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2019 (11) TMI 475

..... eign Exchange - zero rated tax or not - Whether the “Commission” received by the Applicant in convertible Foreign Exchange for rendering services as an “Intermediary” between an exporter abroad and an Indian importer of an Equipment; is an “export of services” falling under section 2(6) & outside the purview of section 13 (8) (b), attracting zero rated tax under section 16 (1) (a) of the Integrated Goods and Services Tax Act, 2017? - Place of supply of services - challenge to AAAR decision. HELD THAT:- The appellant (MI) is providing services to its principal ‘Carl Zeiss GmbH’ in Germany in terms of procuring orders from customers in India for procurement of advanced laboratory instruments from its principal. The floor price is fixed by the principal and MI negotiates with customers in India for terms of supply and consideration / price above the floor price, for which they receive the commission from principal. After completion of the negotiations, the customers in India arranges for the foreign remittance for imports, and directly place the order to the foreign principal, who in turns directly supplies the instruments (goods) to .....

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..... g under Section 2(6) or whether is a ‘intra-state supply’. Scope of Advance Ruling - Jurisdiction to decide the case - HELD THAT:- The question on determination of the place of supply has not been covered in the above set of questions, on which the advance ruling can be given - Therefore, we cannot give any opinion or verdict on the question which involve the determination of the place of supply of the goods or services or both. As per the law we do not have jurisdiction to determine the place of supply of services or goods or both, and accordingly no ruling on this particular question can be passed by the Advance Ruling Authority. This rationale also holds true in case of the second question asked by the Appellant i.e. whether the said supply could be treated as ‘intra-state supply’ under section 8 (1) of the IGST Act read with section 2(65) of the CGST Act. - MAH/AAAR/SS-RJ/26/2018-19 - 22-3-2019 - SMT. SUNGITA SHARMA, AND SHRI RAJIV JALOTA, MEMBER PROCEEDINGS (Under Section 101 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) At the outset, we would like to make it clear that the provisions of both the .....

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..... uipment to the party, which pays the price and gets the delivery from the Customs on payment of custom duty, IGST, as may be applicable. (iii) Ordinarily, the P. 0. mentions the name of the Appellant, and also the entitlement of the Indian Purchaser to get some discount in kind , like Free of cost items , such as: a TV set, a Computer or a Camera etc.; which is to be provided by the Appellant as a necessary charge on the commission , received in convertible Foreign Exchange from the Principals. (iv) Accordingly, the Appellant, at its own cost, supplies the articles representing discount in kind , to the Purchasing Party in fulfilment of the sale / purchase Agreement between the Principals and the Indian Purchasing Customer. (v) The P.O. acceptance states that during the Warranty period, the Principals will give free service , if required, but the Appellant is not concerned with such free Service . (vi) Once the P.O. is completed, the Principals issue a Credit Note , for the Commission , which is remitted in freely convertible Foreign Exchange, normally in Euro Currency. Two Specimen copies of the Sales Invoices raised directly by the Principals on the Indian importers, and related .....

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..... Chandigarh (2012 (12) TMI 424 - CESTAT, DELHI (LB)) which correctly explains the legal position: It is the person who requested for the service is liable to make payment for the same and whose need is satisfied by the provision of service, who has to be treated as recipient of the service, not the person or persons affected by the performance of the service. Thus, when the person on whose instructions the services in question had been provided by the agents/sub-agents in India, who is liable to make payment for these services and who used the service for his business, is located abroad, the destination of the services in question has to be treated abroad. The destination has to be decided on the basis of the place of consumption, not the place of performance of Service. F. It was then submitted that the statutory provisions & the judicial view was loud and clear that the GST law permitted taxation of the goods or services only when rendered in the taxable territory (Sec.2 (109) CGST) and in the jurisdiction of its consumption. In the instant case the services were provided or agreed to be provided to the client or customer in Germany, who was the user of the Service, and the ef .....

