TMI Blog2021 (11) TMI 816X X X X Extracts X X X X X X X X Extracts X X X X ..... y under the GST regime and pre-GST regime. In the pre-GST regime, an intermediary referred to a person who facilitates the provision of a main service between two or more person but did not include a person who provided the main service on his account. Similarly, in the GST regime, an intermediary refers to a person who facilitates the supply of goods or services or both between two or more persons 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 case, the Appellant is arranging for and facilitating the Principal in procuring a supply of goods from India. He is not undertaking any supply of goods. The Appellant is not supplying such goods on his own account and hence, the Appellant does not fall within the ambit of the exclusion contained in the definition of intermediary . Therefore, the Appellant is clearly playing the role of intermediary for Airbus France, as envisaged under Section 2(13) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ean reference to the corresponding similar provisions in the KGST Act. 2. The present appeal has been filed under section 100 of the Central Goods and Service Tax Act 2017 and Karnataka Goods and Service Tax Act 2017 (herein after referred to as CGST Act, 2017 and SGST Act, 2017) by M/s Airbus Group India Pvt Ltd, 4th Floor, Xylem, Plot No 4 4A, Dyavasandra Industrial Area, Mahadevapura Post, Whitefield Road, Bengaluru 560048 (herein after referred to as Appellant) against the Advance Ruling order No. KAR ADRG 31/2021 dated 1st July 2021. Brief Facts of the case: 3. The Appellant is a Private Limited Company and operating as a subsidiary of Airbus Invest SAS, France. The Airbus Group (of which the Appellant is a part) generally procures parts, components or services from both domestic and international markets which are required for manufacturing and assembly of aerospace products like aircrafts, helicopters, etc. The Airbus Group has a specialized global sourcing team which is responsible for sourcing of relevant products from various international market. Airbus France has entered into an Intra-Group Services Agreement with effect from Pt April 2020 with the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the activities undertaken by the Appellant are very different than what has been observed by the AAR in Paras 15 and 16 of the impugned order; that in the instant case, there is a 5-step process for selection of suppliers out of which only the most basic steps like identification, information gathering , etc are carried out by the Appellant while the actual steps which lead to the supply taking place (i.e awarding of contract, ordering, delivery and payment) are all handled, administered and decided directly by Airbus France; that the Appellant s major function is to review potential suppliers as well as supplier s operations/quality standards and report the observations to Airbus France and provide relevant expertise from time to time which is an independent service by the Appellant to Airbus France. They submitted that at no point of time is the Appellant directly involved in any activity which could result in an exposure to intermediary services of facilitating supply of goods between the vendor and Airbus France; that for the most part, the supplier is not even identified; there are no three parties involved in the transaction and the services are provided to Airbus France ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or broker ; that the ruling has in principle agreed that the Appellant is providing the service on a principal-to-principal basis but has also observed that reliance on principal-to-principal relationship is not relevant for the purpose of determining an intermediary; that such an observation is directly against Section 2 (13) of the IGST Act which excludes any transaction provided on his own account i.e principal-to-principal transaction. They also submitted that they are not covered under the pharse any other person contemplated in the definition; that the same has not been disputed by the lower Authority. They relied on the rulings given by the AAR New Delhi in the case of M/s GoDaddy India Web Services Pvt Ltd and M/s Universal Service India Pvt Ltd to contend that their service will not qualify as intermediary service. In addition, they also relied on the following judicial decisions to substantiate their claim that the impugned ruling is not legally sustainable: M/s Evalueserve.com Pvt Ltd vs CST, Gurgaon - 2018 (3) TMI 1430 CESTAT Chandigarh M/s Verizon India Pvt Ltd vs CST - 2019 TIOL 2268 CESTAT DEL M/s Lubrizol Advanced Materials India Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces agreed to be rendered by them do not fall within the definition of intermediary services; that the lower Authority has also not disputed that the role of the Appellant does not include any of the above activities. They contended that the services are provided by the Appellant to Airbus France and not for and on behalf of Airbus France and no other third party is involved with regard to the transaction between the Appellant and Airbus France; that the services are provided to Airbus France entirely on their own account and hence the ruling the Appellant acts as intermediary is not sustainable. 6.4. On the point of remuneration, they submitted that the same is received on a cost plus mark-up basis and when such is the case, their service cannot be considered as intermediary service . They relied on the following judicial decisions in this regard wherein it has been held that the assesses do not qualify to be an intermediary in a situation wherein the consideration was received on cost plus mark-up basis: M/s Lubrizol Advanced Materials India Pvt Ltd vs CCE, Belapur - 2019 (1) TMI 720 (Tri-Mum) M/s Beaumanoir India Pvt Ltd vs CCE, Gurgaon-I - 2019 (6) TMI 630 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e recipient which is outside India and hence the services provided by them fulfil all conditions of export of services as per Section 2(6) of the IGST Act and qualify to be zero-rated supplies and they are eligible to claim refund of unutilized ITC. In view of the above submissions, they prayed that the order of the lower Authority be set aside/modified. PERSONAL HEARING 7. The appellant was granted a virtual hearing on 27th October 2021. The hearing was conducted on the Webex platform following the guidelines issued by the CBIC vide Instruction F.No. 390/Misc./3/2019-JC dated 21 st August 2020. The Appellant was represented by Shri. G. Shivdass, Senior Advocate and authorised representative. 