AAAR, uphold the MAAR Order No. GST-ARA-50/2020-21/B-108 dated 01.12.2022 vide which it has been held that the transfer of monetary proceeds by the Applicant to IVL Sweden, will be liable for payment of Integrated Goods and Service Tax under reverse charge mechanism under Entry No.1 of Notification 10/ 2017 IGST(Rate) dated June 28. 2017.
The case of IVL India Environmental R&D Pvt Ltd provides critical insights into the GST implications on transferring monetary proceeds to its parent company, IVL Sweden. The Appellant, IVL India, was incorporated under Indian laws by IVL Sweden to execute a project management consultancy (PMC) contract. The proceeds earned by IVL India were further transferred to IVL Sweden. A crucial point of contention arises regarding the GST implications on this transfer, given the reverse charge mechanism under Entry No.1 of Notification No. 10/2017-I.T. (Rate) dated 28.06.2017
Analysis: Under the PMC contract, IVL India was identified as the consultant, and IVL Sweden as the guarantor. However, despite the work being carried out by IVL India, the crucial support services rendered by IVL Sweden were a significant contributing factor. In essence, without IVL Sweden’s expertise and resources, IVL India would not have been able to secure the PMC contract with MCGM. Hence, it was concluded that IVL India availed support services from IVL Sweden. The place of supply of these services was deemed to be India, making it an import of services scenario.
Conclusion: As per Section 13(2) and Section 2(11) of the IGST Act, 2017, the transfer of monetary proceeds from IVL India to IVL Sweden for the support services falls under the ambit of import of services. Given the recipient of services (IVL India) is located in India and the supplier of services (IVL Sweden) is located outside India, the recipient is liable to pay IGST under the reverse charge mechanism in compliance with Notification No. 10/2017-I.T. (Rate) dated 28.06.2017. Therefore, GST is applicable on the transfer of monetary proceeds from IVL India to IVL Sweden.
FULL TEXT OF THE ORDER OF APPELLATE AUTHORITY FOR ADVANCE RULING, MAHARASHTRA
1. 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 made in respect of such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the MGST Act.
2. The present appeal has been filed under Section 100 of the Central GST Act,2017 (hereinafter referred to as the CGST Act’) read with Section 100 of the Maharashtra GST Act, 2017 (hereinafter referred to as the MGST Act’) by M/s. IVL India Environmental R&D Private Limited having Address at A808 and 809. Shelton Sapphire.
Sector 1 5 and CBD Belapur, Navi Mumbai, Maharashtra-400614 (hereinafter referred to as the Appellant’) against the advance Ruling No.GST-ARA-50 2020-21 B-108 dated 01.12.2022
3. IVL India Environmental R&D Private Limited (TVL India’ or ‘The Appellant’) is a company incorporated under the laws of India and is a whole owned subsidiary of IVL Swedish Environmental Research Institute Limited (TVL Sweden’) a foreign company incorporated under the laws of Sweden The Municipal Corporation of Greater Mumbai CMCGMT is the governing civic body of Mumbai under the Bombay Municipal Corporation Act, 1888.
4. IVL Sweden applied for the bid for all the projects invited by MCGM for the contract of ‘Project Management Consultancy Services” for four locations which are Versova and Malad Influent Pumping Station under MSDP Stage -II, Mithi River Rejuvenation Project (Package I, II, III & IV), Bandra WWTP under MSDP Stage – II, Worli WWTF under MSDP Stage – II on the basis of their credentials, work experience and various certifications received from different government organizations as required in the bidding eligibility criteria.
5. MCGM successfully awarded the tender for ‘Project Management Consultancy Services’, for the following projects to IVL Sweden with the respective contract amounts:
|Location/Project Name||Contract Value (Rs.)|
|Versova and Malad||158,175,000|
6. The Appellant was incorporated in India by IVL Sweden, in order to oblige the following terms and condition of the bidding eligibility criteria laid out by MCGM in the tender documents. where
7. Thereafter, in compliance with the conditions laid out in the tender document, the Appellant and IVL Sweden executed a contract w ith MCGM governing the scope of work, payment terms and general conditions of the contract.
8. In this regard. IVL India in compliance with the contract, issues invoices to MCGM in INR. for both, the work done by IVL India and IVL. Sweden. Subsequently, on receipt of money from MCGM. IVL India transfers to IVL Sweden, money for the portion of work done and delivered by IVL Sweden to MCGM in terms of the contracts.