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..... the said Act, as Inter-sate supplies attracting IGST @ 18%, the Appellant prefers this appeal challenging the correctness, legality & propriety of the said order, inter alia, on the following grounds and contentions, which are without prejudice to one another: 2. The Appellant submits that the impugned Order dated 10th August 2018 is:- (i) illegal, contrary to law, and otherwise bad in law; (ii) violative of rules of natural justice as it denied adequate, effective and reasonable opportunity of being heard even when asked for; (iii) contrary to well-settled canons of construction; (iv) non-speaking (fails to record reasons for its decision); (v) biased in favour of revenue, and; (vi) erroneous due to non-application of mind, and as such, required to be quashed & set aside. 3. The Appellants further submit that the impugned Order needs to quashed & vacated as it has incorrectly & wrongly decided the following questions of law & fact:- (a) Whether the learned Authority was justified in holding that supply of services to the recipient located abroad by way of procuring purchase orders is not an Export Services under the IGST Act? (c) Whether the expression intermed .....

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..... d incongruent in cases where the use, user or consumption of services is by the recipient located outside India, and not at the place of supply? (l) When the services provided by the Applicant to the recipient abroad, are neither used or consumed in the taxable territory, can such services be held taxable under any of the GST laws? (m) Whether the Learned Authority erred in law in opting a construction of section 13(8) (b) of the IGST which, ex-facie, leads to absurdity and defeats the cardinal principle of destination based taxation , in preference to the interpretation canvassed by the Applicant to accept the default provision in section 13(2) of the IGST Act on the ground that section 13(8) (b) is inapplicable as it is meant for a specific situation where there are two supplies of services at one and the same time ? (n) Whether the impugned Order authorizing levy of non-refundable IGST amounts to double taxation or taxation contrary to the established policy/practice for decades that India exports goods, services and NOT taxes, duties ? (o) Whether the impugned Order is contrary to the basic philosophy that a service is to be taxed in the jurisdiction of its consumption, and opp .....

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..... : QUOTE: (Paragraph numbers below are as in the Rejoinder) 7. It appears that the entire case rests on the true and proper interpretation of the phrase or expression intermediary services appearing in Section 13 (8) (b) of the IGST ACT . 8. For interpreting this phrase one has to bear in mind the settled rules or principles of interpretation. A reference may be made to one leading authority: RBI vs. Peerless General Finance & Investment Co. Ltd., 1 SCC 424 = 1987 (1) TMI 452 - SUPREME COURT, the Honorable Supreme Court held:- We do not think that in defining the expression Prize Chit , the Parliament intended to depart from the meaning which the expression had come to acquire in the world of finance, the meaning which the Datta and the Raj Study Groups had given it. That this is the only permissible interpretation will also be further evident from the text Chit and the context as we shall presently see. 9. It is undoubtedly true that the word or term intermediary has been defined in section 2(13) of the IGST Act, which reads:- (13) 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 b .....

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..... , or both, between two persons, without material alteration or further processing. Thus, an intermediary is involved with two supplies at any one time:- i) the supply between the principal and the third party; and ii) the supply of his own service (agency service) to his principal, for which a fee or commission is usually charged. For the purpose of this rule, an intermediary in respect of goods (such as a commission agent i.e. a buying or selling agent, or a stockbroker) is excluded by definition. Also excluded from this sub-rule is a person who arranges or facilitates a provision of a service (referred to in the rules as the main service ), but provides the main service on his own account. XXX In accordance with the above guiding principles, services provided by the following persons will qualify as intermediary services :- i) Travel Agent (any mode of travel) ii) Tour Operator iii) Commission agent for a service [an agent for buying or selling of goods is excluded] iv) Recovery Agent Even in other cases, wherever a provider of any service acts as an intermediary for another person, as identified by the guiding principles outlined above, this rule will apply. Normally, it is expe .....

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..... ned term, intermediary in section 2(13) of the IGST Act, to be construed or understood as it was originally defined under the Service tax law, prior to its amendment in 14-10-2014. 15. The above interpretation finds support from the provisions of section 13 of the IGST Act. The default rule is given go-bye in relation to specified services enumerated under sub-section (3) to (13) and in particular sub-section (8) of section 13. The clauses (a) or (c) in sub-section (8) of section 13 are referring to pure services; and as such the context compels exclusion of services of intermediary who is acting as such for arranging export/import of goods , which has nothing to do with any kind of services . The literal interpretation of the phrase intermediary services in section 13(8) (b) must yield to the context, on authority and in principle. 16. It may be added that the sub-clauses (3) to (13) of section 13 are in the nature of exceptions to the default Rule in section 13(2) of the Act, and hence the Department claiming benefit of this exception in sub-section (8) to avoid inapplicability of default rule, then it has to prove by the letter of the law that the case of the Applicant falls in .....

