In re Airbus Group India Private Limited (GST AAR Karnataka)
Whether the activities proposed to be carried out in India by the Applicant would constitute as a supply of ‘Other professional, technical and business services’ falling under HSN code 9983 or as ‘Intermediary service’ classifiable under HSN code 9961/9962 or any other classification of services as specified under the Tariff entries of rate notification issued under Goods and Services Tax law?
We observe that the applicant is of the opinion that the activities undertaken by them are classifiable under Heading 9983 with description of ‘Other professional, technical and business services’. As per the explanatory notes to the scheme of classification of services, heading 998399 offers the same description. This heading includes specialty design services including interior design, design originals, scientific and technical consulting services, original compilation of facts/ information services, translation services, trademark services and drafting services. It is clearly evident from para 7 above and from the contract agreement that the applicant does not deal with the activities mentioned in the HSN 998399.
Also Read: AAAR Ruling : Services by ‘Airbus Group India’ are ‘Intermediary service’ & liable to GST: AAAR
Now, we proceed to examine whether the activities undertaken by the applicant can be called intermediary services. Intermediary is defined, under Section 2(13) of IGST Act, 2017, as 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. In this regard, we notice that the applicant has emphasized upon not being an agent or a broker. We notice that there can be difference between agent, broker and an intermediary. Whereas in the case of an agent or broker, activity is undertaken on another’s behalf which is not necessary in the case of an intermediary. Therefore, the reliance on principal to principal relationship or calling oneself as an independent contractor is not relevant for the purpose of determining an intermediary as per the definition. An intermediary will merely facilitate or arrange the supply of goods or services between two or more people but will not be providing such supplies on his own account. Here, the word, ‘such’ is of paramount importance. ‘Such’ goods in the present case are the raw materials supplied by the vendors to Airbus Invest SAS, France.
Applicant has also emphasized upon the principle of ejusdem generis. We understand that meaning of the phrase, ‘ …any other person, by whatever name called….’ only denotes representation, which is also a characteristic of a broker or an agent. We observed that the applicant plays an important part in identifying the vendors, making them understand the product requirement, advising and guiding them not merely on technical aspect of the product but also the ethical aspect in relation to such activities, without which, Airbus Invest SAS, France will not be able to procure the goods from the vendors. Thus the instant activity is nothing but facilitating the supplies to them from India. The applicant’s submission that the approval authority for such vendors lies with Airbus Invest SAS, France does not make a difference to the role of facilitation undertaken by the applicant. In fact, we note that this work of facilitation is understood by them as technical advisory, guidance and business support assistance concerning quality control standards, performance and safety standards of the suppliers. By doing all this, they are merely facilitating the supplies to their holding company as all these activities are directed at the vendors. We also note that it is not necessary that a commission payment is always involved in an intermediary scenario. Cost plus mark up can also be one of the ways for payment. The criterion of the nature of the payment is not part of the definition of Intermediary. Therefore, we conclude that the activities performed by the applicant are fulfilling the parameters mentioned in the definition of ‘Intermediary’ as per Section 2 (13) of IGST Act, 2017.
Whether the services rendered by the Applicant would not be liable to GST, owing to the reason that such services may qualifies as ‘export of services’ in terms of clause 6 of Section 2 of the Integrated Goods and Services Tax Act 2017 (hereinafter ‘IGST Act, 2017’) and consequently, be construed as ‘Zero rated supply’ in terms of Section 16 of the said act?
We find that Export of service is defined, under Section 2(6) of the IGST Act, 2017, as under:-
2(6)- export of services means the supply of any service 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] 2 ; 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;
The services of the applicant are covered under intermediary services, as concluded at para 17 above and hence the place of supply is India in terms of Section 13(8) of the IGST Act 2017. Thus the activities of the applicant are exigible to GST at the rate of 18% in terms of clause (iii) of entry no. 23 of Notification No. 11/2017-Central Tax ( R ) dated 28.06.2017.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING,KARNATAKA
M/s Airbus Group India Private Limited, (hereinafter referred to as ‘the Applicant‘ or ‘Airbus India‘ or ‘the Company‘), 4 & 4A, XYLEM, 4th Floor, Dyavasandra Industrial Area, Mahadevapura Post, Bengaluru – 560048, Karnataka having GSTIN 29AAGCA1513R1ZD, have filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 read with Rule 104 of CGST Rules 2017 and Section 97 of KGST Act, 2017 read with the KGST Rules 2017, in FORM GST ARA-01 discharging the fee of Rs. 5,000/- each under the CGST Act and the KGST
2. M/s Airbus Group India Private Limited was incorporated on February 6, 2007 as a Private Limited company under the provisions of erstwhile the Companies Act, 1956. The applicant provides engineering design and other technical advisory services which include marketing support, customer support services, flight maintenance training, flight operations supports, flight pilot training, etc. They also provide maintenance, repairs and overhaul services, agency services, renting of assets and trading of spares and parts of Helicopter.
