In re Commissioner CGST Mumbai East (GST AAAR Maharashtra)
In reply to the quesitons raised by the Appellant before AAAR, The Appellate Authority for Advance Ruling held as under:
1) Whether the service supplied by the Respondent under the Service Agreement dated 1 March 2013 constitute a supply of “Support Services” falling under HSN code 9985 or “Intermediary service” classifiable under HSN code 9961/9962?
The service supplied by the Respondent under the Service Agreement dated 1 March 2013 constitutes a mixed supply of services falling under the Heading “accounting services” having SAC 9982, and under the Heading “other professional, technical and business services” having the SAC 9983.
2) Whether the service supplied by the Respondent under the Marketing Services Agreement dated 1 December 2012 constitute a supply of “Support services” falling under HSN code 9985 or “Intermediary service” classifiable under HSN code 9961/9962?
The service supplied by the Respondent under the Marketing Services Agreement dated 1 December 2012 constitutes a mixed supply of Services falling under the Heading “Research and Development services” having SAC 9981, under the Heading “Other professional, technical and business services” bearing SAC 9983, and under the Heading “other miscellaneous services” bearing SAC 9997.
3) Whether the service provided by the Respondent is an export of services as defined under Section 2(6) of the Integrated Goods and Service Tax Act 2017?
We cannot pass any ruling in relation to the export of services, as the same would require the determination of the place of supply of services, which is not under the jurisdiction and scope of the Advance Ruling Authority.
FULL TEXT OF ORDER OF APPELLATE AUTHORITY OF ADVANCE RULING MAHARASHTRA
PROCEEDINGS
(under Section 101 of the Central Goods and Services Tax Act, 2017 and the
Maharashtra Goods and Services Tax Act, 2017)
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the MGST Act.
The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by Commissioner, Central Tax, Mumbai East Commissionerate (herein after referred to as the “Appellant” or “the Department” interchangeably) against the Advance Ruling No. GST-ARA-35/2018-19/B-108 dated 05.09.2018
BRIEF FACTS OF THE CASE
A. M/s Asahi Kasei India Pvt.Ltd.,The Capital Office No. 1502-B, 15th Floor, Plot No. C-70, G-Block, Bandra Kurla Complex, Bandra(East),Mumbai 400051 (here in after referred to as ‘the Respondent’) filed detailed application under Section 97 of the Central Goods and Service Tax Act, 2017 read with Rule 104 (1) Of the CGST Rules, 2017 before the Maharashtra Authority on advance ruling seeking advance ruling on:
1) Whether the service supplied by the Respondent under the Service Agreement dated 1 March 2013 constitute a supply of “Support Services” falling under HSN code 9985 or “Intermediary service” classifiable under HSN code 9961/9962?
2) Whether the service supplied by the Respondent under the Marketing Services Agreement dated 1 December 2012 constitute a supply of “Support services” falling under HSN code 9985 or “Intermediary service” classifiable under HSN code 9961/9962?
3) Whether the service provided by the Respondent is an export of services as defined under Section 2(6) of the Integrated Goods and Service Tax Act 2017?
Statement of facts having bearing on the question (1) :
B. Asahi Kasei India pvt. Ltd.(hereinafter referred to as the “Respondent”) is a company incorporated in India in August 2012. The Respondent is a subsidiary of Asahi Kasei Corporation, Japan (“Asahi Japan”).
C. The scope of the services provided by the Respondent under Service Agreement with Asahi Japan [dated 01 March 2013] as amended on 05 January 2017 are highlighted at Clauses 4 to 8 of the Agreement. The relevant extract of the agreement is reproduced hereunder:
“4. Party B (i.e. the Respondent) agrees to conduct from time to time, as and when requested by Party A (being Asahi Japan), research on the matters related to the functions of the holding company, such as corporate accounting, corporate finance, corporate personnel and labor relations, corporate research and development, quality assurance and corporate intellectual property, and provide Party A with its report of the research thereon.