9. In this regard, the Appellant had filed an application for advance ruling on the following matters:
Question In the light of Section 97 of the Central Goods and Services Tax Act. 2017 (in short CGST Act”) and the Maharashtra Goods and Services Tax Act, 2017 (“MGST Act “), the question is whether mere transfer of monetary proceeds by the IVL India Environmental R & D Pvt Ltd thereinafter referred to as the Applicant’ or “IVL India”) to IVL Swedish Environmental Research Institute Limited (hereinafter referred to as “IVL Sweden”), without underlying import of service will be liable for payment of Integrated Goods and Service Tax under reverse charge mechanism under entry no. 1 of Notification 10/ 2017 IGST(Rate) dated June 28. 2017.
10. The learned Authority for Advance Ruling (hereinafter referred to as “LAAR”) had called for a personal hearing and the authorized representatives of the Appellant attended the personal hearing on various occasions and explained the matter in detail.
11. On scrutiny of the documents, the LAAR has pronounced the advance Ruling No.GST-ARA-50 2020-21 B-108 dated 01.12.2022 received by the Appellant on 07.12.2022 as follows:
In reference to Question above, the LAAR has concluded that, the transfer of monetary proceeds by the Applicant to IVL Sweden, will be liable for payment of Integrated Goods and Service Tax under reverse charge mechanism under Entry No. 1 of Notification 10/ 2017 IGST(Rate) dated June 28. 2017.
12. Aggrieved by the said order of the learned Authority of Advance rulings (the LAAR for brevity) in Maharashtra, the Appellant has preferred this appeal before the Appellate Authority for Advance Ruling, Maharashtra, on the following grounds:
Grounds of Appeal
13. That the LAAR has failed to appreciate the relevant facts and submissions made in the instant case and has concluded in contrary to the facts of the case in the said Advance Ruling order dated 01.12.2022.
14. That the LAAR has grossly erred by not considering and appreciating the submissions made by the Appellant during the course of proceedings.
15. That in respect of the above Question sought before Authority for Advance Ruling the following are our detailed submissions:
16. That the tender has been awarded to IVL Sweden:
16.1 That the contract for “Project Management Consultancy Services” invited by MCGM was awarded to IVL Sweden, based on its own technical and financial capabilities, which is evident from the following:
16.2 That IVL India was incorporated only to satisfy the instructions listed out in the “Letter of Acceptance” awarded to IVL Sweden and other conditions laid down in the tender document.
16.3 That the tender document stipulates that payment currency for the contract will be INR and also stated that MCGM under any circumstances will not relax the terms of payment and will not consider any alternative terms of payment. Hence, IVL India was made responsible for raising the invoice, collecting the monies for the same with MCGM, including for the work done by IVI Sweden and later transfer the monies to IVL Sweden for the services provided by IVL Sweden to MCGM.
16.4 Further. MCGM was always aware that the actual service provider or in other words the person who has the expertise to provide ‘Project Management Service’ is IVL Sweden and IVL India was acting as a conduit between IVL Sweden and MCGM for the limited purpose of invoicing and receiving the payments.
16.5 IVL India is incorporated for the sake of satisfying the condition of MCGM. Further. IVL India does not receive any services from IVL Sweden and the activities undertaken by the IVL Sweden satisfy all of the aforesaid conditions as explained below:
16.6 Therefore, it is evident that IVL India is not receiving any services from IVL Sweden. IVL Sweden is providing services to the ultimate recipient i.e. MCGM.
16.7 Hence, in the absence of the underlying service being provided by IVL Sweden to IVL India –
16.8 In light of the discussion, it is evident that services to MCGM is provided by IVL Sweden. However, to obligate with the terms and conditions of the bidding documents, eligibility criteria specified therein and various clauses of the General conditions to the contract, IVL Sweden had to. mandatorily incorporate an Indian entity.
16.9 Therefore, it is imperative to note that while the projects are awarded to IVL Sweden on the basis of the credentials of IVL Sweden, for the purposes of administrative convenience, a special purpose vehicle is established in the name and style of IVL India though the work is predominantly executed by IVL Sweden.
16.10 The relevant clauses and conditions of the bidding documents, eligibility criteria and general conditions to the contract which proves that incorporation of an Indian entity was indispensable to execute this project and it would have been impossible for a foreign entity to execute this project without an Indian entity.
