In re Airbus Group India Pvt. Ltd. (GST AAAR Karnataka)
The Appellate Authority uphold the order No. KAR ADRG 31/2021 dated 01/07/2021 passed by the Advance Ruling Authority and the appeal filed by the Appellants M/s. Airbus Group India Private Limited, stands dismissed all accounts.
One of the important requirements for supply of any service to be treated as export of service’ is that the place of supply of service is outside India. The provisions for determination of place of supply of services where the location of the supplier or the location of the recipient of services is outside India are contained in Section 13 of the IGST Act, 2017. Section 13(8)(b) of the said Act stipulates that the place of supply in the case of intermediary services will be the location of the supplier of service. In this case, the activity of the Appellant who is the supplier of intermediary service i.e collection of information of parties in India, analysis of potential suppliers and skill development of existing suppliers, are all very much done in India, which is the location of the supplier of intermediary service. Therefore, by virtue of Section 13(8) (b) of the IGST Act, it automatically flows that the place of supply of the intermediary service provided by the Appellant to Airbus France, is in India. When the place of supply is in India, it does not satisfy one of the conditions for export of service, that the place of supply should be outside India. Therefore, we hold that the intermediary services provided by the Appellant to Airbus France, do not qualify as export of service.
FULL TEXT OF THE ORDER OF AUTHORITY OF APPELLATE ADVANCE RULING, KARNATAKA
At the outset we would like to make it clear that the provisions of CGST, Act 2017 and SGST Act 2017 are in pari materia and have the same provisions in like matter and differ from other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the KGST Act.
2. The present appeal has been filed under section 100 of the Central Goods and Service Tax Act 2017 and Karnataka Goods and Service Tax Act 2017 (herein after referred to as CGST Act, 2017 and SGST Act, 2017) by M/s Airbus Group India Pvt Ltd, 4th Floor, Xylem, Plot No 4 & 4A, Dyavasandra Industrial Area, Mahadevapura Post, Whitefield Road, Bengaluru 560048 (herein after referred to as Appellant) against the Advance Ruling order No. KAR ADRG 31/2021 dated 1St July 2021.
Brief Facts of the case:
3. The Appellant is a Private Limited Company and operating as a subsidiary of Airbus Invest SAS, France. The Airbus Group (of which the Appellant is a part) generally procures parts, components or services from both domestic and international markets which are required for manufacturing and assembly of aerospace products like aircrafts, helicopters, etc. The Airbus Group has a specialized global sourcing team which is responsible for sourcing of relevant products from various international market. Airbus France has entered into an “lntra-Group Services Agreement” with effect from 1st April 2020 with the Appellant in terms of which the Appellant is required to perform two functions; i.e (i) Procurement Operations —rendering of various technical advisory and business support services in relation to supplier development activities; and (ii) Procurement Transformation & Central Services — procurement ethics & compliance, procurement process and key projects management, strategy, business intelligence and digital procurement, flying part procurement and general procurement. For the above said services, the Appellant would be remunerated with a service fee computed on a `cost plus mark-up’ basis. The Agreement specifically restricts the Appellant to decide or select any supplier and agree upon the terms and conditions of the supply and the said decisions are the prerogative of Airbus France. The Appellant is also not responsible for issuance of purchase order or payment for the supply made by the vendor.
4. In order to obtain a ruling on the classification of the service provided by them, the Appellant approached the Authority for Advance Ruling (AAR) seeking a ruling on the following question:
(a) Whether the activities carried out by the Appellant in India would constitute a supply of “Other Support Services” falling under Heading 9985 or as “Intermediary Service” classifiable under Heading 9961/9962 or any other classification of services as specified under GST laws?
(b) Whether the services rendered by the Appellant would not be liable to GST, owing to the reason that such services may qualify as “export of services” in terms of clause 6 of Section 2 of the IGST Act, 2017 and consequently, be construed as a ‘zero-rated supply’ in terms of Section 16 of the IGST Act? “
5. The AAR vide its order KAR ADRG No 31/2021 dated lst July 2021 held as under:
“The activities carried out in India by the Applicant would constitute a supply as “Intermediary services” classifiable under SAC 998599.
The services rendered by the Applicant do not qualify as ‘export of services’ in terms of sub-section 2 of Section 6 of the IGST 2017 and consequently, 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.”
