In re New Space India Limited (GST AAR Karnataka)
1) Whether Leasing of Satellite Transponder which is covered under SAC Code 997319 be charged at 5% GST as per HSN Code 8803 – Parts Goods of Heading 8802 (Satellites)?
The service of Leasing of Satellite Transponders, covered under SAC 9973 19, falls under the Entry No. 17 (viii) of Notification No. 8/2017 -Integrated Tax (Rate) dated 28th June 2017, as amended, and is taxable to GST at the rate of 5% IGST (i.e. 2.5% of CGST and 2.5% of KGST), as applicable on the supply of like goods (transponder – part of communication satellite) involving the transfer of title in goods, covered under 8803 90 00, in terms of Entry no. 245 of the Schedule I of the Notification No. 1 / 2017 – Integrated Tax (Rate) dated 28th June, 2017, as amended.
2) Whether the applicant can levy GST @5% for Leasing of Satellite Transponder Services which is covered under SAC 997319 as per HSN Code 8803-parts goods of Heading 8802 (Satellites) from the date of commencement of the service-Leasing of Satellite Transponder?
The applicant cannot levy GST @ 5% for Leasing of Satellite Transponder Services covered under SAC 997319, as per HSN Code 8803-parts goods of Heading 8802 (Satellites), from the date of commencement of the said service that has already been provided, if tax (GST) is already charged & collected under any invoice. Any excess collection of tax needs to be paid to the Government within the specified time and the mistake shall only be corrected through a debit note-credit note mechanism, if applicable and subject to such conditions and within such time as specified in section 34 of the CGST Act.
FULL TEXT OF ORDER OF BEFORE THE AUTHORITY OF ADVANCE RULING, KARNATAKA
ORDER UNDER SUB-SECTION (4) OF SECTION 98 OF CENTRAL GOODS AND SERVICES TAX ACT. 2017 AND UNDER SUB-SECTION (41 OF SECTION 98 OF KARNATAKA GOODS AND SERVICES TAX ACT. 2017
1. M/s New Space India Limited, Room No. F01, HSFC Building, New BEL Road, ISRO Head Quarters, Bengaluru – 560094, Karnataka having GSTIN number 29AAGCN4411P1Z1, have filed an application for Advance Ruling under Section 97 of CGST Act 2017 & KGST Act 2017 read with Rule 104 of CGST Rules 2017 & KGST Rules 2017, in form GST ARA-01 discharging the fee of Rs.5,000/- each under the CGST Act and the KGST Act.
2. The Applicant is a Limited Company and is registered under the Goods and Services Act, 2017. They are into the business of Leasing of Satellite Transponders and sought advance ruling in respect of the following questions:
1) Whether Leasing of Satellite Transponder which is covered under SAC Code 997319 be charged at 5% GST as per HSN Code 8803 – Parts Goods of Heading 8802 (Satellites)?
2) Whether the applicant can levy GST @5% for Leasing of Satellite Transponder Services which is covered under SAC 997319 as per HSN Code 8803-parts goods of Heading 8802 (Satellites) from the date of commencement of the service-Leasing of Satellite Transponder?
3) The applicant furnishes the following facts relevant to the stated activity:
a. The applicant stated that they are a commercial arm of Indian Space Research Organisation (ISRO) and are a Government of India company (CPSE) under the administrative control of the Department of Space (DOS). They entered into an agreement MOU with DOS, inter alia, for leasing of Satellite Transponder capacity to service providers, as part of the mandate to carry out production and marketing of space based services.
b. The applicant enables satellite communication service providers with necessary transponder capacity on INSAT/GSAT fleet in C, Ext C, Ku and Ka-Ku bands to Indian users for Television Broadcasting (TV), Direct to Home (DTH), Digital Satellite News Gathering (DSNG), Very Small Aperture Terminal (VSAT) and Telephony services. They also acquire the transponders from foreign satellite operators on lease and provide the leasing services of the same to the service providers.
c. A communication satellite has the following basis parts :
i. Satellite Housing – This is the outside container of the satellite
ii. Power System – This consists of Solar Panels as well as Batteries to power the satellite.
iii. Antenna System – This is to receive signals to make the satellite’s operation in orbit.
iv. Command and control system – This monitors the satellite to ensure that all vital operating parameters are working.
v. Transponders – Electronic systems that amplify the frequency of an uplink signal for retransmission to earth.
d. A communication satellite can not be without any of the aforesaid parts. There will not be utility for such an equipment without Transponders, which receive the frequency of uplink signals, amplifies them and retransmit the same to the earth in a downlink frequency. The following two examples showcase the utility of Transponders.
1. The TV programmes which are seen through DTH (Airtel TV, Dish TV, Tatasky etc.,) are first uplinked to a Transponder from earth and then downlinked to respective antennas at home. Uplinking and downlinking of the signals is not possible without the Transponders.
