2018 (10) TMI 1517 - AAAR - GST

Classification of supply - supplies made to overseas clients known as Foreign Ship Owners (FSO) - principal supply is consultancy service - composite supply or not - export of service or not - bundled service or not - appellant was treated as bundled service of Consultancy Service and Support Service, wherein Consultancy Service was the principal service giving essential characteristics to MCS - place of provision of services - applicability of Rule 3 of Place of Provision of Service Rules, 2012 - whether the place of provision of service was the place of FSO, which was outside India. Held that - It is conspicuously evident that the Appellant is acting as an intermediary for the FSO. Though the Appellant is insisting that they are not having formal contracts with any of the potential charterers of the vessels, this is not the requirement or criterion for supply of the intermediary services, as can be seen from the definition of the intermediary. The Appellant, in their appeal submissions, have also been highlighting the industrial practice, wherein a FSO avails Consultancy Service and Support Service bundled together as Marine Consultancy Service from the same supplier for it increases effectiveness and helps in cost economization. However, from the study of market practices or trends in vessels chartering industry available on the website bearing address general cargoship.com/charter-markets.html, it has come to our notice that the ships are normally fixed on charters with the assistance of the shipbrokers, who may be the FSO s brokers or charterers brokers. Here the FSOs brokers are those, who find and arrange employment for their principals ships and charterers brokers are those who find ships to carry out their principals requirements. The Appellant is actually facilitating the supply of the main services i.e. chartering of the vessels by the FSO to their clients i.e. charterers, thereby clearly acting as an intermediary, as the chartering of the vessels is not the main service of the Appellant, but their principal i.e. the FSO. Appellant are performing all these services on behalf of their principal i.e. the FSO, thus acting as an intermediary - The above said intermediary services can be classified under the Service Accounting Code 999799, which is Other Miscellaneous Services , as per the Annexure to the Notification 11/2017 -C. T. (Rate) dated 28.06.2017 as the intermediary activities cannot be classified in any other service head/group of the above mentioned Annexure. In addition to the intermediary activities, they are obliged to perform the other administrative activities like examination of lay time calculation, voyage account reconciliation for eventual settlement with the charterers, which can be classified under the service head /group accounting services bearing the SAC 998222. The entire gamut of the activities of the appellant can be considered as composite supply of the intermediary services and accounting services, of which the intermediary service is the principal service. Ruling - The entire gamut of services performed by the Appellant are in fact of the composite supply of the intermediary services, classified under the Service Accounting Code 999799, which is other miscellaneous services, and the accounting services under the SAC 998222, of which the intermediary service is the principal supply.

Issues Involved:
1. Whether Marine Consultancy Service (MCS) provided to Foreign Ship Owners (FSO) constitutes "composite supply" with the principal supply of consultancy service.
2. If services are provided to FSO distinctively as consultancy and support services with separate fees:
a. Whether consultancy service qualifies as business consultancy service.
b. Whether support service qualifies as "intermediary service."

Issue-wise Analysis:

1. Composite Supply of MCS:
The appellant argued that MCS, comprising consultancy and support services, should be treated as a composite supply with consultancy as the principal service. They contended that these services are naturally bundled and supplied in conjunction with each other in the ordinary course of business. The appellant cited industry practices and the perception of service recipients to support their claim. They emphasized that both services are provided together, and the fee is a percentage of the revenue from the chartering contracts, indicating a unified service offering.

However, the appellate authority found that the appellant's activities, including introducing potential charterers and providing post-contract support, are intermediary services. The authority noted that the appellant's primary activity is to facilitate the supply of chartering services between FSO and charterers, fulfilling the criteria for intermediary services under Section 2(13) of the IGST Act. Consequently, the authority concluded that the appellant's services constitute a composite supply of intermediary and accounting services, with intermediary services being the principal supply.

2. Classification of Consultancy and Support Services:
a. Business Consultancy Service:
The appellant claimed that their consultancy service qualifies as a business consultancy service under the scheme of classification of services. They argued that the consultancy service involves providing market intelligence, trade analysis, and other advisory services to FSOs, which are essential for identifying potential charterers and optimizing vessel employment.

b. Intermediary Service:
The appellant contended that their support service does not qualify as an intermediary service. They argued that the support service is provided independently on their own account and is not for facilitating any other supply of service. The appellant emphasized that their role is limited to providing market intelligence and support services to FSOs, without any contractual obligations or interactions with the charterers.

The appellate authority disagreed with the appellant's classification. They observed that the appellant's activities, including monitoring voyage execution and examining lay time calculations, are integral to facilitating the supply of chartering services between FSO and charterers. The authority concluded that the support service qualifies as an intermediary service under Section 2(13) of the IGST Act, as it involves arranging or facilitating the supply of services between two or more persons.

Conclusion:
The appellate authority held that the appellant's services constitute a composite supply of intermediary and accounting services, with intermediary services being the principal supply. The authority classified the intermediary services under Service Accounting Code 999799 (Other Miscellaneous Services) and the accounting services under SAC 998222. The authority dismissed the appellant's claims for classification as business consultancy or support services, emphasizing the intermediary nature of the appellant's activities in facilitating the supply of chartering services between FSO and charterers.

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