In re AVEVA Software Pvt ltd (GST AAR Tamilnadu)
1. Whether GST is applicable on sub-licensing of the software by the applicant to end-users in India? If yes, then what shall be the value of supply?
The activity performed by the Applicant i.e. sub-licensing of the software by the Applicant to end-users in India would squarely fall under ‘Supply of goods’, and GST shall be applicable on the same in terms of Section 9 of CGST Act, 2017 and the taxable value will be the actual transaction value which the Applicant has charged the end user for sub licensing the software.
2. Whether GST is applicable on the ‘Market Support fees’ received by the applicant from Central Hub?
The amount received from the Central Hub in the form of Market support fees by the Local Operating Entity(the Applicant) is an additional consideration charged towards the supply in this case which will form part of the value of supply as per the provisions of section 15 of the GST Act.
3.Whether the taxable value for the operating fees paid to Central Hub by the applicant pursuant to the said arrangement shall be determined as per Rule 28 of the Tax Valuation Rules prescribed in CGST Rules 2017?
The taxable value for the Operating Fees paid to Central Hub by the Applicant pursuant to the said arrangement shall be determined as per Rule 28 of the Tax Valuation Rules prescribed in CGST Rules 2017.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, TAMILNADU
M/s. AVEVA Software Private Limited, Smart work coworking spaces Pvt Ltd, Block 3, A3 and A4, North Phase, Guindy Industrial Estate, Guindy, Chennai, Tamilnadu-600032 (hereinafter called the Applicant) are registered under GST with GSTIN33AAHCS3154M1Z6. The applicant has sought Advance Ruling on the following questions:-
1. Whether GST is applicable on sub-licensing of the software by the applicant to end-users in India? If yes, then what shall be the value of supply?
2. Whether GST is applicable on the ‘Market Support fees’ received by the applicant from Central Hub?
3. Whether the taxable value for the operating fees paid to Central Hub by the applicant pursuant to the said arrangement shall be determined as per Rule 28 of the Tax Valuation Rules prescribed in CGST Rules 2017?
The Applicant has submitted the copy of application in Form GST ARA – 01 and also submitted a copy of Challan evidencing payment of application fees of Rs.5,000/- each under sub-rule (1) of Rule 104 of CGST rules 2017 and SGST Rules 2017.
2.1 The Applicant has stated that they are a subsidiary of AVEVA Plc, which is a multi-national company, having its headquarters at United Kingdom. AVEVA Plc is a global ultimate parent company of the Applicant and is engaged in providing engineering design and information management solutions services in addition to specialized technology consulting services to its clients in the Oil & Gas, Power, Marine, Pulp & Paper, Chemical and Mining industries. The Applicant has stated that they are having office in Chennai, Tamil Nadu. AVEVA Plc and the applicant are the members of the AVEVA Group. Further, Central Hub being located outside India is the IP owner within the AVEVA Group which manages and licenses the AVEVA software products. Central Hub grants licenses of software products to other entities within the AVEVA Group, to enable them to further sub-license it to the End-users on their own account. The Applicant and Central Hub has entered into an arrangement by way of an Operating Agreement(hereinafter referred to as OA), where the Applicant being a distributor undertakes sub-licensing, promotion and marketing of the software products to the End-users within the territory namely, India, Sri Lanka, Bangladesh, Nepal and Maldives (hereinafter referred to as ‘Territory’). In pursuant to the said arrangement, Central Hub has appointed the Applicant as a non-exclusive distributor of software products by granting a nor exclusive right to sub-license the software products. Further, the applicant provides implementation services relating to sub-licensing of software to the End-users, upon specific request. It also promotes and markets the software products to the End-users. The Applicant provides all the services in its own name and for its own account within the territory. The Applicant acts as an authorized distributor of Central Hub while sub-licensing the software products. It has been agreed between the two parties that the Applicant does not represent itself as an agent of the Central Hub for distribution of software products, provision of the services or for any other purpose. Therefore, the applicant has stated that there is no principal and agent in terms of the said arrangement. The Central Hub grants the rights to the Applicant, to further sub-license the software products within the identified territories, the Applicant as and when required enters into a valid and binding contractual agreement with the End-users for sub-licensing the software, in its own name. Upon receipt of executed agreement, the Applicant delivers a copy of the relevant product to the-End-.users in object code form only, along with the copy of product documentation. In other words, the Applicant sub-licenses the software by transferring the right to use, to the End-user. For the said sub-licensing, the Applicant receives the sub-licensing fees from the End-users. In consideration the rights granted by Central Hub to the Applicant to sub-license software products, an operating fee is payable on quarterly basis by the latter to the former after retaining the cost and guaranteed margin from the value of sales. Further, in case the, Applicant is unable to retain the cost and guaranteed margin as agreed under the present arrangement, the Central Hub has agreed to make a payment to ensure that the Applicant retains the guaranteed margin. Such an act of agreeing to make the payment for guaranteed margin retention is referred as market support provided by the Central Hub to the Applicant.
2.2 On interpretation of law, the applicant has submitted the following facts:
In respect of the question No. 1 the applicant’s interpretation is as below:-
> The transaction is subject to GST as it qualifies as a “Supply” in terms of Section 7 of CGST Act and the GST is leviable in terms of Section 9 of the Act. Section 7 includes supply of goods or services or both. In terms of definition of goods and services under section 2(52) and 2(53) it is seen that a activity shall qualify as supply of goods in case where any movable property is involved. In the instant case there is no movable property involved. The definition of services covers anything which does not qualify as goods. Hence, in the instant case the activity of sub-licensing software products shall qualify as “Service”.
> As per clause 5(f) of Schedule II of the CGST Act, transfer of right to use shall be treated as “Supply of Service”. In the present case, the applicant transfers the right to use software products to the end users by providing object code, which is within the ambit of Clause 5(f) of Schedule II of the Act. Hence, in terms of Section 7(1 A) of the Act, the sub-licensing of software products to end user is “Supply of service”.
> The Pre-requisite of definition of supply is “Consideration”. In the instant case the applicant receives a fee for sub-licensing software products to end -users which shall qualify as “Consideration”, Since the same is received in lieu of the services provided by applicant.
> In respect of the value of supply, as defined under section 15 of the Act, as the applicant and end users are not related persons, the amount charged by applicant for sub-licensing of software products shall be the taxable value.
Q.No.2 : Applicability of GST on the “Market Support Fee” received by applicant from Central Hub:
> The Market Support fee is to compensate the applicant, where the guaranteed profit margin is not being maintained. The activity of tolerating an act by not being able to maintain the guaranteed margin upon distribution, shall be considered as ‘supply of service’ as it is within the ambit of clause 5(e) of Schedule II of the Act.
> As the applicant and recipient are not located in the same stated the applicable GST is in terms of Section 5 of IGST Act, 2017. However, there is an exception in case where the supply of services qualifies as Zero rated Service in terms of Section 16 of IGST Act. Zero rated
