In re Ansys Software Private Limited (GST AAR Karnataka)
a) Whether Marketing & Pre-Sales Technical Support Services provided by the applicant will be classified as Intermediary services in terms of Section 2(13) of the Integrated Goods and Services Tax Act, 2017?
The Marketing and Pre-sales Technical Support Services provided by the applicant will be classified as Intermediary services in terms of Section 2(13) of the Integrated Goods and Services Tax Act, 2017
b) Whether the Post- Sales Technical Support Services provided by the applicant would be classified as Information Technology Support Services falling under HSN Code 998313?
The Post-Sales Technical Support Services provided by the applicant is classified as Information Technology Support Services falling under Service Code 998313.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, KARNATAKA
ORDER UNDER SECTION 98(4) OF THE CENTRAL GOODS & SERVICES
TAX ACT, 2017 AND UNDER 98(4) OF THE KARNATAKA GOODS &
SERVICES TAX ACT, 2017
M/s ANSYS Software Pvt. Ltd., (called as the ‘Applicant’ hereinafter), having GSTIN number 29AADCA1658E1ZT, have filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 86 KGST Act 2017 read with Rule 104 of CGST Rules 2017 86 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 Private Limited Company and is registered under the Goods and Services Act, 2017. The applicant has sought advance ruling in respect of the following question:
a) Whether Marketing & Pre-Sales Technical Support Services provided by the applicant will be classified as Intermediary services in terms of Section 2(13) of the Integrated Goods and Services Tax Act, 2017?
b) Whether the Post- Sales Technical Support Services provided by the applicant would be classified as Information Technology Support Services falling under HSN Code 998313?
The applicant states that the provisions of both the CGST Act and the KGST Act are the same except for certain provisions, and thus, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the KGST Act. For the purposes of this application, a reference to such a similar provision under the CGST Act and / or KGST Act would be referred to as being under the “GST Law”.
3. The applicant furnishes some facts relevant to the stated activity:
a. The applicant states that he is a private limited company with its registered office situated at Plot No.34/1. Rajiv Gandhi Infotech Park, MIDC, Hinjewadi, Pune – 411057, Maharashtra. ANSYS India is a wholly owned subsidiary of M/s ANSYS Inc., US (hereinafter referred to as “Ansys US” or the “Parent Company”). The Parent Company has subsidiaries in various parts of the globe. (Ansys US referred hereafter may be construed to include such subsidiary companies of ANSYS Inc. as well). ANSYS India has business premises across India including in Bangalore in Karnataka, Noida in Uttar Pradesh, Chennai in Tamil Nadu, Pune and Mumbai in Maharashtra, Hyderabad in Telangana and Kolkata in West Bengala. Ansys India is registered under GST Law and their GSTIN is 29AADCA1658E1ZT for Bangalore place of business.
b. ANSYS India, inter alia, is engaged in the business of distribution of Ansys Software in India, the proprietary ownership of which lies with Ansys US. Ansys Software is an engineering simulation software used by engineers and designers across a broad spectrum of industries including aerospace, automotive, manufacturing, nuclear, electronics and biomedical. As a distributor, Ansys India resells the “right / license to use” Ansys Software to customers in India. Towards this, Ansys India pays GST at the applicable rate.
c. In some cases, the customer may place an order for purchase of right / license to use Ansys Software directly on Ansys US owing to commercial considerations on Customer’s side. In such cases, Ansys US directly issues an invoice on the customer in India for sale of right / license to use Ansys Software and the customer directly pays the invoice value to Ansys US.
d. In such cases, Ansys US engages Ansys India for providing Marketing and Pre-Sales Technical Support Services. Further, by means of a separate arrangement, Ansys US also engages Ansys India for providing Technical Support Services, once the right / license to use Ansys Software is sold to the Indian Customers by Ansys US. The agreements also provide for remunerating Ansys India for the services rendered.
e. Regarding the Marketing and Pre-Sales Technical Support Services, the applicant states that in case of direct orders placed by Indian Customers on Ansys US, Ansys India is engaged to provide marketing and pre-sales technical support services. Typically, the direct orders can be of two types:
i. Where the customer is identified by Ansys India and due to commercial considerations, the customer desires to place order directly on Ansys US.
ii. Where the global counterpart of a customer directly contracts with Ansys US for purchase of Ansys Software for their entire group companies across the world including India. Such orders are typically referred to as “Global Orders”, where the customer places Order on Ansys US, but Ansys India provides Marketing and Pre-Sales Technical Support Services in India.
