In re Vservglobal Private Limited (GST AAR Maharastra)
The applicant is registered person under GST ACT who is supplier of Services, which is a corporate entity incorporated in India and having its registered office in Mumbai. The orders for supply of said services are received in its Mumbai office and also services are executed from its offices situated in Mumbai.
On the basis of this service agreement applicant submits that the services proposed to be rendered such as back office administrative and accounting support services, a Pay roll processing and maintenance of records of employees of the client satisfy all the elements of “export of services as defined under the GST Act and therefore qualify as zero rated supply as per section 16 of the IGST Act.
Also Read AAAR Order– GST payable on Back Office Support Services and are not Exports
During the course of final hearing held on 26.06.2018 and having regards to the facts of the case applicant was called on to submit his written contention specifically insisting that how they are not covered in the definition of ‘ intermediary’ as defined u/s.2(26) of the IGST Act. In response applicant made further submission dated 02.07.2018 which is already reproduced above.
We carefully have considered rival submissions and also scrutinized in detail different clauses of service agreement, Invoices and the bank statement. Admittedly appellant is to provide back office support services, payroll processing, to maintain records of employee to overseas companies i.e. clients and after finalization of purchase /sale between the client and its customer. As per the legal understanding of the applicant aforesaid services proposed to be rendered qualify as ‘Zero rated supply’ in term of sec.16 of the IGST Act. In order to have seal of approval on the issue, the present application is made and applicant has requested this authority to decide the issue.
In the context of definition of ‘Intermediary’ as mentioned above, we now examine the service agreement as a whole to ascertain whether the applicant is an Intermediary or not. This is necessary because the provisions of place of supply which decide the nature of supply of a transaction as to Intrastate supply, interstate supply or export supply. For a supply to be called as ‘export of services’ one of the condition is that the place of supply shall be outside India.
A sum of all activities mentioned above indicate applicant as a person who arranges or facilitate supply of goods or services or both between the overseas client and customers of the overseas client, and therefore applicant is clearly covered and falls in the definition of an intermediary as defined under the IGST Act. As the applicant is held as Intermediary the provisions pertaining to place of supply in case of intermediary services as provided in sub-section 8 of section 13 are relevant. In the instant case and as per applicants own admission of fact that applicant is supplier of Services, which is a corporate entity incorporated in India and having registered office in Mumbai. We find that the place of supply in case of services provided py the applicant being intermediary would be the location of the supplier of services i.e. location of the applicant which is located in the state of Maharashtra, India. To qualify a transaction of supply of services as export of services that transaction has to satisfy all five ingredients of the definition of export of services simultaneously. In the present case we find that the condition at (iii) of the above definition is not satisfied and hence without examining and getting into the contention of the jurisdictional officer with regards to condition at (v) of the said definition as to distinct person which would require more specific and detailed examination and verification on their part to get correct factual position in this regard, we hold that the services proposed to be rendered by the applicant do not qualify as ‘export of services’ as defined u/s.2(6) and thus not a ‘zero rated supply’ as per sec,16(1) of the IGST Act, 2017.
Applicant submits that his case is covered by exclusion clause in definition of intermediary and in support of the same has strongly relied upon decision of advance ruling authority New Delhi in case of Godaddy India Web services Pvt Ltd reported as 2016(46) STR806(AAR) dated 04.03.2016 (in short Godaddy). We have gone through the facts of the case and the ruling and we find that facts of the present case are different and not similar to facts of M/s. Godaddy. In case of Godaddy the provision of support services was admittedly on principal to principal basis and were provided with sole intention of promoting the brand Godaddy US in India for augmenting its business. In the present case we find that the activities undertaken by the applicant are for and on behalf of clients to facilitate supply of goods and services between the clients their customers. In view of this we are of the opinion that the judgement cited by the applicant is not applicable to the facts of the present case.
In view of the above aforesaid services proposed to be rendered do not qualify as ‘Zero Rated Supply in terms of Section 16 of the Integrated Goods & Service Tax Act, 2017.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, MAHARASHTRA
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 referred to as “the CGST Act and MGST Act”) by VSERVGLOBAL PRIVATE LIMITED., the applicant, seeking an advance ruling in respect of the following question.
The Applicant Vserv request this Hon’ble Authority to decide as to whether the aforesaid services proposed to be rendered qualify as ‘Zero Rated Supply in terms of Section 16 of the Integrated Goods & Service Tax Act, 2017 or not.
At the outset, we would like to make it clear that the provisions of both the CGST Act and the GST 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 provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the “GST Act”.