16.11 They have also enumerated certain facts of the case which proves that IVL India is merely a conduit for administrative purpose.
a) Letter of Award (LoA) to IVL Sweden:
The LOA has been awarded to the Swedish Company. This means that the actual consultant to this contract is IVL Sweden. Hence, the benefit of the exemption notification shall reach to IVL Sweden.
b) Specific requirement of incorporation of an Indian entity in the LoA:
In the Letter of Award. MCGM has specifically made it mandatory for IVL Sweden to incorporate a company under the Indian Companies act along with PAN, GST registration and other statutory details.
c) Credentials and work experience of IVL Sweden:
The bidding criteria in the MCGM bidding documents specifically mention certain minimum criteria without which, the contract shall not be awarded. The contract to IVL Sweden has been awarded solely on the basis of the credentials and work experience of IVL Sweden.This further reiterates the fact that the main consultant of this contract is IVL Sweden and not IVL India. Hence, the benefit of the exemption notification should also reach to IVL Sweden.
d) BG by IVL Sweden:
As per the clause number 8 “Mode of Payment”‘ of the bidding documents, the bidder is required to submit an advance bank guarantee of 10% to claim the advance payment. IVL Sweden furnished/submitted the advance bank guarantee to MCGM in order to fulfil the requirement and claim the advance payment. The ultimate responsibility of the performance of this contract shall remain with IVL Sweden. This also construes that the main consultant to this contract is IVL Sweden.
e) Work to be performed by IVL Sweden:
The project has been granted on the credentials, work experience and various certifications from different organizations of IVL Sweden and hence, ultimate execution also lies w ith IVL Sweden, either by IVL India or by executing the part of contract itself. Hence, the above fact means that the main consultant to this contract is IVL Sweden.
f) Ultimate beneficiary is IVL Sweden:
The entire obligation of the contract performance of the contract and responsibility of the contract lies w ith IVL Sweden which means that the ultimate beneficiary of the contract and the primary consultant to MCGM is IVL Sweden. It is just to meet the obligations of the contract and the Bidding qualification, that IVL Sweden had to incorporate an Indian entity.
17. Legal recourse for non-performance of contract is against IVL Sweden:
The legal recourse in respect of this contract for project management service with MCGM in case of any failure in carry ing out, observe or performance or any of the said obligations, duties, undertaking, covenants and conditions under the contract lies with IVL Sweden and the same is evidenced by:
a. Indemnity bond issued by IVL Sweden to MCGM declaring that the work allotted to IVL Sweden will be completed and any short-comings in this regard will be made-good by IVL Sweden.
b. Parent Company Guarantee given by IVL Sweden to MCGM guaranteeing the due performance of contract and indemnifying for any loss incurred by MCGM on account of this contract.
18. Similar arrangements are prevalent in the Petroleum Industry for developing, exploring and producing of Oil & Gas wherein it is held that there are no services provided between the participants, inter sc.
18.1 The Appellant submits that the above arrangement can be compared to the how multiple entities participate in bids and execute the work thereon in the projects relating to business of developing, exploring and producing oil and gas where various industry participants form a consortium by entering into a “Production sharing contract” and collectively enter into the contract. One party from such consortium plays the role of leader/holder and is responsible for entering the contract with the government receiving all payments and distributing the same to the other participants in the consortium.
18.2 Contractually, while each of the entities will be individually responsible for their part of the contract, the onus and responsibility for billing and collection as a consortium will be that of the “leader”
18.3 At this juncture, reference is drawn to CESTAT ruling in the case of – B.G. EXPLORATION & PRODUCTION INDIA LTD. VERSUS COMMISSIONER OF CGST & CEX., NAVIMUMBAI – 2021 (10) TMI 306 – CESTAT MUMBAI. Considering the same analogy, here IVL India raises the invoice and collects the payment from MCGM, further transfers monies to IVL Sweden for the services provided by IVL Sweden to MCGM and acts as conduit between IVL Sweden and MCGM. This arrangement can be comparable with the operations in the petroleum industry and hence it can be said that, there is no service inter se and hence not liable to GST.
19. The Project Management Services provided to MCGM is wholly exempt under Serial No. 3 of Notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017, such exemption should be extended to all consultants to the contract:
19.1 The Appellant submits that, the project management services supplied to the MCGM is wholly exempt under serial No.3 of Notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017. Here, it is important to note that the ultimate services provided to recipient (MCGM) is exempt. Given that MCGM is a local authority and the subject services (being project management services which are wholly and purely services) fall within Article 243G of the Constitution of India and the same is wholly exempt from GST.
