2019 (4) TMI 1543 - AAAR - GST

Classification of supply - Zero Rated Supply or not? - Section 16 of the Integrated Goods Service Tax Act, 2017 - services of back office administrative and accounting support - intermediary services - challenge to AAR decision. HELD THAT - Since, the Appellant is doing the above work on behalf of their client and the said supply of goods is invariably between two persons, i.e. between their client and its buyers/suppliers of goods, thereby, satisfying the second criterion of the intermediary. The Appellant is not providing the goods in question, either to its client's buyers or to its client's suppliers on his own account. The goods in the question invariably belong either to its client or to its client's supplier. Thus, the above goods are, clearly, not provided on their own account, thereby, satisfying the third criterion of the intermediary services - all the criterion applicable to the intermediary are being satisfied adequately by the Appellant. Hence, while performing all the above mentioned activities, the Appellant is clearly acting as intermediary. There does not appear to be any intention of the AAR to tax the back operation of the Appellant and the Ruling of AAR which is based on a specific agreement can not be generalized. Intermediary services or not? - HELD THAT - Appellant have misconstrued the definition of intermediary as provided in Section 2(13) of the IGST Act, 2017. It is seen that the services they are rendering are in relation to the goods in question which belong to either their overseas client or the client's supplier, as the case may be. AAR decision upheld.

Summary

Issues Involved:
1. Whether the services provided by the Appellant qualify as "intermediary services" under Section 2(13) of the IGST Act, 2017.
2. Whether the supply of these services in a package can be construed as composite supply.

Issue-wise Detailed Analysis:

1. Whether the services provided by the Appellant qualify as "intermediary services" under Section 2(13) of the IGST Act, 2017:

The Appellant, an Indian company, provides back office support services to an overseas client. The core issue is whether these services qualify as "intermediary services" as defined under Section 2(13) of the IGST Act, 2017. The definition of "intermediary" includes a broker, agent, or any person facilitating the supply of goods or services between two or more persons but excludes those supplying goods or services on their own account.

The Appellant's agreement with the client involves coordinating with buyers, sellers, and other necessary parties for executing purchase and sale contracts, maintaining accounting, and other related activities. Specific tasks include generating orders, liaising with suppliers and inspection authorities, processing payment requests, and arranging shipping and inspection certificates.

The Appellate Authority found that these services go beyond back office support and facilitate the supply of goods between the client and its suppliers or customers. The Appellant's role in sending sales contracts, liaising for cargo readiness, and other logistical tasks indicates facilitation of supply, thus meeting the criteria for "intermediary services." The remuneration based on the number of transactions handled further supports this classification. The Appellant does not supply goods on its own account, satisfying all criteria for intermediary services.

2. Whether the supply of these services in a package can be construed as composite supply:

The Appellant argued that the services provided are naturally bundled and should be considered as composite supply. The term "composite supply" refers to a supply made by a taxable person consisting of two or more taxable supplies naturally bundled and supplied in conjunction with each other in the ordinary course of business.

The Appellate Authority referred to the Taxation of Services: An Education Guide and GST flyers, which suggest that services perceived by the recipient as a single package and offered as such by the industry can be considered naturally bundled. The Appellant's services include back office support, accounting, and liaising with respect to delivery, transportation, and payment settlement. These services are provided as a single package against a lump sum amount.

The Authority concluded that the principal supply among these services is intermediary services, with other services being ancillary or incidental. Therefore, the entire gamut of services provided by the Appellant qualifies as composite supply, with intermediary services as the principal supply.

Conclusion:

The Appellate Authority upheld the ruling of the Advance Ruling Authority, confirming that the services provided by the Appellant qualify as intermediary services and the supply of these services in a package constitutes composite supply with intermediary services as the principal supply. The appeal was dismissed, and the ruling of the AAR was affirmed.