4. Under the Marketing and Pre-Sales Technical Support Services, in both the above cases, Ansys India undertakes the following functions:
(a) Ansys India understands the customer’s requirements and through discussions, presentations, demonstrations, benchmarks, and evaluations, Ansys India showcases solutions using Ansys Software to the customer. This helps the customer to understand the functionality of Ansys Software, how it is relevant for their needs in terms of automated solutions, reduced response and turnaround time and cost savings in developing a new product and thereby helps the customer in decision making process;
(b) Ansys India also explores new business opportunities with existing customers by conducting best practice sessions, technology days and discussions with the customers;
(c) Once the order is placed by the customer on Ansys US, Ansys India also co-ordinates with the customer and Ansys US for signing of software licence agreement and other related documentation.
(d) Ansys India also helps in follow up for collection of invoice value from the customer. However, it is important to note that the collection risk rests with Ansys US only;
Thus, in both cases of direct orders, Ansys India exports marketing and pre-sales technical support services to Ansys US for which it receives a consideration from Ansys US which is fixed as a percentage of the Sales Order value of the respective Indian Customer or as per any basis or mechanism which may be mutually agreed.
5. Regarding the Post-Sales Technical Support Services, the applicant states that when a customer in India directly buys right / licence to use Ansys Software from Ansys US under both the arrangements as explained above in para above, he is also entitled to technical enhancement and customer support services (TECS) for a specified period. Under TECS, the customer typically gets the following:
(a) Upgrades or new versions of Ansys Software that may be released during the specified period; and
(b) 24*7 customer support for any trouble shooting or technical support that he may need in using Ansys Software.
5.1 Upgrades or new versions of Ansys Software as aforesaid are provided directly by Ansys US to customers. However, Ansys US has engaged Ansys India for providing 24*7 customer support, the need for which would arise after the sale of Ansys Software.
5.2 The applicant states that in this regard, Ansys India has employed a competent customer team to provide 24*7 customer support. Whenever customer has any troubleshooting or technical query, they would contact either a designated telephone number or an e-mail ID of the customer support team.
5.3 The nature of Post-Sales Technical Support Services that Ansys India provides is as follows:
(a) Support through e-mail:- Whenever customer has any troubleshooting or technical query in using Ansys Software, he may send an e-mail to the designated email id of the customer support team. In such case, the customer support team would respond over e-mail and guide the customer technically on the steps to follow for resolution of his query;
(b) Telephonic support:- Similarly, customer support team provides technical support over telephone and helps the customer to resolve his technical queries on the usage of Ansys Software;
(c) Web Support:- It may so happen that the customer’s technical query could not be resolved over telephone or e-mail support – may be due to gap in the understanding on either side. In such cases, the customer support team of Ansys India may resolve the technical query by resorting to web support. Under Web-Support, the customer support team schedules a Webex meeting (interactive audiovisual computer based meeting) to better understand the customer’s technical query or to better explain the resolution methodology to the customer. During the Webex meeting, the customer may share computer screen with the Ansys Technical Support team for effective resolution of their technical query.
The customer is entitled to TECS for a specified period and it is the responsibility of Ansys US to support the customer for any troubleshooting or technical support that he may need in using Ansys Software. For providing this customer support, Ansys US has engaged Ansys India. It is pertinent to note here that, there is privity of contract between Ansys India and Ansys US and not between Ansys India and customers of Ansys US. Thus, even though the customers of Ansys US are “users” of Post-Sales Technical Support Services, they are not recipients of such services. “Recipient” in the present case is Ansys US in respect of Post-Sales Technical Support Services provided by Ansys India. To further corroborate this point, the applicant submits that, Ansys India is remunerated by Ansys US and this remuneration is fixed as a percentage of sales order value for the respective customer or is on the basis or mechanism which may be mutually agreed. For this post-sales technical support services, Ansys India would issue a separate invoice on Ansys US.
5.4 The applicant also states that after the specified TECS period is over, such customers may also place renewal orders on Ansys US for extended TECS period. By doing this, customers are entitled for updates / new releases of Ansys Software as well as 24*7 customer support as explained above during this extended TECS period. For the purpose of discussion and in the context of this application, such orders are herein after referred to as “TECS renewals”. The Marketing, Pre-Sales Technical Support Services, as well as Post Sales Technical Support Services that would be provided by Ansys India to Ansys US in case of Direct Orders, would also be provided in case of TECS renewals.