19.2 The Learned Authority of Advance Ruling (L.AAR) has wrongly observed that there is transfer of expertise from IVL Sweden to IVL India in order to execute the contract and thereby concluding that there is supply of service or goods or both, between IVL Sweden and IVL India. The LAAR has drawn a contrary inference where it states that IVL India is receiving the services from IVL Sweden, whereas in fact and in terms of the contract, it is both. IVL Sweden and IVL India, together are executing the work in terms of the contract, for the ultimate recipient i e. MCGM The Appellant contends that the LAAR has grossly misunderstood the facts of the arrangement and passed an order on the basis of these misunderstood facts and has not made any statements or distinguished on the legal grounds or contentions taken in the advance ruling application and the submission made thereof
19.3 They further contended that without prejudice to these above assuming arguendo that IVL Sweden is providing service through IVL India. IVL I India would become the main consultant and IVL Sweden Secondary consultant They further contended that even in such scenario the exemption given to the main consutant should be extended to the secondary consultant as well
19.4 They have cited the the following case laws to support their contention
a. Ballset Entertainment P. Ltd. Vs. Commissioner of Service Tax. Delhi, reported at 2018 (10) G.ST.L 372 (Tri-DeL).
b. M/s Auatro RAIL TECH SOLUTIONS LIMITED – 2019 (10) TMII 1134 -AUTHORITY FOR ADVANCE RULING. KARNATAKA;
c. SUPREME Court Judgment in the case of STATE OF ANDHRA PRADESH & ORS. VERSUS LARSEN & TOURBO LTD. & ORS. – 2008 (8) TM1 21;
PERSON AL HEARING
The personal hearing in the matter was conducted on 21 03 2023 which was attended by Shr Badrinath. lawyer Shri Varun Garg. CA and Shri Gurunath. CA on behalf ot the Appellant During the personal hearing the Appellant reiterated their earlier submissions made while filing the Appeal under consideration
Additional Submissions filed by the Appellant
21. They also filed an additional submissions dated 10.04.2023 wherein they have submitted documents such as copy of agreement executed between IVL India and IVL Sweden, copy of debit note issued by IVL Sweden to M/s. IVL India, Invoice copy raised by M/s. IVL India to Brihanmumbai Municipal Corporation.
Discussions and bindings
22. We have gone through the entire facts of the case, all the documents placed on record as well as all the written and oral submissions made by the Appellant. We have also examined the impugned MAAR order wherein it has been held that the Appellant will be liable to pay IGST under reverse charge mechanism under Entry No.1 of Notification 10/ 2017 IGST(Rate) dated June 28. 2017. on the amount paid to IVL Sweden against the receipt of support services in the form of consultancy.
23. The main contentions put forth by the Appellant in their favour are as under:
23.1 That the tender for the project management consultancy of the projects under question was awarded to IVL Sweden by MCGM on the basis of their credentials, work experience, and various certification received from different government organisation:
23.2 That the Letter of Acceptance was also issued by MCGM in the favour of IVL Sweden;
23.3 However, the contract for the said PMC services to be provided to MCGM have been signed jointly by the Appellant, i.e., IVL India, IVL Sweden and the recipient MCGM as per the mandatory requirement of the bidding eligibility criteria documents issued by MCGM in respect of the subject projects which stipulates that the contract can only be executed by the wholly owned subsidiary of the foreign entity who has been awarded the tender under consideration.
23.4 That in compliance to the aforesaid condition, IVL India was incorporated by IVL Sweden under the Indian laws for the purpose of execution of the PMC contract.
2.35 That even though the contract was executed jointly by the Appellant. IVL Sweden and the MCGM, the ultimate responsibilities for the performance and execution of the works lie with IVL Sweden as the tender under question was awarded to IVL Sweden on the basis of their credentials, work experience and various certifications awarded by different government organisations.
23.6 That the IVL Sweden has provided Bank Guarantee and Parent Company Guarantee/ undertaking to the MCGM for the PMC tasks to be carried out by the Appellant in relation to the subject projects.
23.7 That the invoices for the PMC services rendered to MCGM are raised by the Appellant and the payment for the said services are also made by MCGM to the Appellant only in Indian Rupees, which are then transferred to IVL Sweden.
24. Now, having regard to the above facts of the case, the impugned MAAR Order and the submissions made by the Appellant, the moot issue before us is as under:
(i) Who is the service provider in so far as the transactions under question are concerned? That is, who is providing the consultancy services to MCGM as per the contract entered with MCGM with respect to the projects under question?
25. Now, we proceed to examine the aforesaid issue in the context of the transactional events envisaged under the subject contract. On perusal of the subject contract entered by the Appellant, IVL Sweden and MCGM. it is conspicuous that Appellant, i.e., IVL India, is being termed as the “Consultant” of the subject projects and IVL Sweden has been termed as the Parent Company. Further, the said contract also provides that the Commissioner would pay to the consultant, i.e.. IVL India, the contract fee amount, in consideration for the work carried out by them. Thus, in view of the above, it is adequately clear that IVL India is providing services to MCGM, and accordingly raising invoices on MCGM for receiving the payment agreed upon in the subject contract. We further find that IVL Sweden is acting as a guarantor in this entire arrangement which is evident from the stipulations/covenants provided in the documents, such as Bank Guarantee, Parent Company Guarantee/Undertaking which clearly indicate that the entire PMC work is being carried out by the Appellant, i.e., IVL India. The same is also evident by the term PMC (Project Management Consultancy) used for the Appellant in Parent company Guarantee/undertaking.