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..... on imports into India when orders were placed through them - Foreign company with which assessee did work had no branch in India - HELD : It was case of export of services for which assessee was not liable to pay Service Tax - Merely because subsidiary company had branch in India did not amount to branch of company with which assessee has entered into contract - Assessee had nothing to do with subsidiary company - Rule 3 of Export of Services Rules, 2005. [para 23] xxxxx 19. The Export of Services Rules owes it origin to General Agreement on Trade and Tariff. In the 8th round of the GATT (Uruguay Round), negotiations were carried out in the area of services which led to the General Agreement on Trade in Services (GATS) to which India is a signatory. This Agreement recognized four modes of delivery of services in the case of exports. These are - 1. Cross Border - The service itself crosses the border 2. Consumption Abroad - The consumer travels across the border 3. Commercial Presence - Establishment of an office or industry 4. Movement of Natural Persons -The service supplier travels across the border. These principles can be diagrammatically represented as follows:- Thus only whe .....

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..... in A by a locally-established affiliate, subsidiary, or representative office of a foreign-owned and - controlled company (bank, hotel group, Construction Company, etc.). Mode 4: Movement of natural persons A foreign national provides a service within A as an independent supplier (e.g., consultant, health worker) or employee of a service supplier (e.g. consultancy firm, hospital, Construction Company). COMPARABLE VAT LAW PRACTICES: 21. A recent VAT Directive of EU speaks about preference to effective use and enjoyment rule of consumption.- To prevent double taxation, non-taxation or distortion of competition, Member States may decide to shift the place of supply of services, which are either inside or outside the EU to inside or outside their territory, when, according to the effective use and enjoyment of the service, this differs from the place of supply as determined by the general rules, those for hire of means of transport, or certain B2C services to a customer outside the EU [Article 59a of the VAT Directive] Example 49: Advertising services provided by a company in Norway to a US business is normally taxed where the customer is established and no EU VAT is due. However, if t .....

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..... on ₹ 300,000 UNQUOTE: NARROW AND PEDANTIC CONSTRUCTION: 23. The entire case turns on the interpretation of the provisions of section 13 (8) (b) of the IGST Act. To appreciate the narrow approach taken by the Learned Authority, the findings and reasoning can be looked at. It reads:- Further, we find that their contentions that though they are covered under the definition of intermediary , the services being provided by them are not intermediary services are not tenable for the reason that they are very clearly covered under the definition of intermediary and the services being provided by them are clearly the services as given in the definition of intermediary as referred in the discussion above. (i) In effect, the simplistic meaning is that the undefined expression is to be read as Intermediary s services , i. e. services provided by intermediary. The reasoning & logic adopted by the Learned Authority is that the Appellant falls in the definition of the term: Intermediary and the services provided by it are the same as mentioned in the definition, therefore, the Appellant s services are intermediary services as mentioned in section 13 (8) (b) of the IGST Act. QED = thus i .....

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..... not rest on the meaning of either word, but the compound word conveys a third meaning. 24. The interpretation as above is backed by the well settled canons of construction. A few case laws may be perused.- (a) In D.R. Venkatachalam v. Dy. Transport Commr. [1977 (2) SCC 273] = 1976 (12) TMI 185 - SUPREME COURT it was observed that courts must ovoid the danger of a priori determination of the meaning of a provision based on their own preconceived notions of ideological structure or scheme into which the provision to be interpreted is somewhat fitted. They are not entitled to usurp legislative function under the disguise of interpretation. (b) In A. N. Roy Commissioner of Police v. Suresh Sham Singh reported in AIR 2006 SC 2677 = 2006 (7) TMI 660 - SUPREME COURT, the Apex Court held that, It is now well settled principle of law that, the Court cannot change the scope of legislation or intention, when the language of the statute is plain and unambiguous. Narrow and pedantic construction may not always be given effect to. Courts should avoid a construction, which would reduce the legislation to futility. It is also well settled that every statute is to be interpreted without any violen .....