7.1. The Advocate explained in detail the activities of the Appellant which are being undertaken in terms of the Service Agreement entered into with Airbus SAS France. He explained that the role of the Appellant is limited to two functions namely: (a) PY function wherein the Appellant identifies potential suppliers in India and provides the information to Airbus France regarding the potential supplier s operations and quality standards; and (b) PO function wherein th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties in the light of the recent Circular dated 20-09-2021 issued by the Board pursuant to the recommendations of the 45th GST Council meeting. As per the said Circular, one essential requirement for an intermediary is that there should be two supplies i.e, a main supply and an ancillary supply; that in this case, there is only one supply which is the supply of service by the Appellant to Airbus France; that there is no supply of goods by Airbus France to any person in India. He also analysed the illustrations 1 and 3 given in the said Circular and submitted that applying the same to the case of the Appellant proves that they cannot be considered as intermediary . 7.4. The Advocate relied on the Advance Ruling given in the Service Tax regime in the case of GoDaddy India Web Services in support of their case. He also drew attention to the Karnataka Appellate Authority for Advance Ruling orders given in the case of Rajendra Santosh and Infinera India Pvt Ltd to establish that the Appellants activities are different and hence cannot be considered as intermediary . 7.5. The Advocate submitted that the activities undertaken by the Appellant are essentially support services which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng production schedule with the supplier and payment to the supplier Making decisions regarding continuing the relationship and procurement with supplier who has been identified or reported for any unethical or non-compliant behavior/activity in the supply chain. 10. In order to determine whether the activities undertaken by the Appellant in terms of the above Agreement qualify as an intermediary service , it is necessary to understand the meaning of intermediary as defined under Section 2(13) of the IGST Act, 2017, which is as follows: 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; Thus, in order to qualify as an intermediary , the service provider should satisfy the following aspects which make up the definition of intermediary : (a) The person should be a broker, an agent or any other person, by whatever name called; (b) Such person should arrange or facilitate the supply of goods or servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rincipal, a broker does not represent his principal but only acts as a middleman for a particular transaction. Though the term broker and agent are fundamentally different, yet, these terms have been put under one umbrella in the definition of intermediary. In this case, there is no dispute that the Appellant is not undertaking the services on behalf of his principal, Airbus France. This fact has been acknowledged by the lower Authority also. Hence, the Appellant will not be covered under the ageis of the term agent . 13. The definition of intermediary however, does not limit its coverage to a broker and agent but brings within its ambit even any other person, by whatever name called . The Appellant has argued that the expression any other person, by whatever name called cannot be given a different meaning because it lies in the company of the words broker and agent . They have also argued that the principle of ejusdem generis would be applicable in interpreting the definition of intermediary whereby the phrase any other person, by whatever name called should be read in conjunction with the terms an agent or a broker and hence the scope of the term inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, by whatever name called is to be interpreted so as to include persons who are not necessarily similar to broker or agent . 14. Having established that the expression any other person will also include persons who are not similar to a broker or an agent , let us examine the next limb of the definition of intermediary i.e Such person should arrange or facilitate the supply of goods or services or both, or securities between two or more persons . This part of the definition ascribes a quality to the person who is to be construed as an intermediary. This is the crux of the definition which determines whether a person is an intermediary or not. An intermediary, thus, can be a broker or agent or any other person whose role is limited to arranging or facilitating the supply of goods or services or both between two or more persons. The act of arranging or facilitating envisages two distinct supplies: (1) A main supply of either goods or services between two principals; and (2) An ancillary supply which is the service of facilitating or arranging the main supply between the two principles. The ancillary supply is the supply of intermediary service. In other words, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sistance in building development strategy framework, goals roadmap for procurement related activities from India region, assistance in value chain analysis and maintaining updated information database for PY and PO functions, provide information related to business and market intelligence about procuring from the Indian region, provide guidance on implementation of Airbus standard processes tools to be followed during the procurement from the Indian region, conduct necessary audits and verify whether all procurement activities are being carried out in 100% adherence to the defined procurement process, lead the team for procurement audits, promote awareness of Airbus ethics and compliance guidelines to the suppliers, identify and report any unethical or non-compliant behaviour / activity in the supply chain, provide support to the European team in their contractual negotiations with Indian suppliers. 