26. Further, it is observed that though as per the Agreement entered by the Appellant and IVL Sweden with MCGM, and the Parent company Guarantee / undertaking entered with MCGM. the Appellant has been appointed as the PMC (Project Management Consultant) while IVL Sweden as the Guarantor for the completion of the subject projects, there is no doubt about the fact that the entire project management work is carried out by the Appellant with the help of IVL Sweden which has got all the expertise, work experience and resources to manage such projects. In other words, it can be said that without the services of IVL Sweden, it would not have been possible for the Appellant to bag the contract from MCGM to carry out project management consultancy work of such measures. In fact, the contract has been awarded to the Appellant based on the credentials and work experience of IVL Sweden. The aforesaid observations are also supported by the Appellant’ contentions wherein it has been contended that all the responsibility of the performance of the work lie with IVL Sweden as IVL Sweden have got all the expertise and work experience to handle such massive projects. Thus, it can be safely concluded that the Appellant is availing support services from IVL Sweden to carry out the required PMC work as per the contract entered with MCGM.
27. Now, we proceed to examine place of supply of the aforesaid services received by the Appellant from IVL Sweden. Since in this case the recipient of services is located in India and supplier of the services, namely, IVL Sweden, is located abroad, therefore, Section 13 of IGST Act, 2017 will be applicable to determine the place of supply. On perusal of the aforesaid provision, it is observed that the default provisions of Section 13(2) will cover the present case as the same does not fit under any of the remaining provisions ranging from sub-section (3) to-sub-section (13) of section 13 of the IGST Act, 2017.
Section 13(2) is being reproduced herein under:
(2) The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services:
Provided that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services.
28. Thus, on perusal of the above provisions, it is observed that the place of supply of services in the present case will be the location of recipient of services, i.e., India.
29. Now, we set out to determine as to whether the support services received by the Appellant being located in India and supplier of services, namely, IVL Sweden, located outside India, can be construed as import of services. To determine this issue, we would like to refer to section 2(11) of the IGST Act, 2017, which is being reproduced herein under:
(11) Import of services ” means the supply of any service, where-
(i) The supplier of service is located outside India;
(ii) The recipient of service is located in India; and
(iii) The place of supply of service is in India;
30. Thus, on perusal of the above provisions, it is clear that the said support services received by the Appellant from IVL Sweden will come under the ambit of import of services as the said services fulfill all the criteria of the import of services.
31. Once it has been established that service under question is import of services, the same will be liable for payment of IGST at the hands of the recipient of services in terms entry 1 of the Notification No. 10/2017-I.T. (Rate) dated 28.06.2017.
32. Now, we proceed to examine the case laws relied upon by the Appellant in their defense. The same are enumerated as under:
(i) B.G. EXPLORATION & PRODUCTION INDIA LTD. VERSUS COMMISSIONER OF CGST & CEX., NAVIMUMBA1 – 2021 (10) TMI 306 – CESTAT MUMBAI
(ii) Ballset Entertainment P. Ltd. Vs Commissioner of Service Tax, Delhi, reported at 2018 (10) G.S.T.L. 372 (Tri-Del.)
(iii) M/s QUATRO RAIL TECH SOLUTIONS LIMITED – 2019 (10) TMI 1134 -A UTHORITY FOR ADVANCE RULING, KARNATAKA
(iv) STATE OF ANDHRA PRADESH & ORS. VERSUS LARSEN & TOURBO LTD. & ORS. – 2008 (8) TMI 21
33. On perusal of the aforementioned case laws, it is observed that the facts of the aforesaid cases are entirely different from the facts of the case under consideration. Hence, it is concluded that all the case laws relied upon the Appellant in their defense are clearly distinguishable, and therefore, not applicable in the present case.
34. Thus, in view of the above discussions and findings, we pass the following order:
35. We, hereby, uphold the MAAR Order No. GST-ARA-50/2020-21/B-108 dated 01.12.2022 vide which it has been held that the transfer of monetary proceeds by the Applicant to IVL Sweden, will be liable for payment of Integrated Goods and Service Tax under reverse charge mechanism under Entry No.1 of Notification 10/ 2017 IGST(Rate) dated June 28. 2017. . Thus, the appeal filed by the Appellant is hereby rejected.