2021 (11) TMI 816 - AAAR - GST

Classification of the service - 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? - Levy of GST - intermediary services or not - export of services or not - zero-rated supply or not - refund of unutilized ITC - HELD THAT - The definition of intermediary as given in Section 2(13) of the IGST Act excludes a person who supplies such goods or services or both on his own account. It is the contention of the Appellant that the services being provided to Airbus France are on their own account and they are not engaged in supplying services on behalf of the Principal. The Appellant has placed reliance on the Education Guide 2012 issued by the CBIC under the Service Tax regime and contended that none of the conditions required for qualifying to be intermediary service as explained in the Education Guide are satisfied in their case. There does not seem to be any difference between the meaning of the term intermediary under the GST regime and pre-GST regime. In the pre-GST regime, an intermediary referred to a person who facilitates the provision of a main service between two or more person but did not include a person who provided the main service on his account. Similarly, in the GST regime, an intermediary refers to a person who facilitates the supply of goods or services or both between two or more persons but excludes a person who supplies such goods or services or both on his own account. The phrase such goods or services used in the definition of intermediary implies that the person should not be supplying on his risk and reward entirely, the very goods or services whose supply he is arranging or facilitating. In the instant case, the Appellant is arranging for and facilitating the Principal in procuring a supply of goods from India. He is not undertaking any supply of goods. The Appellant is not supplying such goods on his own account and hence, the Appellant does not fall within the ambit of the exclusion contained in the definition of intermediary . Therefore, the Appellant is clearly playing the role of intermediary for Airbus France, as envisaged under Section 2(13) of the IGST Act, 2017 and we uphold the findings of the lower Authority in this regard. As regards the classification of the services provided by the intermediary, it is found that the services of the Appellant, who is acting as an intermediary, would aptly be classified under the Heading 998599 as Other support services . The Explanatory Notes to the Scheme of Classification of Services which is a guiding tool for classification of services indicates the scope and coverage of the Heading 998599 as specifically covering business services of intermediaries and brokers under this heading - there are no merit in the Appellant s contention of classifying their activity under Heading 998399. It is trite law that in classification matters, a specific heading is preferred to a general heading. In this case, the services of intermediaries is specifically covered under Heading 998599 and hence the intermediary service rendered by the Appellant is correctly classifiable under the said Heading. 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 - the intermediary services provided by the Appellant to Airbus France, do not qualify as export of service.

Summary

Issues Involved:
1. Classification of services provided by the Appellant.
2. Determination of whether the services qualify as "intermediary services."
3. Eligibility of the services as "export of services" and zero-rated supply under GST laws.

Detailed Analysis:

1. Classification of Services:
The Appellant, a subsidiary of Airbus Invest SAS, France, provides two main functions under an "Intra-Group Services Agreement": Procurement Operations and Procurement Transformation & Central Services. The Appellant sought a ruling on whether these activities constitute "Other Support Services" under Heading 9985 or "Intermediary Services" under Heading 9961/9962.

The Authority for Advance Ruling (AAR) classified the activities as "Intermediary Services" under SAC 998599. The Appellant argued that their services should be classified under SAC 9983, as they provide technical expertise, advisory support, and operational assistance, which do not involve facilitating the supply of goods.

The Appellate Authority upheld the AAR's classification, stating that the services provided by the Appellant, including market research, identifying potential suppliers, and continuous assessment of supplier performance, facilitate the supply of goods between Indian suppliers and Airbus France. Therefore, the services are rightly classified under SAC 998599 as "Other Support Services."

2. Determination of "Intermediary Services":
The definition of "intermediary" under Section 2(13) of the IGST Act includes a broker, agent, or any other person who arranges or facilitates the supply of goods or services between two or more persons but does not include a person who supplies such goods or services on his own account.

The Appellant contended that they do not qualify as intermediaries because they provide independent services to Airbus France and are not involved in the actual supply of goods. They emphasized that their role is limited to providing information and technical advisory without participating in the bidding process, negotiating terms, or making payments.

However, the Appellate Authority found that the Appellant's activities, such as identifying potential suppliers, providing technical advisory, and ensuring compliance with Airbus standards, facilitate the supply of goods between Indian suppliers and Airbus France. The Authority noted that the Appellant's role extends beyond mere information gathering and includes facilitating the main supply by ensuring a smooth supply chain. Therefore, the Appellant's services qualify as "intermediary services."

3. Eligibility as "Export of Services":
For services to qualify as "export of services" under Section 2(6) of the IGST Act, the place of supply must be outside India. According to Section 13(8)(b) of the IGST Act, the place of supply for intermediary services is the location of the supplier, which, in this case, is India.

The Appellant argued that their services should be considered as export of services since they fulfill all other conditions, including the recipient being outside India and payment received in convertible foreign exchange. They relied on various judicial decisions and the Education Guide issued by CBIC to support their claim.

The Appellate Authority, however, upheld the AAR's ruling that the services do not qualify as export of services because the place of supply is in India. Consequently, the services are not zero-rated and are subject to GST at the rate of 18%.

Conclusion:
The Appellate Authority upheld the AAR's order, confirming that the services provided by the Appellant are classified as "Intermediary Services" under SAC 998599, do not qualify as "export of services," and are exigible to GST at the rate of 18%. The appeal filed by the Appellant was dismissed on all accounts.