6. Aggrieved by the ruling given by the AAR, the Appellant has filed this appeal on the following grounds.
6.1. The Appellant submitted that the true nature of the activities undertaken by the Appellant are very different than what has been observed by the AAR in Paras 15 and 16 of the impugned order; that in the instant case, there is a 5-step process for selection of suppliers out of which only the most basic steps like identification, information gathering , etc are carried out by the Appellant while the actual steps which lead to the supply taking place (i.e awarding of contract, ordering, delivery and payment) are all handled, administered and decided directly by Airbus France; that the Appellant’s major function is to review potential suppliers as well as supplier’s operations/quality standards and report the observations to Airbus France and provide relevant expertise from time to time which is an independent service by the Appellant to Airbus France. They submitted that at no point of time is the Appellant directly involved in any activity which could result in an exposure to ‘intermediary services’ of facilitating supply of goods between the vendor and Airbus France; that for the most part, the supplier is not even identified; there are no three parties involved in the transaction and the services are provided to Airbus France only. They submitted that the Appellant is expressly prohibited from carrying out certain functions such as deciding the supplier from whom the merchandize will be sourced, communication to supplier about his selection, making decisions regarding continuing the relationship and procurement with supplier who has been identified or reported for any unethical behaviour/activity in the supply chain, negotiating with the supplier, signing the contract/issuing the purchase order, sharing the production schedule with the supplier and payment to the supplier. The basic services provided by the Appellant do not, at any point of time, make the bidding process easy or more convenient for Airbus France since the said activities are only in the nature of identification, information gathering, etc with there being no guarantee that any vendors identified by the Appellant wold be certainly be awarded a final contract; that the scope of work carried out by the Appellant included providing technical expertise, advisory support and operational assistance concerning important areas of procurement in order to meet the Airbus Group agreed procurement quality standards, processes and strategy and does not involve the Appellant in any transaction relating to supply of goods.
6.2. They submitted that a perusal of the definition of the term “intermediary” makes it clear that the extent of the role of an “intermediary” requires an additional effort initiated for the purpose of arranging or facilitating the main supply between two parties; that the very purpose of arranging or facilitation is to make an already established supply of goods or services easier and more convenient to carry out. This in itself indicates that the intermediary should put in an added effort to ‘arrange’ or ‘facilitate’ the same; that the arrangement or facilitation as contemplated in the definition implies interaction by the supplier with the third party (i.e the ultimate supplier or recipient of the main supply) and therefore it should be basically a “three-party or tripartite transaction.’ They relied on the Education Guide issued by the CBIC during the service tax regime and submitted that none of the conditions required for qualifying to be `intermediary services’ as explained in the Education Guide are satisfied in their case. Further, they contend that there is no dispute that they are not an ‘agent’ or `broker’; that the ruling has in principle agreed that the Appellant is providing the service on a principal-to-principal basis but has also observed that reliance on principal-to-principal relationship is not relevant for the purpose of determining an intermediary; that such an observation is directly against Section 2(13) of the IGST Act which excludes any transaction provided on his own account i.e Principal -to-principal transaction. They also submitted that they are not covered under the phrase any other person” contemplated in the definition; that the same has not been disputed by the lower Authority. They relied on the rulings given by the AAR New Delhi in the case of M/s GoDaddy India Web Services Pvt Ltd and M/s Universal Service India Pvt Ltd to contend that their service will not qualify as intermediary service. In addition, they also relied on the following judicial decisions to substantiate their claim that the impugned ruling is not legally sustainable:
M/s Evalueserve.com Pvt Ltd vs CST, Gurgaon — 2018 (3) TMI 1430 CESTAT Chandigarh
M/s Verizon India Pvt Ltd vs CST — 2019 TIOL 2268 CESTAT DEL
M/s Lubrizol Advanced Materials India Pvt Ltd vs CCE, Belapur — 2019 (1) TMI 720 (Tri-Mum)
M/s Microsoft Corporation (I) Pvt Ltd vs CST, New Delhi — 2014 (10) TMI 200 (Tri-New Delhi LB)
M/s AMD India Pvt Ltd vs CST, Bangalore — 2017 (12) TMI 772 (Tri-Bang)
M/s CSG Systems International India Pvt Ltd vs Commissioner of Central Tax, Bangalore — 2021 TIOL 422 CESTAT BANG
6.3. The Appellant submitted that their activities do not amount to ‘arrangement’ or `facilitation’ of main supply; that from the dictionary meanings of the above said words, it emerges that an act of ‘arrangement’ or ‘facilitation’ is utilized to make things more organized, effective, easier and more convenient to be done; that the expression ‘arranges or facilitates the supply of goods or services or both, or securities’ as used in Section 2(13) of the IGST Act, 2017 refers to the organization of provision of actual support or assistance in any manner which would ensure that the supply of goods or services or both or securities between two or more persons becomes easier or more convenient; that in the instant case, the Appellant’s sole purpose is to provide support services which is limited to providing necessary information, review and advising from quality perspective and all the decisions relating to the same are the responsibility of Airbus France; that the Appellant is not privy to or a participant in any other business arrangement which Airbus France has entered into with any clients or customers; that the services provided by it to Airbus France are completely independent of any arrangements which the Airbus France may enter into on its own volition; that the Appellant does not have any role or authority with respect to the following:
