TMI Blog2019 (6) TMI 719X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 2017 will apply in this case also as both supplier and the recipient of service are located in India. For the same reason, we do not agree with the applicant s contention that the transaction with foreign investors should be determined in terms of Section 13 of the IGST Act, 2017 because the recipient of service i.e. AIF is not located outside India and the applicant are not providing any services to the Overseas Contributors. The transaction also do not qualify to be an export of service as the condition specified in sub-clause (ii) of Sub-section (6) of Section 2 of IGST Act, 2017 that recipient of service should be outside India, is not satisfied, and therefore it is not a zero rated supply - GST is thus leviable on the above transaction. - GST-ARA-81/2018-19/B-25 - - - Dated:- 6-3-2019 - SHRI B. TIMOTHY, AND SHRI B. V. BORHADE, MEMBER PROCEEDINGS (under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry trust and is proposed to be registered with the Securities and Exchange Board of India ( SEBI ) as a Category II Alternative Investment Fund ( AIF ) under the SEBI (Alternative Investment Funds) Regulations, 2012 ( AIF Regulations ). They are also incorporating an Investors Fund to be registered outside India to source funds from Overseas Contributors for pooling into the AIF Fund. The Domestic Contributors pool their funds directly into the AIF Fund and the Overseas Contributors have the option to pool their funds into the AIF Fund either directly into the AIF Fund or through the Investors Fund located outside India. Before setting up of the fund, the Applicant undertakes FUND RAISING activities which include the following functions - The Applicant undertakes detailed discussions with the lawyers and tax consultants to prepare a fund structure which will be compliant with all applicable regulations. Based on the structure, the Applicant prepares the Private Placement memorandum (PPM) and Fund constitutive documents These documents are thereafter submitted to the relevant regulatory authorities for approval. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Contributors as per the invoice and accordingly, convertible foreign exchange and Indian Rupees shall be received form the Overseas Contributors and Domestic Contributors respectively. The applicant has submitted that (i) Such Investment Advisory Management Services provided falls under the definition of Supply as per Sec 7 of the CGST Act, 2017 and is classified under Heading 997153 as per Notification 11/2017-CGST (Rate) dated 28th June 2017 with a GST Rate of 18% and the Domestic/Overseas Contributors are liable to make payment to the Applicant for the Advisory Management Services provided by the Applicant and as per the definition of recipient in the GST Laws, the Recipients are the Domestic and the Overseas Contributors. In respect of the Advisory Management Fees received from Domestic Contributors, the applicant has submitted that the Location of the Recipient and Supplier, is India and therefore liable for GST. In respect of Advisory Management Fees received from Overseas Contributors the Location of the Recipient is located outside India. Thus, the place of Supply is to be determined by applying Sec 13 of the IGST Act, 2017. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision of Sec 13(8)(a) is not applicable in the instant case. 03. CONTENTION - AS PER THE CONCERNED OFFICER The jurisdictional office has submitted that the Investment Advisory Management Services provided by the Applicant is classifiable under Heading No.997153 - Financial and Related Services - Portfolio Management Services except Pension Fund and GST is payable @18% in terms of Not. No. 11/2017-CGST (Rate) dated 28-6-2017. The Fees received for providing Investment Advisory Management Services to the Domestic Contributors, are liable to GST. 1. As regards the Investment Advisory Management Services provided by the Applicant to the Overseas Contributors, the Applicant has contended that; In the instant case, the services to the Overseas Contributors are provided in India and the place of supply of services is in India and therefore services provided by the applicant to the Overseas Contributors cannot be treated as Export of Services . Further, the services Investment Advisory Management Services , provided/supplied to the Overseas Contributors, distinctly fall under Sec.13(8)(a) of the IGST Act, 2017 Hence the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditional form of investments and deals with financial assets such as private equity, hedge funds, venture capital, etc. AIFs are an important source of diversification and long-term capital for start-ups and other companies in India. AlFs are regulated under AIF Regulations introduced on May 21st, 2012. AIFS does not include funds covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities. An AIF can be established or incorporated in the form of a trust or a company or a limited liability partnership or a body corporate in India and as per Regulation No 3 (4) of the AIF Regulations, an AIF can be of 3 types, namely, Category I, II, or III. Category (I) AIF is a fund which invests in start-up or early stage ventures or social ventures or SMEs or infrastructure or other sectors or areas which the government or regulators consider as socially or economically desirable and shall include venture capital funds, SME Funds, social venture funds, infrastructure funds and such other AIFs as may be specified. Category (II) AIF is a fund which doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orandum should also achieve a balance between the risk disclosure requirements and the marketing strategy. Under Regulation 2(q) of the AIF Regulations, a Manager has been defined as any person or entity who is appointed by the Alternative Investment Fund to manage its investments by whatever name called and may also be same as the sponsor of the Fund. In order to ensure that the interest of the Manager/Sponsor is aligned with the interest of the investors in the AIF, the AIF Regulations require that the sponsor/manager shall have a certain continuing interest (For Category II AlFs, such interest must be not less than two and half percent of the corpus or five crore rupees, whichever is lesser) in the AIF which shall not be through the waiver of management fees. The management fees is generally a minimum of 2.5% of the corpus invested in case of a Category II AIF to be deducted annually or quarterly. We find, from the submissions made by the applicant that the AIF Fund is to be set-up by them in India as a determinate, contributory trust and is proposed to be registered with the Securities and Exchange Board of India ( SEBI ) as a Category II ALF under the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernative Investment Fund may raise funds from any investor whether Indian, foreign or non-resident Indians by way of issue of units; (b) each scheme of the Alternative Investment Fund shall have corpus of atleast twenty crore rupees; (c) the Alternative Investment Fund shall not accept from an investor, an investment of value less than one crore rupees: Provided that in case of investors who are employees or directors of the Alternative Investment Fund or employees or directors of the Manager, the minimum value of investment shall be twenty five lakh rupees. (d) the Manager or Sponsor shall have a continuing interest in the Alternative Investment Fund of not less than two and half percent of the corpus or five crore rupees, whichever is lower, in the form of investment in the Alternative Investment Fund and such interest shall not be through the waiver of management fees: Provided that for Category III Alternative Investment Fund, the continuing interest shall be not less than five percent of the corpus or ten crore rupees, whichever is lower. (e) the Manager or Sponsor shall disclose their investment in the Alt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 supplied; From the definition, it is very clear that a recipient means a person who is liable to pay the consideration and not a person who has paid it. Usually we see that a person who receives goods or services is liable to pay consideration. In this case, services are provided to the AIF which is a separate entity and which is liable to pay the consideration for such services received but the consideration is paid by the foreign investor on behalf of the ALF. The definition of the word recipient clearly mentions that a recipient is the one who is liable to pay for services received. Person liable to pay cannot be equated with Person who has paid . The receipt of fees by the applicant from the investors is probably an internal arrangement which cannot be used to say that services have been rendered to the investors. IN any normal course of business it is the recipient of services who pays tax. In light of the above findings, we now address the questions raised by the applicant as follows:- QUESTION NO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the applicant are not providing any services to the Overseas Contributors. The transaction also do not qualify to be an export of service as the condition specified in sub-clause (ii) of Sub-section (6) of Section 2 of IGST Act, 2017 that recipient of service should be outside India, is not satisfied, and therefore it is not a zero rated supply. We also do not agree with the concerned officer s submission that the applicant should be treated as a financial institution which distinctly falls under Sec. 13(8)(a) of the IGST Act, 2017 because no deposits are made with the applicant. The funds of investors are received directly by the AIF which is a separate legal entity. 05. In view of the extensive deliberations as held hereinabove, we pass an order as follows: ORDER (Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) NO.GST-ARA-81/2018-19/B-25 Mumbai, dt. 06-03-2019 For reasons as discussed in the body of the order, the questions are answered thus - Question 1:- Whether GST is applicable on the Advisory Manage ..... X X X X Extracts X X X X X X X X Extracts X X X X
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