2. Financial Transactions through ATMs use satellite network system at the backend. Withdrawal requests through ATM travel from ATM to HUB via satellite link. Further the HUB sends the said requests to respective bank & branch to process the transaction and update the bank account statement.
4. Applicant’s understanding of the law :
The applicant submits, as per their understanding, that Leasing of Transponders is covered under SAC 997319, which covers “Leasing or rental services concerning other machinery and equipment with or without operator”; the applicable GST rate, in terms of Notification No. 8/2017-Integrated Tax (Rate) dated 28.06.2017, as amended, under entry No. 17, in respect of the services with SAC 9973 and with description “(viii) Leasing or rental services, with or without operator, other than (i), (ii), (iii), (iv), (v), (vi) and (vii) above” is “same rate of Integrated Tax as applicable on supply of like goods involving transfer of title in goods”; Transponder is a part of Satellite, falling under Chapter Heading 8803 as “Parts of goods of Heading 8802 Satellites”; Goods of Heading 8802 60 00 i.e. Spacecraft (including satellite) and suborbital and spacecraft launch vehicles are charged at Nil rate of Tax (GST) vide SI.No. 140 of Notification No. 2/2017-Integrated Tax (Rate) dated 28.06.2017, as amended till date; Parts of goods of Heading 8802, falling under Heading 8803 i.e. Transponder, is charged at 5% IGST under SI.No.245 of Schedule I to Notification No. 1/2017-Integrated Tax(Rate) dated 28.06.2017, as amended.
PERSONAL HEARING: / PROCEEDINGS HELD ON 10.03.2020.
5. Sri Radha Krishnan D, Director and duly authorised representative of the applicant appeared for personal hearing proceedings held on 10.03.2020 & reiterated the facts narrated in their application and also made the following written submissions inter alia stating that:
5.1 The Applicant, New Space India Limited in short ‘NSIL’ has been incorporated on 05/03/2019 under the provisions of Companies Act 2013 as a wholly owned Government of India undertaking/ Central Public Sector Enterprise (CPSE), under the administrative control of the Department of Space (DOS).
5.2 THE VISION AND MISSION OF NSIL:
VISION
“Excel in providing space related products and services emanating from Indian Space Programme to global customers and to further spur the growth of Indian Industry in undertaking technologically challenging space related activities”
MISSION
Enabling Indian Industries to scale up high-technology manufacturing base for space programme through technology transfer mechanisms, catering to emerging global commercial small satellite launch service market, satellite services for various domestic and international application needs and enabling space technology spin-offs for betterment of mankind through industry interface. “
5.3 A) MANDATE OF NSIL
NSIL has the primary mandate of commercially exploiting the Research and Development (R&D) activity(ies) carried out by ISRO, in the area of space and also enable production of space systems through Indian Industry. Some of major activities involved are related to viz.,
i. Small Satellite technology transfer to industry wherein NSIL will obtain license from DOS/ISRO and sub-license it to industries.
ii. Manufacture of Small Satellite Launch Vehicle (SSLV) in collaboration with Private Sector.
iii. Production of Polar Satellite Launch Vehicle (PSLV) through Indian Industry.
iv. Production and marketing of Space based services, including launch and application.
v. Transfer of technology developed by ISRO Centres and constituent institutions of DOS.
vi. Marketing spin-off technologies and products / services.
vii. Any other subject which Government of India deems fit.
B) TRANSPONDER LEASING SERVICES
NSIL has been mandated with Production and marketing of Space based services, including launch and applications. As a part of marketing of space based services, NSIL has entered into an MOU with Department of Space (DOS), for management of commercial relationship with respect to SATCOM services (MOU No. DOS/ NSIL/ MOU/ 2019 signed on 13 June 2019 enclosed as Annexure -1)
As per MOU, Satellite Communication Program Office (SATCOM PO), on behalf of DOS, allocates satellite transponders/ space segment capacity to various customers and enters into an agreement/MOU with the Customers in this regard. In this agreement/ MOU, NSIL is designated as “Contract Manager” and is vested with the rights and powers to administer the agreements/ MOUs in its entirety. Towards this, NSIL carries out activities related to interfacing with customers and SATCOM-PO for formulating and finalizing the Agreements, amendments, securing caution deposits and bank guarantees, invoice raising and payment receipts. Provisioning of space segment capacity on a transponder from a satellite to user, involves leasing of transponder capacity to the user for a specific period of time for his use. For ease of understanding, this activity could be considered analogous to leasing out a Flat to a tenant, wherein the owner (in case of transponder it is DOS/NSIL) lets out the flat (equivalent of transponder) and the tenant (transponder capacity user) utilizes the flat ( transponder capacity) for his purpose for a specific period of time.