3. The applicant submitted the following with regard to Overview of Airbus group operations & its global sourcing footprints.-
a) The Applicant is operating as a subsidiary of Airbus Invest SAS, France (‘Holding Company’), and its ultimate holding company is Airbus SE, Netherland. Globally, Airbus Group is an international pioneer in the aerospace industry and is a leader in designing, assembling and delivering aerospace products, services and solutions to its customers on a global scale.
b) Airbus Group has its presence worldwide and operates from over 130 nations of the World. Its manufacturing and final assembly line facilities are located in various countries such as France, Germany, Spain, United Kingdom, the United States and people’s Republic of China.
c) Airbus Group procures parts or components or services which are required for its manufacturing operations ((i.e. aerospace products and final assembly lines (i.e. Aircrafts, helicopters etc.)) are generally sourced from both domestic and international markets including Indian market, since such a sourcing strategy ensures competitive advantages to Airbus Group while ensuring the on-time and on-quality delivery of a product to the final customers as well as in providing best value to its customers.
d) For sourcing various goods and services, Airbus Group is dependent on numerous key suppliers and subcontractors to provide it with the raw materials, parts, assemblies, systems, equipment and services that it needs to manufacture its products. Over the years, its global sourcing footprints has expanded across the globe including North America, South America, Europe, Africa, Middle East, and other Asia-pacific regions including India.
e) Additionally, to promote further globalisation of its sourcing footprint, Airbus has established regional offices across multiple countries such as North America, China & East Asia and India.
4. The applicant submitted the following with regard to Airbus Group global sourcing strategy and the agreement entered with its regional entities for obtaining support services in relation to its global procurement / Sourcing strategy.-
i. As a part of its global sourcing strategy, Airbus Group has a specialised global sourcing team which is responsible for formulation and implementation of entire group sourcing strategies which in turn achieves the overall objectives of the group and making it competitive. The said global sourcing team is responsible for sourcing of the products from various International markets.
ii. Currently, the entire procurement / sourcing strategy of Airbus Group is monitored and reviewed by its group entity located in France (i.e. Airbus SAS, France). The said entity co-ordinates with its other group entities located across the globe and obtains the market intelligence, information of suppliers, supplier compliances to local laws and regulations, information of product or services and its quality standards, information on supplier production facility etc., while formulating and implementing a sourcing strategy for its entire group procurements of various goods and services.
iii. Aforesaid sourcing strategy aids Airbus Group in ensuring better economies of scale, ease of global manufacturing operations and in market competition. In line with said objectives, Airbus SAS, France (‘Airbus SAS’) has entered into an ‘Intra-Group Services Level Agreement’ with Airbus India. The copy of the said agreement is enclosed as Annexure 1 to this application.
iv. Under the said agreement, Airbus India would primarily assist Airbus SAS by carrying out certain support functions / activities in relation to its global procurement strategy which includes carryout review of Indian supplier landscape, continuous update of supplier operations, conducting supplier onsite assessments, promote awareness of Airbus Group ethics and compliance guidelines, report any unethical practices of suppliers (if any), reporting on supplier compliances to local laws and regulations, providing market information, sharing information of product or services and its quality standards, information on supplier production facility, etc.
v. The detailed activities or functions agreed between the parties under the said agreement are discussed in detail in the ensuing paragraphs:
a. As per the agreement entered between the said parties, the support services rendered by Airbus India in connection with group global sourcing strategy are broadly classified under the following categories / functions:
A. Procurement Operations (PO) function;
B. Procurement Transformation & Central services (PY) function;
A. Procurement Operations (PO) function:
Under the said function, the applicant renders various technical advisory and business support services in relation to supplier development activities which includes the activities such as:
A. 1.1. Based on Airbus SAS guidelines received in connection with Generic Supply-chain and Quality requirements for suppliers, the applicants conduct onsite assessments on and even monitor the performance of various suppliers approved by Airbus SAS under the supplier development program. Post the said assessment, Airbus India shares a report with Airbus SAS covering the following attributes such as:-
> Supplier business performance and its maturity development status
> delivery and quality performance of the supplier nominated under the program
> product quality and production performance
> Surveillance audit of the supplier
> evaluation of the risk of the supplier
> risk benefit analysis in connection with new SP strategy
> implementation of Advanced Product Quality Planning (APQP)
> Market situation in India and its Neighboring countries etc.,
A. 1.2. The Applicant provides support to various suppliers nominated under the supplier development program by Airbus SAS in their various operations such as running activities, recovery, transfer of work (ToW), and assessments in align with Airbus group agreed quality standards and processes;
A. 1.3. Airbus India has agreed to render its technical advisory support so as to improve the supply chain facility of the supplier by way of continuous onsite assessment, review, and diagnosis.
A. 1.4. Airbus India has agreed with Airbus SAS to provide a continuous update and information on supplier operations, industrial maturity, performance etc.
A. 1.5. In addition to the above, Airbus India has agreed to carry out risk review from Indian supplier landscape while assessing impact on Airbus programs and update the information to Airbus group at agreed time intervals;B.