17. In respect of the PO function, which is in relation to the existing suppliers who have already entered into a contract with Airbus, France, the following services are rendered by the Appellant to Airbus, France: provide support to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their Principal i.e Airbus France to procure a supply of goods from Indian vendors. Without the Appellant s assistance, Airbus France will not be in a position to identify a vendor in India. Further, the Appellant s role does not end with identifying the potential suppliers in India. It extends even after Airbus France enters into a contract with the supplier by continuously assessing the delivery operations of the Indian supplier to ensure that there is no disruption in the supply chain. This is a facilitation rendered by the Appellant to Airbus France whereby the Indian suppliers are supported to comply with Airbus standards and processes. Therefore, the Appellant s role is nothing but arranging or facilitating a supply between two persons i.e between the Indian supplier and Airbus France. 19. During the personal hearing, the Advocate for the Appellant has forcefully put forth the argument that there is no supply of goods or services made by the Appellant s principal Airbus France to India; that the principal in France is the recipient of a supply from the Indian Vendors with who the Appellant has no contractual obligation; that in the absence of any supply made by their princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (the main supply) and one arranging or facilitating (the ancillary supply) the said main supply. It is also clarified that the main supply is between two principals and the ancillary supply is the service of arranging or facilitating the main supply which is supportive in nature. In this case, the Appellant renders a service to Airbus France in arranging for the main supply between two principals i.e the Indian supplier and Airbus France, to take place. Therefore, there is no doubt that the activity of the Appellant is nothing but an intermediary service. 21. The Appellant has drawn our attention to Illustrations 1 and 3 given in Circular No. 159/15/2021 GST to impress upon us that their case will not be covered as an intermediary. The Illustrations 1 and 3 given in the said Circular is reproduced below: Illustration 1 A is a manufacturer and supplier of a machine. C helps A in selling the machine by identifying client B who wants to purchase this machine and helps in finalizing the contract of supply of machine by A to B . C charges A for his services of locating B and helping in finalizing the sale of machine between A and B , for which C in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 3 of the said Circular goes against the Appellant s argument that supply by the Indian supplier to Airbus France cannot be the main supply. It is their contention that in order to be termed as intermediary of the Principal i.e Airbus, France, the Appellant is required to arrange or facilitate the supply made by the Principal to a third party; that since there is no supply being made by Airbus France to any Indian entity, they cannot be termed as intermediary. As already mentioned, we find this argument untenable. In the Illustration 3 given at Para 4 of the above-mentioned Circular, the Company Q in India is providing intermediary service to an insurance company P located outside India by arranging for a supply of insurance claims processing service from R in India to P . For this intermediary service, Q charges P a commission or service fee. It is stated that in such a case, the supply of insurance claims processing service by R in India to P outside India, is the main supply and Q is arranging or facilitating this main supply. It may be noted that even in this illustration case, there is no supply by P outside India to any client in India. This illustration valida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices or both between two or more persons 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 case, the Appellant is arranging for and facilitating the Principal in procuring a supply of goods from India. He is not undertaking any supply of goods. He is only arranging the contact between the Principal and the Indian supplier and the actual supply of the goods is done by the Indian supplier directly to the Airbus France. The service of facilitating the main supply of goods between the Indian supplier and the Principal is provided by the Appellant to Airbus France. The Appellant is not supplying such goods on his own account and hence, the Appellant does not fall within the ambit of the exclusion contained in the definition of intermediary . Therefore, we find that the Appellant is clearly playing the role of intermediary for Airbus France, as envisaged under Section 2(13) of the IGST Act, 2017 and we uphold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (as detailed in Para 6.2 above) to contend that that the lower Authority has erred in holding that their activity is that of an intermediary. We have gone through the relevant decisions but the same do not find favour with us for the reason that the terms of the agreement in the Appellant s case is unique and does not merit comparison with the agreements referred to in the cited decisions. 26. As regards the classification of the services provided by the intermediary, we find that the services of the Appellant, who is acting as an intermediary, would aptly be classified under the Heading 998599 as Other support services . The Explanatory Notes to the Scheme of Classification of Services which is a guiding tool for classification of services indicates the scope and coverage of the Heading 998599 as specifically covering business services of intermediaries and brokers under this heading. The Appellant has contended that their activity is classifiable under Heading 998399 as Other professional, technical and business services n.e.c . The Explanatory Notes describe the said Heading as follows: 998399 Other professional, technical and business services, n.e.c - This servi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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