Following relevant clauses of the agreement indicating provisioning of space segment capacity as leasing of transponder capacity is indicated below for reference (Copy of agreement enclosed as Annexure-2).
I. Article 2, Transponder capacity of the Agreement –It states that DOS provides certain bandwidth capacity on a satellite (part of INSAT/GSAT system) to the user and this space segment capacity is known as transponder capacity. Both the term, space segment capacity and transponder capacity are used interchangeably.
II. Article 5, Operational Requirements of the Agreement – It reflects that the ownership of satellite rests with DOS, GOI and only the transponder capacity is made available to the user to meet their requirements. Hence only transponder capacity is leased to the customer. The rights over transponder, satellite and orbital resource rests with DOS/GOI.
III. Frequency Allotment Letter – For example, DOS, vide letter no. SATCOM PO/F.631/157 dated February 12,2020 allotted 3 MHz C band capacity on Transponder No. CIO of GSAT-10 satellite. (A copy of frequency allotment letter attached as Annexure-3). The customer will be entitled to utilize this 3 MHz bandwidth for their up-linking and down linking of carriers and will pay a fixed charge for the same on a periodical basis. Once the agreement ends, the said leased capacity will automatically come back to DOS and will be further available for leasing to other users for which separate allotment and agreement will be entered into.
IV. Few other relevant Definitions:
a) INSAT/GSAT System (Annexure 1, Definitions (8)) – INSAT/GSAT System means the system built and operated by ISRO/DOS at a given orbital location and satellite capacity leased by ISRO/DOS with Government approvals.
b) Space Segment Capacity (Annexure 1, Definitions (16)) – ‘Space Segment Capacity’ or Transponder Capacity’ or ‘capacity’ means any of the radio frequency transmission channels on the Serving Satellite through which DOS shall provide the Capacity to the user. The term Space Segment Capacity and Transponder Capacity are same and are often used interchangeably. Generally, each transponder of INSAT/GSAT Satellite(s) has 36 MHz of bandwidth capacity. Based on the application and usage, customer demands for particular bandwidth capacity in the transponder of a satellite. This bandwidth capacity gets used by the customer for uplink and downlink purposes.
C) PARTS OF COMMUNICATION SATELLITE
A Communication Satellite has the following basic parts:
i) Satellite Bus:
a. Satellite Structure: This is the mechanical structure of the satellite on which various satellite sub-systems are integrated.
b. Power System – This consist of Solar Panels as well as Batteries to power the satellite.
c. Antenna System – This is to receive / transmit signals between earth stations.
d. Command and Control System – This monitors the Satellite to ensure that all vital operating parameters are working.
e. Thermal System – This protects the satellite and its sub-system from external environment.
f. Propulsion System – This is used for station keeping and orbit correction, to ensure that the satellite stays in its orbit.
ii) Satellite Payload:
The payload of a communication satellite is Transponders. Transponder is an electronic part of the satellite that receives the signal at a particular frequency, amplifies it and transmits it back to earth. The transponder has the following parts
i. Band Pass Filters
ii. Low Noise Amplifier
iii. Mixer and Oscillator
iv. High Power Amplifier
a. The Band Pass Filter is a device that passes frequencies within a certain range and rejects (attenuates) frequencies outside that range.
b. Low Noise Amplifier: – An electronic amplifier that amplifies a very low power signal without significantly degrading its signal-to-noise ratio. In general, an amplifier increases the power of both the signal and the noise present at its input. LNAs are designed to minimize additional noise.
c. Mixer: – An electronic system which converts the input frequencies to output frequencies with the help of oscillator frequency so as to avoid interference between uplink and downlink signals.
d. High Power Amplifier: – An electronic amplifier that increases the power of a downlink signal to compensate the transmission losses so that user terminal receives sufficient signal strength to function adequately.
A Communication Satellite cannot be without any of the aforesaid parts and there will not be any utility for satellite without transponders.
In a Communication satellite, transponder is the satellite part through which various application services like TV Broadcasting services, Digital Signal Network Gathering (DSNG)services, Direct to Home (DTH) broadcast services, Very Small Armature Terminal (VSAT) for closed network communication services, Telephony, etc., are rendered to the users. Rest of the satellite systems, as detailed under Satellite Bus are the supporting systems for proper functioning of transponders.
D) TAXABILITY OF LEASE OF TRANSPONDERS UNDER GST ACT.
The Applicant submits that in their understanding, leasing of transponders are covered under the SAC Code 997319 – “Leasing or rental services concerning other machinery and equipment’s with or without operator”. The rate of GST applicable is covered vide Notification No. 8/2017 – Integrated Tax (Rate) dated 28/06/2017 as amended till date under the following entry.
