Business Services by ‘Airbus group India’ carried out in India to be classified as ‘Intermediary Service’- Karnataka AAR
This post provides an update about the recent decision of Karnataka Authority for Advance Ruling (‘AAR’) in the case of Airbus Group India Private Limited (AAR No KAR ADRG 31/2021) (“The Applicant”). This AAR deals with one of the common issue that whether the services provided to a foreign entity will qualify as ‘Intermediary services’ or ‘Business Support Services qualifying as Export of Services’.
Facts of the case
> The applicant is a subsidiary of Airbus Invest SAS, France (holding company), entered into agreement with its holding company for providing procurement operations (PO) function and procurement transformation & central services (PY) function.
> Applicant plays an important part in identifying vendors, making them understand product requirement, advising and guiding them not merely on technical aspect of product but also ethical aspect in relation to such activities, without which, holding company will not be able to procure goods from vendors.
> The applicant required a clarification, “Whether the activities carried out in India by the Applicant would constitute a supply of “Other support services” falling under HSN code 9985 or as “Intermediary service” classifiable under HSN code 9961/9962 or any other classification of services as specified under various Tariff entries of rate notification issued under Goods and Services Tax law?” and “Whether such services will qualify as ‘Export of Services’?
> The applicant is of the opinion that the activities undertaken by them are classifiable under Heading 9983 with description of ‘Other professional, technical and business services’.
Findings and Decision
♦ It is observed as per the agreement and applicants opinion, the activities undertaken by them are classifiable under Heading 9983 with description of ‘Other professional, technical and business services’. The services rendered by the Applicant are predominantly in the nature of technical advisory, professional, and business support services.
♦ Further, as per the explanatory notes to the scheme of classification of services, heading 998399 offers the same description . This heading includes specialty design services including interior design, design originals, scientific and technical consulting services, original compilation of facts/ information services, translation services, trademark services and drafting services.
♦ Whether the activities carried are Intermediary Service or not?
The intermediary is defined as “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;” An intermediary will facilitate or arrange the supply of goods or services between two or more people but will not be providing such supplies on his own account. ‘Such’ goods in the present case are the raw materials supplied by the vendors to Airbus Invest SAS, France.
♦ The applicant plays an important part in identifying the vendors, making them understand the product requirement, advising and guiding them not merely on technical aspect of the product but also the ethical aspect in relation to such activities, without which, Airbus Invest SAS, France will not be able to procure the goods from the vendors. Thus the instant activity is nothing but facilitating the suppliesto them from India. Therefore, the activities performed by the applicant are fulfilling the parameters mentioned in the definition of ‘Intermediary’ as per Section 2 (13) of IGST Act, 2017.
♦ The services of the applicant are covered under intermediary services, as concluded at para 17 above and hence the place of supply is Indiain terms of Section 13(8) of the IGST Act 2017. Therefore, the services rendered by the Applicant do not qualify as ‘export of services’ and consequently, are exigible to GST at the rate of 18% in terms of clause (iii) of entry no. 23 of N/N. 11/2017-Central Tax (R) dated 28.06.2017.
Our Comments
♦ In our view, when the supply of intermediary and other support services including inspection, testing, design, consultancy, etc are done under single agreement., the view maybe taken that it is a composite supply by supplier, wherein facilitation/ intermediary services is the principal supply therefore, not an export and GST payable. This could be view favoured by dept as well as in the instant case.
♦ Two separate agreements for provision of intermediary services and support services can help in treating support services as Exports (provided all the conditions for Export of Services are fulfilled).
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Disclaimer: This update is made available by the writer for educational purposes only and to give you general information and general understanding of law, not to provide specific legal advice. We would suggest that a detailed legal advice must be sought before relying on this update.
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Author Bio
Informative article, thanks