5. Party B agrees to provide Party A from time to time, as and when requested by Party A, with economic, industrial and technical information on the products falling under the category of the ‘Products’ and their markets, trends and outlook together with similar information concerning such other industries in the Territory (i.e. India or any other mutually agreed territory) as Party A may from time to time request. In the event Party A should require more detailed information than that so provided by Party B, Party B shall exert its best efforts to obtain such further or more detailed information.
6. At such time and from time to time, as and when representatives of Party A, or its related business circles or customers visit the Territory and Party A so requests, Party B shall provide necessary assistance in business activities (including interpreting) to such representatives.
7. From time to time, as and when requested by Party A, Party B shall make market surveys of the Products in the Territory and report the results thereof to Party A.
8. Party B shall perform services, as directed by Party A, resulting from the assignments pursuant to paragraph 4 through 7 of this Agreement, including, but not limited to, those services with regard to finance, accounting, and patent and legal matters.”
D. As per Clause 9 of the Agreement, Service consideration received by the Respondent is the direct cost+prorated overhead expenses+10% mark-up+applicable taxes.
E. It was seen that the Respondent is engaged in the activities for the party A, such as corporate accounting, corporate finance, corporate personnel and labour relations, corporate research and development, quality assurance and corporate intellectual property, provide with economic, industrial and technical information on the products falling under the category of the Products and their markets, trends and outlook together with similar information concerning such other industries in the Territory and shall make market surveys of the Products in the Territory and report the results thereof etc to Party A.
F. In view of the above, it was submitted that the marketing services, advertisement and promotion services, customer relationship management, evaluation of prospective customers etc would qualify to be in the nature of business support services.
G. Therefore, since the services provided by the Respondent to Asahi Group were similar, the supply of services provided by the Respondent to the Asahi Group appear to be covered under “Business Support Service” classifiable under HSN CODE 9985.
Statement of facts having bearing on the question (2):
H. Marketing Services Agreement:
a. Agreement with Bioprocess Division of Asahi Kasei Medical Co. Ltd. (“AM”) [dated 01 December 2012];
“a) Conducting market surveys and providing the service recipient with the information on Indian market trends and features so as to assist in determining the nature and scope of the Indian market potential;
b) Assisting the service recipient in the adaptation and implementation of its advertising policy,
c) Assisting the service recipient in conducting sales prospection through participation in industry events such as scientific gatherings, exhibitions, trade shows and the like;
d) Liaising with Customers and potential Customers and to collect their product development plans and strategy and “road-maps”, as well as their product specifications, and reporting the same to the service recipient the information obtained through such interactions;
e) Providing any feedback to the service recipient that would help improve the service recipient’s marketing; Facilitating the service recipient in arrangement of discussions and provision of interpretation services and cross culture advice; for the sake of clarity, neither AKI (i.e. the Respondent) nor any of its representatives shall have any authority to conduct negotiations on behalf of the service recipient;
f) Connecting Customers with representatives of the service recipient for the purpose of obtaining orders and establishing and maintaining close commercial relationships between service recipient and customers;
g) Providing staff of the service recipient or its customers visiting the territory with such assistance as may be reasonably requested by them, including but not limited to providing information, guide, escort and interpreting services during Customers visits; for the sake of clarity, the premises of AKI will not be the premises of the service recipient and the same shall not be made available to employees or other personnel of service recipient who may visit India;
h) Providing information on products and its functioning or similar such services to service recipient’s customers and notifying service recipient of any consumer complaints;
i) Monitoring regulatory developments (including, where possible, establishing and maintaining contact with regulatory agencies) and reporting the same to the service recipient; and
j) Any other assistance in the context of the above, regarding service recipient’s marketing activities that may be reasonably requested by service recipient after the effective date in writing to AKI.”
I. In view of the above, it could be said that the marketing services, advertisement and promotion services, customer relationship management, evaluation of prospective customers etc would qualify to be in the nature of business support services.
J. Therefore, since the services provided by the Respondent to Asahi Group are similar, the supply of services provided by the Respondent to the Asahi Group appear to be covered under “Business Support Service” classifiable under HSN CODE 9985.
