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2019 (11) TMI 475

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..... dia 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 the Indian customers. In most of the cases where the Indian Customers are entitled for the discounts, in kind (“discount in kind”, like “Free of cost items”, such as: a TV set, a Computer or a Camera etc.) with respect to the material purchased by them, are to be provided by the appellant. The Authority for Advance Ruling while deciding the issue relied upon the tern ‘intermediary’, and held that the appellant is an ‘intermediary’ because they are acting as a broker and the facilitating the process of sale of materials by their foreign principals to the Indian parties because they locate the customer, negotiate the prices and ensure the sale, they also provide for discounts to the customers out of the commission received by them. The advance ruling authority further held since the appellant .....

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..... Act read with section 2(65) of the CGST Act. - MAH/AAAR/SS-RJ/26/2018-19 - Dated:- 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 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 provisions under the MGST Act. The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as the CGST Act and MGST Act ] by Micro Instruments (herein after referred to as the Appellant ) against the Advance Ruling No. GST-ARA-23/2018-19/B-87 dated 10.08.2018 = 2018 (12) TMI 227 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA. BRIEF FACTS OF THE CASE A. The facts relevant for the purposes of these appeal proceedings, briefly stated, are as under:- (a) The Appellant is a sole Proprietary firm carrying on th .....

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..... quired, 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 Credit Notes for Commission paid to the Appellant are enclosed with the Appeal. INVOICES AND CREDIT NOTES 17-07-2017 4B / 1140173780 Ultra Engineers, Pune TURL Metallurgical Microscope 28-07-2017 1140174992 Haffkine Inst., Mumbai Stereo Microscope, With Warranty, 30-08-2017 Credit Note: 4 B/1091201370 € 1189 07-09-2017 Credit Note: 47/1091201407 € 1675 C. On the aforesaid facts, substantiated with the documentary evidence, which has not been controverted, the principal question for determination placed before the Learned Authority under Section 97 (2) (e) of the CGST Act, was:- 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) & .....

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..... he 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 effective use and enjoyment was outside India, and as such it was an Export Services. A reference was invited to the decision of the CESTAT, South Zonal Bench, Bangalore, in the case of ABS INDIA LTD. Versus Commissioner of Service Tax, Bangalore, reported in 2009 (13) S.T.R. 65 (Tri. - Bang.) = 2008 (8) TMI 53 - CESTAT BANGALORE, wherein the CESTAT had held: Refund (Service tax) - Erroneous payment - Service tax paid for Business Auxiliary Services of marketing of products manufactured by subsidiary located abroad -Transaction contended as covered under Export of Services and refund claimed -Booking of order in India not indicative of rendering of services in India - Service delivered only to company located abroad - Service not to be considered as delivered in India when recipient located abroad - Benefit derived by recipient and h .....

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..... 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 intermediary Services appearing in Section 13 (8) (b) of the IGST Act has been misread, misconstrued and misinterpreted by the Learned Authority by ignoring the well settled canons of construction of statutes? (d) Whether the Learned Authority was justified in re-writing the expression: intermediary Services in section 13 (8) (b) of the IGST Act, by adding a punctuation mark, an apostrophe, to the word intermediary and equating the expression as intermediary s services or by re-writing the expression as Services of intermediary to cover the impugned services provided by the Appellant? (e) When the expression intermediary services has not been defined, is it to be construed as Nomen Juris or left open for multiple interpretations, meanings to be assigned by each reader, Authority? (f) When section 2 of the IGST Act starts by saying : In thi .....

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..... 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 opposed to the universally applicable principle that services are taxed on their importation in the taxable territory? (p) Whether the learned Authority violated the settled principle: In a case of doubt or dispute, it is well-settled, construction has to be made in favour of the taxpayer and against the Revenue. J. Srinivasa Rao v. Govt, of A.P. [2006 (13) SCALE 27] = 2006 (11) TMI 620 - SUPREME COURT 4. The text and tenor of the impugned order gives one an impression of a bias in favour of the Revenue as the Learned Authority has not discussed or distinguished any Court or Tribunal decisions laying down some sound principles of law. While the case laws were based on the law prevailing on the date the GST regime was ushered in, yet the GST law is nothing but a compendium of various laws which were subsumed without touching the core p .....

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..... 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 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; It is also true that the word or term services is also defined in section 2 (102) of the CGST Act, which reads: (102) services means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged; But the phrase or expression intermediary services has not been defined in any of the GST Laws (CGST/MGST/UGST or IGST) and consequently, one has to apply canons of construction to arrive at its true meaning and purport. Several aspects have to be examined to construe its m .....

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..... avel 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 expected that the intermediary or agent would have documentary evidence authorizing him to act on behalf of the provider of the main service . 13. It is manifestly clear that there has to be two independent services, one of which is called intermediary services and another main services . The phrase or expression intermediary services fits in well when a role similar to that of Travel Agent is kept in mind.- Even if the term intermediary engulfed both, goods or service effective 14-10-2014, or under the IGST Act [sec. 2(13)] it makes no difference, because the phrase or expression has to be construed in the same sense, manner, as it had acquired in the predecessor legislation, namely, intermediary services as distinguished from the main services . In other words, when the intermediary is acting as such for the goods, there are two supp .....

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..... . 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 it without any shed of ambiguity. If there is any slightest doubt, which certainly exists in the present case because the statute fails to define the phrase or expression: intermediary services , and leaves the matter at large open for anyone to put his or her own private interpretation to deny any benefit or saddle liability on the Appellant. Just as the claim for exemption must be proved by the assessee by showing that his case falls strictly in the four corners of law, the claim of the Department must also be proved beyond any shed of doubt that the Appellant s case falls in the exception in clause (b) of sub-section (8) of section 13 of the Act; otherwise the benefit of doubt goes to opposite party. If there is any ambiguity or failure of the Department to claim that the Appellant s case falls in Rule 13(8) (b) of the Act, the .....

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..... s. 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 when the user and the use of the service are located outside India, the transaction amounts to export and not otherwise. In the case under consideration, the user is outside India but the use of the service is in India - situation 2 of the table above. In this situation, the transaction does not amount to export and hence taxable in India. USER In India Outside India USE In India 1 (Taxable) 2 (Taxable) Outside India 3 (Taxable) 4 (Export) Unquote: The GST law also adopts the principles agreed at Uruguay Round. Based on the leading case of Kesavananda Bharati it can be said that in case the language of domestic law (law enacted by the Parliament or State legislatures) are not clear, then the Court must rely on the International law (parent authority based on which the domestic law was enacted). (Also Article 263) 20. The VAT/GST law a .....

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..... 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 the media used for the advertising campaign is within a Member State, this Member State may decide that VAT is due on its territory, making use of the effective use and enjoyment rule. Example 50: A German company supplies to a Swedish company the service of transporting goods from the US to China. Even though the transport takes place fully outside the EU, this supply is taxable in Sweden, at the place where the customer is established. Sweden may make use of the effective use and enjoyment rule in order to avoid taxing such a transport taking place outside its territory and outside EU. Each Member State is responsible for the implementation of the effective use and enjoyment rule. The use made of the rule must be verified with the Member State concerned. Subsection 10: Prevention of double taxation or non-taxation Article 59a In o .....

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..... vided 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 it has been demonstrated. (ii) But the legislature has not used an apostrophe. The expression has to be read as two separate words: intermediary & services , because the law is an edict of Parliament to be read as it is, without any addition or deletion or modification to suit assumed objectives or purposes. (iii) It may be mentioned that the literal rule of construction is to read the text of the legal provision as it exists, by taking into consideration rules of grammar of the English language in which the law is enacted. A reference is invited to the Privy Council dictum: In Ram Rattan v. Parma Nand reported in AIR 1946 PC 51 = 1945 (12) TMI 5 - PRIVY COUNCIL, the Hon ble Mr. S. R. Das, held as follows:- The cardinal rule of construction of statutes is to read the statutes literally, that is, by giving to the words their ordi .....

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..... 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 violence to its language. It is also trite that when an expression is capable of more than one meaning, the Court would attempt to resolve the ambiguity in a manner consistent with the purpose of the provision, having regard to the great consequences of the alternative constructions. (c) In State of Haryana v. Suresh reported in 2007 (3) KLT 213 = 2007 (6) TMI 544 - SUPREME COURT, the Supreme Court held that, One of the basic principles of Interpretation of Statutes is to construe them according to plain, literal and grammatical meaning of the words. If that is contrary; to or inconsistent with any express intention or declared purpose of the Statute, or if it would involve any absurdity, repugnancy or inconsistency, the grammatical sense must then be modified, extended or abridged, so far as to avoid such an inconvenience, but no furthe .....

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..... 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 organisation of an event. The place where the event is actually held. 5 If the said three services supplied at more than one location i.e. (i) goods & individual (ii) immovable property related (iii) event related 5.1 at more than one location including a location in the taxable territory, Its place of supply shall be the location in the taxable territory where the greatest proportion of the service is provided. 5.2 in more than one State its place of supply shall be each such state in proportion to the value of services so provided in each State 6 Banking, financial institutions, NBFC Intermediary services, hiring of vehicles services etc. Location of the supplier of service 7 Transportation of goods. The place of destination of the goods 8 Passenger transportation. Place where the passenger embarks on the conveyance for a con .....

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..... 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. That this is the only permissible interpretation will also be further evident from the text Chit and the context as we shall presently see. 33. Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may t .....

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..... 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 cases as contended by the appellant are 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 the Indian customers. In most of the cases where the Indian Customers are entitled for the discounts, in kind ( discount in kind , like Free of cost items , such .....

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..... ashed 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. 35. The appellant had placed the following question for decision before the Advance Ruling Authority:- (i) Whether the Commission received by the applicant in convertible foreign exchange for rendering services as an intermediary between an exporter abroad and an import of an equipment, is an export of services falling under section 2(6) and outside the purview of section 13 (8)(b), attracting zero-rated tax under section 16(1) (a) of the IGST Act, 2017? (ii) If the answer to the question (i) is in the negative whether the impugned supply of services forming an integral part of the cross border sale/purchase of goods, will be treated as an intra-state supply under section 8(1) of the IGST Act read with section 2 (65) of the MGST Act attracting CGST/MGST? And if so, at what rate? 36. .....

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..... , 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 both under the Act; (b) Applicability of a notification issued under the provisions of the Act; (c) Determination of time and value of the goods or service or both; (d) Admissibility of input tax credit of tax paid or deemed to have been paid; (e) Determination of the liability to pay tax on any goods or services or both; (f) Whether the applicant is required to be registered under GST; (g) Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term. On perusal of the above provision, we find that 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 wh .....

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