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..... ere services are acquired, enjoyed and consumed. In respect of certain categories of services, the place of supply is determined with reference to a proxy. 10.2 & 10.3. xxxxxxx D. Place of supply of services in case of cross-border supplies: (Section 13) (Where the location of the supplier of services or the location of the recipient of services is outside India) i. In respect of following category of services, the place of supply is determined with reference to a proxy. Rest of the services are governed by a default provision. S. No. Nature of service Place of supply 1 Services supplied in respect of goods that are required to be made physically available from a remote location by way of electronic means, (Not Applicable in case of goods that are temporarily imported into India for repairs and exported.) the location where the services are actually performed, the location where goods are situated 2 services supplied to an individual which require the physical presence of the receiver the location where the services are actually performed. 3 Immovable property related services including hotel accommodation. Location at which the immovable property is located. 4 Admission to or .....

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..... registered and in facilitating the settlement of balance in the integrated tax account between the Central Government and the State Governments. In order to overcome these difficulties and to improve the ease of doing business for taxpayers and to extend the export related benefits to certain specific supplies, it is proposed to amend the Integrated Goods and Services Tax Act, 2017. NEW DELHI; PIYUSH GOYAL The 4th August, 2018. This clearly demonstrates that the Suppliers of gods & services are facing problems. The Amendment is to improve the ease of doing business for taxpayers and to extend the export related benefits to certain specific supplies . The same norm holds good for the services as well. 28. Interpretation of Statutes (Submission at the time of personal hearing) This Court in RBI vs. Peerless General Finance & Investment Co. Ltd., 1 SCC 424 = 1987 (1) TMI 452 - SUPREME COURT, laid down the following in paragraph no.33:- We do not think that in defining the expression Prize Chit , the Parliament intended to depart from the meaning which the expression had come to acquire in the world of finance, the meaning which the Datta and the Raj Study Groups had given it. .....

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..... s of section 13(8) (b) of the IGST Act, are attracted be quashed as untenable for the reason that existence of two services, at one and the same time, is a sine qua non; and in the case on hand there are no two services, though there are two supplies at one and the same time. (d) The interpretation by the learned Authority failed to establish that the case falls in the exception clause 13 (8) (b) and hence the default rule [section 13(2)] be held as applicable. (e) An opportunity of personal hearing be granted. (f) Any other or further relief as may be deemed fit, proper and reasonable be granted. Personal Hearing 31. A personal Hearing in the matter was conducted on 07.03.2019, wherein Shri. D.P. Bhave, Advocate, representing the Appellant, reiterated their written submissions. Shri. Tukaram Godse (Assistant Commissioner of State Tax), appearing as jurisdictional officer, also made the oral submissions, which were in line with their earlier submissions, which were made before the Advance Ruling Authority. Discussions and Findings 32. We have gone through the record and perused the facts of case and the submissions made by the appellant and the department. The brief facts of the ca .....

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..... g not tenable. The authority for Advance Ruling after rejection of the appellant s claim of export of service held it as an interstate supply as per provisions of section 7 (5) (c) of the IGST Act and eligible to levy of IGST. 34. The prayer of the appellant in the present appeal is as follows:- a. The Appeal may please be allowed and it be held that the impugned services provided are actually used, consumed outside the taxable territory, and as such are export services having regard to the statutory provisions & various direct decisions of the Courts/Tribunals/ AARs relied upon. b. Pending final decision on this Appeal, an interim stay be granted to make the impugned order inoperative, suspended. c. The impugned Order of the Learned Authority holding that the provisions of section 13(8) (b) of the IGST Act, are attracted be quashed as untenable for the reason that existence of two services, at one and the same time, is a sine qua non; and in the case on hand there are no two services, though there are two supplies at one and the same time. d. The interpretation by the learned Authority failed to establish that the case falls in the exception clause 13 (8) (b) and hence the def .....

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..... 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 or in Indian rupees wherever permitted by the Reserve Bank of India; 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. 38. In order to decide both the issues raised by the appellant, place of supply of the services provided would have to be decided. The appellant, considering himself as an intermediary has asked for a ruling on whether the services qualify to be an export or a intra-state supply and these questions necessarily demand an examination of the place of supply of the services. Therefore, in order to answer both these questions, we will first have to examine our jurisdiction, which have, clearly, been laid out in the Section 97(2) of the CGST Act, 2017, which is being reproduced herein under:- (2) The question on which the advance ruling is sought under this Act, shall be in respect of - (a) Classification of any goods or services or bot .....

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