5.5 The applicant submits that presently, the Marketing, Pre-Sales Technical Support Services and Post-Sales Technical Support Services are carried out by Ansys India under a single contract with Ansys US.
5.6 In the past year, however, amalgamations and additions of new lines of business have led to a burgeoning customer base. Consequently, in order to face customer requests and ensure timely response, the applicant has been put in a situation wherein post sale technical support will be provided by a specially skilled team and will not be mix-up with Marketing and Pre-sales. Consequently, the two new teams can be identified as under:
(a) Team which will provide Marketing and Pre-Sales Technical Support Services; and
(b) Team which will be providing Post-Sales Technical Support Services.
In this behalf, Ansys India is in the process of entering into two separate agreements with Ansys US –
(a) one for Marketing and Pre-Sales Technical Support Services where the consideration will be based on a fixed percentage of the Sales Order Value of the respective customer on the orders where Ansys India provided Marketing and Pre-Sales technical support services to Ansys US or is on the nasis or mechanism which may be mutually agreed.
(b) Other for providing Post Sales Technical Support Services where the consideration from Ansys US will be a fixed percentage of the Sales Order value of the respective customer where Ansys India provided Post Sales Technical Support Services or will be on a basis or mechanism which may be mutually agreed.
Accordingly, Ansys India would be remunerated separately by Ansys US for each of the above referred activities distinctly. In this context, the applicant states that it is important to note that the agreements will be mutually exclusive and it is not necessary that post-sales technical support will necessarily flow as a result of Marketing and Pre-Sales Technical Support.
6. Regarding the legal issues in relation to Marketing and Pre-Sales technical support services, in order to classify the said services, the applicant refers to the definition of “Intermediary” which has been defined under Section 2(13) of the IGST Act, 2017 as under:
“13. “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.”
The applicant states that on bare reading of the above definition, one may infer that intermediary is the one who arranges or facilitates supply of goods or services but does not supply such goods or services on his own account. This, the service provided by intermediary involves two supplies –
(i) Supply of goods or services by the supplier to his customer (we may refer this as “main supply”); and
(ii) Services of the intermediary of arranging or facilitating the “main supply”.
6.1 The applicant discusses the dictionary meaning of the terms “arrange” and “facilitate” and states as under:
The Merriam-Webster Dictionary defines the term “arrange” as:
(a) To put into a proper order or into a correct or suitable sequence, relationship, or adjustment;
(b) To make preparations for; and
(c) To bring about an agreement or understanding.
The Dictionary meaning of the term “facilitate” is “to make easier”
If we read the dictionary meanings of the terms of “arrange” and “facilitate” into the definition of intermediary, then the applicant is of the view that the intermediary is one who makes the preparations for main supply or who makes the provision of main supply easier or who brings about an agreement or understanding between the supplier and customer as regards main supply. Thus, the intermediary is a connecting link between the supplier and customer, who helps the supplier to provide his supply to the customer and / or helps the customer to receive supply from the supplier.
6.2 In the present case, the applicant states that in case of direct orders placed by Indian customers on Ansys US or Global Orders where the customer in India uses Ansys Software as well as in case of TECS renewals, Ansys India provides Marketing and Pre-Sales Technical Support Services to Ansys US. Under this activity, Ansys India helps the customer to understand the functionality of Ansys Software, how it is relevant for customer’s needs in terms of automated solutions, reduced response and turnaround time and cost savings in developing a new product.
6.3 Ansys India makes it easier for the potential customer to make an objective and informed decision of buying Ansys Software and Ansys US. Thereby, Ansys India creates a platform for Ansys US to sell Ansys Software to Indian customers. However, Ansys India in such cases does not sell Ansys Software on its own account. Ansys India merely acts as a facilitator or arranger in the sale of Ansys Software by Ansys US to Indian customers.
6.4 Having regard to the above, the applicant is of the view that they would be regarded as “intermediary” in terms of Section 2(13) of the IGST Act, 2017, as regards provision of Marketing and Pre-Sales Technical Support Services.
6.5 Having regard to the above, the applicant is of the view that HSN Code applicable for Pre-Sales Technical Support Services, in the capacity of intermediary, under Notification No.11/2017 (Rate) dated 28th June, 2017, would be as per the table below:
