effectivel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall receive a commission of twelve percent (12%) of the value of goods and in respect of contracts which have not been negotiated by the Appellant, the commission of 6% of the value of the goods will be paid. 18.5. The entire gamut of the above activities viz. the act of identifying the prospective customers in India, promoting the products of the Principal to the prospective customers, addressing the queries of the prospective customers with regard to the Principal s products, communicating with the Principal about the comments and queries of the prospective customers and reviewing the credit rating of the prospective customers are all part and parcel of facilitating the supply of products by Brabender, Germany to the customers in India. It is noted that the insistence in the contract is on calling the Appellant as the Agent of the Principal and that the Appellant is expected to perform activities of the nature of advertising, of gathering and conveying business information, of providing product implementation and technical support, of aligning and attuning marketing and other activities related to the products of the Principal located outside India-in its liaison capacity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the term intermediary services under the GST regime and pre-GST regime. Both the definitions have been mentioned below: Under pre-GST regime Under GST regime Rule 2 of the Place of Provision of Services Rules 12 intermediary means a broker, an agent or any other persons by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the main service) between two or more persons, but does not include a person who provides the main service on his account Section 2 13 of Integrated Goods and Services Tax Act, 2017 (IGST Act) intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account. 18.8. From the above definitions, in essence, there does not seem to be any difference between the meaning of the term intermediary under the GST regime and pre-GST regime. In the pre-GST regime, an intermed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddy India Web Services (P) Ltd Ruling No. AAR/ST/08/2016 = 2016 (3) TMI 355 - AUTHORITY FOR ADVANCE RULINGS wherein the Authority has ruled that pure marketing and promotion services would not be intermediary services. We have gone through the said ruling. The facts in the said case are that GoDaddy India provides a gamut of services to its client GoDaddy US and provides support services to assist GoDaddy US to develop its brand in India, A ruling was sought whether the various support services provided by GoDaddy India are naturally bundled as a single service being Business support service. The contention of the Revenue was that the various support services provided by GoDaddy India was not a bundle of services but more appropriately covered under intermediary services. The Authority in the said case, after taking note of the fact that the applicant (GoDaddy India) will not be engaged in arranging or facilitating provision of services by GoDaddy US to customers in India, will not secure orders from customers in India or arrange or facilitate the provision of any service by any third party service provider to GoDaddy US, held that the applicant is providing support services in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a principal supply 19.2. In the instant case there is no dispute that the Agency contract in question involves two taxable supplies of services i.e promotion and marketing service and after-sales support service. However in order for the supply to be termed as a composite supply , what is required is that the supply of the said services should at least be bundled, more specifically be naturally bundled , and supplied in conjugation with each other. The term naturally bundled has not been defined in the GST Act. We note that the concept of composite supply under the GST law is similar to the concept of naturally bundled services that prevailed under the service tax regime, and the same was understood to refer to those transactions involving an element of provision of service and an element of transfer of title in goods in which various elements are so inextricably linked that they essentially form one composite transaction. 19.3. The Appellant has contended that the marketing services and the post sales support services (installation and warranty support) are normally undertaken as a bundle of services; that their principals do not have any presence in India and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, we are of the view that the after sales support service, although rendered in a composite manner with the promotion and marketing service is not a composite supply. The price for the after sale support service is clearly identifiable and has been so stated in the contract itself. We accordingly uphold the AAR ruling on this question. 20. We now come to the third question i.e whether the above contracts would qualify as exports in terms of Section 2(6) of the IGST Act and Will be a zero-rated supply as provided under Section 16 of the said Act. The definition of *export of services as per Section 2(6) of IGST Act, 2017 is as follows:- 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 in section 8; 20.1. Thus. one of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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