Statements of facts having bearing on the question (3) :
K. The Term “export of services” as defined under Section 2(6) of the IGST Act. The relevant extract is set out hereunder:
“(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 covetable foreign exchange; and
(v) The supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation in Section 8;”
L. The Respondent, M/s Asahi Kasei India Pvt. Ltd. has submitted that they are fulfilling all the above conditions discussed in detail hereunder:
a. Condition I — Supplier of service is located in India.
The Respondent is registered under GST and providing the service from Maharashtra, India. Hence fulfilling the first condition with reference to term “location of the supplier of service” as defined under Section 2(15) of the IGST Act.
b. Condition-II- Recipient of service is located outside India.
In the instant case the service recipient M/s Asahi Kasei group is not registered in India and therefore their registered place of business will be their registered address(i.e. outside India). Hence fulfilling the first condition with reference to term “The recipient of serviceis located outside India” as defined under Section 2(14) of the IGST Act.
c. Condition-III place of supply of Service is outside India.
From (a) and(b) above it appears that service provider is located in India and service receiver is located outside India.
The services provided by the Respondent is in nature of “Support Services” classifiable under HSN code 9985. The place of supply in the instant case is determined as per general rule i.e Section 13(2) of IGST Act. The said sub section provides that the location of the recipient of services shall be the place of supply of services. In the present case the place of supply of Service is outside India i.e Asahi Kasei group (Japan).
d. Condition IV Payment is received in convertible foreign exchange.
The Respondent receives payment in freely convertible foreign exchange i.e. Japanese Yen / United States Dollar.
e. Condition V — Supplier of service and recipient of service are not merely establishment of distinct person.
Explanation 1 to Section 8 of IGST Act provides that
.— For the purposes of this Act, where a person has,—
(i) an establishment in India and any other establishment outside India;
(ii) an establishment in a State or Union territory and any other establishment outside that State or Union territory; or
(iii) an establishment in a State or Union territory and any other establishment being a business vertical registered within that State or Union territory, then such establishments shall be treated as establishments of distinct persons.
In the instant case, the service recipient i.e. Asahi group is not an establishment formed by the Respondent and consequently, it cannot be treated as an establishment of distinct person.
In view of the above, it could be construed that the Respondent fulfils all the conditions for treating the supply of services as an export of services in terms of Section (6) of IGST Act except for the fact that in order for a service to qualify as export of service one condition amongst the others is that ‘the place of supply of service is outside India’. In the case of the Respondent it was seen that the Service is provided in India and therefore the service provided by the Respondent cannot be said to be export of service.
M. The Advance Ruling Authority vide Order No.GST-ARA-35/2018-19/B-108 dated 05.09.2018 received by this office on 23.01.2019 held as under:
Question-1
A. The services provided by the respondent in the nature of Research on the matter related to functioning of the holding of company such as — corporate accounting, corporate finance, corporate personnel and labour relations, corporate research and development, quality assurance and corporate intellectual property, and provide Party A with its report of the research thereon would fall under service code tariff 99859 as other support services nowhere elseclassified.
B. The services provided by the respondent in the nature of information or Market in the territory which included – Economic, industrial and technical information on the products falling under the category of the Products and their markets, trends and outlook together with similar information concerning such other industries in the Territory, To provide necessary assistance in business activities (including interpreting) to such representatives, To undertake market surveys of the Products in the Territory and report the results thereof to Party and Ancillary services to all above services, including, but not limited to, those services with regard to finance, accounting and patent and legal matters would fall under service code tariff 99837 with service description market research services.
Question-2:
A. The services supplied by the respondent under the Marketing Services Agreement would fall under Group 99837 as Market Research Services.
Question-3:
Answered in the affirmative in view of the facts of the present case as per discussion held.
Now, aggrieved by the above Advance Ruling Order, the Appellant, in this case, the Department has filed an appeal before us on the basis of grounds, detailed herein under:
Grounds of Appeal
1. With regard to Question No.1, there are two possible classifications for the services supplied by the Applicant. The relevant HSN code along with its description is tabulated hereunder:
