GST on intermediary and installation services for foreign principals

In re Alfatek Services (GST AAR Kerala)

In a ruling by the Kerala Authority for Advance Rulings (AAR), Alfatek Services, acting as an agent for foreign companies in the tire and rubber industry, sought clarity on GST applicability for services provided to its foreign principals. Alfatek promotes products in India and Sri Lanka, assisting with customer interactions, quotations, and installation. The AAR found that these activities qualify as “intermediary services” under the GST Act since Alfatek facilitates product supply without directly supplying goods. Intermediary services conducted in India and Sri Lanka are subject to GST, but Sri Lankan intermediary services may be exempt under Notification No. 20/2019-Integrated Tax, provided specific conditions are met. Additionally, installation services performed in India are taxable, while installations in Sri Lanka can be treated as exports and exempt if paid in foreign currency. This ruling clarifies that GST applies based on service location and service type, with some exemptions for overseas activities contingent on compliance with stipulated conditions.

FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, KERALA

1. Alfatek Services, Sapthagiri, Thipadapuram Hill, Kulathoor P.0, Trivandrum (hereinafter referred to as the Applicant) is a taxpayer registered under the GST Act, engaged as an agent of foreign companies for promoting products used in tire and rubber industry.

2. In this ruling, a reference hereinafter to the provisions of the COST Act, Rules and the notifications issued there under shall include a reference to the corresponding provisions of the KSGST Act, Rules and the notifications issued there under.

3. Applicant requested advance ruling on whether GST is applicable on the revenue paid to them by their principals outside India.

4. The contentions of the applicant:

4.1. The applicant submits that they are representing foreign companies-Ektrontek- Taiwan, H.W.Wallace Co.- England, Alfa Mirage- Japan and Barwell-England for promoting their products used in tyre and rubber industry in the markets of India and Srilanka. In addition to the promotion of the products supplied by the foreign companies, the applicant provides installation and subsequent services based on the pre-agreement between them. The applicant requested clarification on liability of tax under the cases of providing promotion and subsequent services of products, supplied by the foreign principal companies to the customers in India and Srilanka.

4.2. The applicant submits that, in the first case, they are promoting the principal’s products in Indian market and provides connected services such as sending quotations, customer visits, team discussions, technical clarification of the products with companies associated with tyre and rubber industry. Customer companies directly place orders to the foreign suppliers and make payment in respective foreign currencies. Based on the purchase orders, the foreign suppliers directly dispatch the product to the customers and the applicant has no involvement in such procedures. After the arrival of the product, the applicant’s engineer visits the customer premises and installs the machines. As per the pre-agreement, the foreign supplier pays 10% of the sale value to the applicant in the form of sales commission and an additional 10% for performing the services such as installation and commissioning of the product along with warranty claim services.

4.3. The applicant submits that these services are actually supplied by them to their principals outside India. The foreign suppliers make payment for these services in foreign currency to the applicant’s bank account. The applicant interprets these transactions to be considered as export services to the supplier outside India and hence no GST liability on the same.

4.4. In the second case, the same activity takes place in Srilanka. Products are supplied to customer companies in Srilanka and the applicants engineer’s installs the machines at the premises of the customers. As done in India, here also, the applicant provides services such as promoting the foreign suppliers product by liasioning with customers, sending quotations, customer visits, team discussions, technical clarification, etc. Based on such discussions, the customers directly place purchase orders to the foreign suppliers and make payments in respective foreign currencies. Foreign supplier dispatches the products directly to the customers and the applicant’s engineers visit the customer premises and install the same. Here also, the applicant gets sales commission as well as installation and warranty claim services commission at the same rate as in India, previously agreed through mutual agreement.

4.5. The applicant submits that, in this case, their principal suppliers pay commission to the applicant in foreign currency for sales and installation activities done in a place outside India through their authorised engineers. The service provider and recipient are located outside India and hence these transaction to be considered as export services to the customer from India.

5. Comments of the Jurisdictional Officer:

The application was forwarded to the Superintendent, Central GST and Central Excise, Kazhakootam Range as per provisions of Section 98(1) of the CGST Act. The officer submitted that the services provided by the applicant under agreements to various foreign suppliers are in the nature of “intermediary services” and that the services provided by the applicant in both cases cannot be treated as export of services as defined in Section 2(6) of the IGST Act, 2017 for the reason that the condition (iii) in the definition that” the place of supply of service is outside India” is not satisfied as in terms of Section 13(8)(b)of the IGST Act, 2017. Therefore the place of supply of services provided by the applicant to the customers in India and Srilanka for the foreign suppliers is to be treated as the location of the supplier of services. The Officer also reported that there are no pending or decided proceedings against the applicant under any provisions of CGST/SGST/IGST Act.

6. Personal Hearing:

The applicant was granted an opportunity for a personal hearing on 16.01.2024. Shri. Ramamoorthy S, Managing Partner represented the applicant in the personal hearing. The representative reiterated the contentions made in the application and requested to issue a ruling based on the submissions in the application and filed at the time of hearing.

7. Discussion and Findings:

7.1. The facts of the application and the contentions of the applicant are detailed above. The question is whether GST is applicable on the revenue paid to the their principals outside India. From the application, it is seen that they earn their revenue from two different activities. The first set of activities includes canvassing the customers, promoting, liasioning, providing technical clarifications etc. for and on behalf of the foreign principal. Such activities are carried out by them at India and Sri Lanka. This is done on the basis of pre-agreed terms with the principal who is outside India, for which the applicant is paid in foreign currency. In this regard, we are of the opinion that the applicant is a person who arranges or facilitates the supply of goods or services or both, and is not a person who directly supplies such goods or services or both. Such a service squarely fall within the ambit of ‘Intermediary Services’ as defined under Section 2 (13) of the IGST Act, 2017, according to which “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. As per the copy of agreement between the principal and the applicant, it is seen that the applicant is appointed as an agent to act as the sole representative of the principal and further that the applicant shall act as the intermediary between the principal and the customers. Therefore, in this regard, we are of the opinion that the applicant provides ‘intermediary services’ to the principal as defined in Section 2 (13) of the IGST Act, 2017.

7.2. The second activity carried out by the applicant is that of installation of machinery/goods supplied by the principal to various customers in India and Sri Lanka. For such installation work, the applicant claims that they are separately paid by the principal. We are of the opinion that this is a service classifiable under Service Code Heading 9987 [Maintenance, repair and installation (except construction) services]. The activity involved is to install the machinery supplied by the overseas principal to customs in India and Sri Lanka, on behalf of the principal.

7.3. As per Section 2 (6) of the IGST Act, 2017, Export of services means the supply of any services 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 [or in Indian rupees wherever permitted by the Reserve Bank of India]; 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; 7.4. In the instant case, there is no doubt that the supplier of service, i.e., the applicant, is located in India and secondly, that the recipients of service, i.e., the principal abroad, is located outside India. As claimed, the payment is received by the service provider in foreign currency and condition (v) above is also not in question.

7.5. The next question to be determined is whether the ‘place of supply’ of service is outside India or not. This is to be determined in accordance with Section 13 of the IGST Act, 2017. As per Section 13 (2) of the IGST Act, 2017, the place of supply of services except the services specified in sub-sections (3) to (13) therein shall be the location of the recipient of services. Since the location of service recipient is outside India, the place of provision shall be outside India if they do not fall within sub-Section (3) to (13). Now let us look at sub-section (3) to (13). In this regard, as per Section 13-

(8) The place of supply of the following services shall be the location of the supplier of services, namely:-

(a)…

(b) intermediary services;

(c)…

7.6. Therefore, for intermediary services, the place of supply of the services shall be the location of the supplier of services. The location of the supplier of service means the location of the applicant, which is in India. Therefore, the place of supply is India and the ‘intermediary service’ provided by the applicant cannot be treated as export, irrespective of whether the service is provided in India or Sri Lanka. There is no GST exemption to this service when provided in India.

7.7 However, when both the supplier of goods and recipient of goods are outside India i.e, outside the taxable territory the situation is covered by exemption Notification No 20/2019-Integrated Tax (Rate) dated 30-09-2019, which exempts “Services provided by an intermediary when location of both supplier and recipient of goods is outside the taxable territory”. However, this is only an exemption from payment of GST and does not qualify the service to be treated as export of service. Further, this is subject to conditions specified in column (5) of the notification against entry 12AA.

7.8. Now let us discuss whether the installation service provided by them merits to be treated as export. As discussed, this falls under Service Code Heading 9987. To render such service, the goods are to be made physically available. As per Section 13 of the IGST Act, 2017, (3) The place of supply of the following services shall be the location where the services are actually performed, namely:-

(a) Services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services:

7.9. Therefore, when the machines are installed in India, the activity does not constitute export since the machine has to be made physically available in India and therefore, the place of provision of service is in India. However, when the machines are installed in Sri Lanka, the place of provision is outside India and this particular situation; the supply would tantamount to export and same would be done either on payment of IGST or without IGST on the strength of a letter of undertaking. However, in cases where applicant receives the consideration in Indian currency, or if the applicant and the recipient of service are merely establishments of a distinct person in accordance with Explanation 1 in section 8 of the IGST Act, the same will not amount to export.

7.10. The above discussions are summed up in the following table.

Given the observations stated above, the following rulings are issued;

RULING

Question No. 1. Whether GST applicable on the revenue paid to the applicant by their principals outside India?

RULING: It is found that the revenue is earned on different services provided in different situations and needs to be answered separately. GST is applicable on the intermediary services provided by the applicant in India and Sri Lanka. However, the intermediary service rendered in Sri Lanka stands exempt under Notification No 20/2019- Integrated Tax (Rate) dated 30-09-2019 subject to conditions of the notification. If those conditions are satisfied by the applicant, they would stand eligible for the same.

The installation service provided by the applicant in India is taxable.

The installation services done by the applicant in Sri Lanka merit to be treated as an export of service, subject to satisfaction of all the conditions laid down in section 2 (6) of the IGST Act for it to be treated so.