02. FACTS AND CONTENTION – AS PER THE APPLICANT
The submission (Brief facts of the case), as reproduced verbatim, could be seen thus –
FACTS OF THE CASE
1. The Applicant M/s. Vservglobal Private Limited (hereinafter referred to as ‘Vserv’), is an Indian Company having its office at Mumbai. The company is incorporated to provide back office support services to overseas companies (hereinafter referred to as ‘Clients’). Clients are engaged in Trading of Chemicals and other products in International Trade. Vserv will come into picture after finalization of Purchase / Sale order by a Client. Vserv will undertake following activities for and on behalf of Clients.-
a) Get SDF (Sales Detail Form) & PDF (Purchase Detail Form) from concerned party
b) Generate order no in VOSS
c) Create PO (Purchase Order) & SC (Sales Contract) in VOSS
d) Send SC (Sales Contract) & PI (Proforma Invoice) to customer & get SI (Shipping Instructions) as well
e) Send PO (Purchase Order) to supplier & Seek PI (Proforma Invoice) & Share SI (Shipping Instructions)
f) Liaise with supplier for Cargo Readiness
g) Liaise with inspection authorities if pre-shipment inspection is needed
h) Inform Customer on tentative schedule
i) Process payment request in VOSS
j) Send payment request to Client.
k) Provide forwarder/ carrier nomination to supplier if FOB (Free on Board)
l) Seek carrier booking details and share with supplier & customer
m) follow up for smooth SOB (Shipping on Board) with supplier and forwarder
n) Log it in Excel Order Sheet – ETD -ETA (Estimated Date of Arrival -Estimated date of Departure)
o) Get draft BL (Bill of Lading) prior to sailing
p) Follow up for full shipping documents with supplier
q) Raise payment request in VOSS for supplier for balance or final payment
r) Send payment request to Group Company for supplier for balance or final payment.
s) Arrange inspection certificates if applicable
t) Raise payment request for freight and inspection charges as applicable
u) Arrange to send originals to Hong Kong
v) Follow up for Originals sent to Customer from Group Company
w) Notify ETA – reminder to Customer (ETA -Estimated time of arrival)
x) Troubleshooting.
2. Apart from above, Vserv will also maintain records of employees of Clients, their payroll processing etc. All the payments to third parties like, supplier, Inspection Agency, Shipping Line, employees etc. will be done directly by Clients and Vserv will maintain accounting of the same. Vserv will be compensated for its services either on fixed monthly basis or as per the volume of transactions, on mutually agreed terms, in convertible foreign Exchange.
Question,-
3. The Applicant Vserv request this Hon’ble Authority to decide as to whether the aforesaid services proposed to be rendered qualify as ‘Zero Rated Supply in terms of Section 16 of the Integrated Goods & Service Tax Act, 2017 or not.
Statement containing the applicant’s interpretation of law and/or facts, as the case may be. in respect of the questions(s) on which advance ruling is required
4. As per legal understanding of Applicant, the aforesaid services rendered by the Applicant qualify as “Zero Rated Supply” in terms of Section 16 of the Integrated Goods & Service Tax Act, 2017 for the reasons stated hereinafter. The provisions contained in Section 16 of the Act, ibid are reproduced below for ready reference.
“16. Zero rated supply.-
(1) “zero rated supply” means any of the following supplies of goods or services or both, namely:-
(a) export of goods or services or both; or
(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
(2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply.
(3) A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely:-
(a) he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised input tax credit; or
(b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder.”
As per the above stated legal provisions Export of Services is a zero rated supply. The phrase ‘Export of Service’ is defined in Section 2(6) of the Act, ibid and read as under:
“(6) “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 1 in section 8.
6. It is humbly submitted that the services rendered by applicant satisfy all the aforesaid conditions, as explained hereinafter.
7. The supplier of Service is located in India. – The phrase ‘location of Supplier of Service is defined in Section 2(71) of the Central Goods and Service Tax Act, 2017 which reads as under:
“(71) “Location of the supplier of services” means –
(a) where a supply is made from a place of business for which the registration has been obtained, the location of such place of business,
(b) where a supply is made from a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment;
(c) where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the provisions of the supply; and
(d) in absence of such places, the location of the usual place of residence of the supplier;”
7 (a). In the instant case, the applicant is supplier of Services, which is a corporate entity incorporated in India and having its registered office in Mumbai. The Appellant’s Mumbai office is registered under GST. The orders for supply of said services are received in its Mumbai office and also services are executed from its office situated in Mumbai. Therefore, the condition that the location of service provider should be in India is met.
8. The Recipient of Service is located Outside India – The phrase ‘Location of Recipient of Service’ is defined in Section 2(70) of the CGST Act, 2017 which reads as under.
“(70) “location of the recipient of services” means,-
(a) where a supply is received at a place of business for which the registration has been obtained, the location of such place of business;
(b) where a supply is received at a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment;
(c) where a supply is received at more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the receipt of the supply; and
(d) in absence of such places, the location of the usual place of residence of the recipient;”
8(a). The Applicant is providing services to the overseas offices of Recipient of Services and such services are used by Recipients for their business conducted by such overseas offices. The said overseas offices of Recipients are covered under the definition of ‘fixed establishment’ as contained in Section 2(50) of the Central Goods & Service Tax Act, 2017, and therefore, the said second condition is also fulfilled. The definition of ‘fixed establishment is reproduced here for ready reference.
“(50) “fixed establishment” means a place (other than the registered place of business) which is characterized by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services, or to receive and use services for its own needs;”
9. The place of supply of service is outside India – As per sub-section (2) of Section 13 of Act, ibid, the place of supply of services – other than those specified under Sub-section (3) to sub-section 13, will be the location of recipient of services. In simple terms, if the service is not specified under any sub-section from (3) to (13) then place of supply will be the location of Service Recipient. The aforesaid services, are prime-facie not specified under any of the sub-section from (3) to (13) of Section 13. The Government have notified Classification scheme of Services, Section 8 of the said classification scheme covers Business and Production Services. The relevant entries of said Section are reproduced below.
