In re Mrs. Vishakhar Prashant Bhave (GST AAR Maharashtra)
Question :- (i) Whether the “Commission” received by the Applicant in convertible Foreign Exchange for rendering services as an “Intermediary” between an exporter abroad receiving such services and an Indian importer of an Equipment, is an “export of service” 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?
Answer :- Answered in the negative.
Question :- (ii) If the answer to the Q. (i) is in the negative, whether the impugned supply of service 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?
Answer: The said supply will be treated as Inter-State Supply and not Intra State Supply and IGST will be levied @ 18%.
Also Read :- AAAR cannot determine the place of supply
AAAR rejects application for rectification as no apparent mistake in order
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING MAHARASHTRA
(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 referred to as “the CGST Act MGST Act] and by Mrs. Vishakar Prashant Bhave, the applicant, seeking an advance ruling in respect of the following issue.
(i) Whether the “Commission” received by the Applicant in convertible Foreign Exchange for rendering services as an “Intermediary” between an exporter abroad receiving such services and an Indian importer of an Equipment, is an “export of service” 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?
(ii) If the answer to the Q. (i) is in the negative, whether the impugned supply of service 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?
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 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 submissions, as reproduced verbatim, could be seen thus-
STATEMENT OF THE RELEVANT FACTS HAVING A BEARING ON THE QUESTIONS
1. The facts relevant for the purposes of this application, briefly stated, are as under:
The Applicant, M/s. Micro Instruments, Mumbai, (for brevity: “Micro”) is a sole Proprietary Concern, duly Registered under the CGST/SGST and IGST Acts ( Reg. no. 27AHSPB0847K1Z2), having its registered Office at 15, Shri Kripa, Ramakrishna Society, Ram Mandir Road, Kherwadi, Bandra (E), and is carrying on trading business in Laboratory Instruments, its spare parts, Laboratory Equipment, and other related activities such as servicing, repairs and maintenance of Laboratory Equipment/Instrument.
2. One of the activities of Micro relates to providing services to its Principals at Germany, by way of procuring Purchase Orders (P. O.) from the parties desirous of purchasing advanced type of Laboratory Equipment, by negotiating the terms of supply including fixation of price above the floor price fixed by the Principals (known to the Applicant alone). If Micro can negotiate better price than the floor price, the difference between the floor price and actual price is given to Micro by way of “Commission” in “convertible foreign exchange”.
2. The modus operandi of the negotiated transactions can be briefly summarized as under:
(a) The prospective customer in India places the P.O. directly on the Principals at Germany, and arranges for Letter of Credit for remittance of price in foreign currency.
(b) The principals directly supply the Laboratory Equipment to the party in India say M/S Panama Laboratory, Mumbai a fictitious name) which pays price and gets the delivery from the Customs on payment of custom duty and IGST as applicable.
(c) In the majority of cases, barring exceptions, the P. O. states the name of Micro, and also mentions that the Indian Purchaser will be entitled to have some “discount in kind”, like getting some items Free of cost such as a TV set, a Computer or a Camera etc.; which is to be provided by Micro as a necessary charge on the “commission” it receives in convertible Foreign Exchange.
(d) Accordingly, Micro arranges, at its own cost such articles to be given free, in the nature of “discount in kind”, and hands over to the same to the Purchasing Party in India in fulfillment of the accepted terms of sale / purchase Agreement between the Principals at Germany and the Indian Purchasing Party.
(e) The P.O. also states that during the Guarantee period, say, one year the seller/supplier at Germany will give “free service”, if required (but that would not include any replacement of parts etc.). Micro, however, has no contractual obligation to give such “free Service”.
(f) Once the P.O. is completed, the Principals at Germany issue a “Credit Note”, for the “Commission”, which is remitted in freely convertible Foreign Exchange, normally in Euro Currency: (sign: €; code:EUR) the official currency of the European Union).
(g) Micro was not issuing any Debit Note or Invoices or any other document, but Accounting was done only on the basis of the Credit Note/s.
3. Now, in the circumstances, the following questions arise for consideration & decision by this Honourable Advance Ruling Authority, Maharashtra State, Mumbai:
(i) Whether the “Commission’ received by Micro in convertible Foreign Exchange as an “Intermediary” in International/ cross boarder transaction, for acting as a Broker or facilitator, in procuring from an Indian Customer/s Purchase order/s (P.O.) for importing Laboratory Equipment from Germany, is liable to GST either under CGST/MGST Act, 2017 or the IGST Act, 2017? And if so, the rate of CGST,SGST and IGST respectively.
(ii) If liable to GST, whether the entire amount of “Commission” as converted in rupees, will be the “taxable Value” for tax quantification or whether the following deductions can be claimed:
(a) Deducting “expenditure” on free supplies, which is a “charge on the commission amount” under the Contractual terms as per P.O.
(b) Deduction of tax element treating amount of “net Commission” (as per (a) above) as inclusive of CGST/SGST Act or IGST Act as the case may be.
4. For the purposes of examining the issues involved one needs to go through the labyrinth of new GST Laws.
5. The conspectus of various provisions gives the following picture:
(i) Services provided by the Commission Agent (located in the Taxable Territory) to the Principal Seller (located in Non-Taxable Territory/Abroad) in respect of procurement of order/s from the Customers located in the Taxable Territory on behalf of the foreign supplier of goods, would be termed as “taxable services” under the GST Regime, because the intermediary (Micro) does some activity for which monetary consideration, that is, “Commission” amount is received in freely convertible currency. These activities would fall in the widely worded definition of “Service”, in section 2 (102), which reads:
“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;
(ii) Section 13 of the IGST Act, 2017 is made applicable to determine the place of service, where location of supplier or location of recipient of service (either) is outside India.
(iii) In the present case, Micro being the supplier of service (located in India in Taxable Territory) and customer i.e. recipient of Service (i.e. supplier of goods is located outside India, Germany, in Non Taxable Territory), Section 13 of the above IGST Act, 2017 gets attracted.
(iv) Section 13 of IGST Act, 2017 has in all 13 sub-sections applicable to different situations/circumstances.
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