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2019 (2) TMI 126 - AAAR - GSTIntermediary services - pure and mere promotion and marketing services - after sale support services - place of supply of services - naturally bundled services - section 12 of the Integrated Goods and Services Tax Act, 2017 - composite supply of services - principal supply - client is overseas entity - exports or not - zero-rated supply - challenge to AAR decision. Whether the promotion and marketing activities undertaken by the Appellant for the overseas Principal, are to be classified as intermediary services ? - Held that - 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 ease, the Appellant is facilitating the supply of the products of Brabender between the Principal in Germany and the Principal s customer in India. He is not supplying the products of Brabender on behalf of the Principal. He is only arranging the contact between the Principal and the Principal s customer and the actual supply of the products is done by the Principal directly to the customer. The service of facilitating a supply of goods between the Principal and the customers is provided by the Appellant to the overseas client. The Appellant is not supplying such goods on his own account. The argument of the Appellant that the promotion and marketing services are supplied to the Principal on their own account and hence they fall within the exclusion clause of the definition of intermediary is not a correct interpretation of the law - the Appellant is clearly facilitating the supply of the products of the overseas client directly to the client s customers in the territory of India and is not supplying such goods on his own account. Therefore, the Appellant does not fill within the ambit of the exclusion. The decision of the AAR is upheld that the service of promotion and marketing of the products of the overseas client is in the nature of facilitating the supply of the products of the overseas client and is appropriately classified as an intermediary service as defined under Section 2(13) of the IGST Act - Having concluded that the service supplied by the Appellant is classified as an intermediary service as defined under Section 2(13) of the IGST Act, it automatically flows that the place of supply of such service will be in terms of Section 13(8) of the IGST Act. Whether the after-sales service provided under a composite contract would amount to a composite supply and if so what would be the principal supply? - Held that - There is no dispute that the Agency contract in question involves two taxable supplies of services i.e promotion and marketing service and after-sales support service. However in order for the supply to be termed as a composite supply , what is required is that the supply of the said services should at least be bundled, more specifically be naturally bundled , and supplied in conjugation with each other. The term naturally bundled has not been defined in the GST Act - the question of being naturally bundled does not arise for the reason that every promotional activity with prospective customer does not result in a sale. Further, every sale does not necessarily mean that installation support or after sale support is required - the after sales support service, although rendered in a composite manner with the promotion and marketing service is not a composite supply. The price for the after sale support service is clearly identifiable and has been so stated in the contract itself - ruling of AAR upheld. Whether the above contracts would qualify as exports in terms of Section 2(6) of the IGST Act and Will be a zero-rated supply as provided under Section 16 of the said Act? - Held that - 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. Thus. the entire issue is intrinsically related to determination of place of supply of service by the applicant - It is evident from the above that determination of place of supply is not a question on which an advance ruling can be sought. The Authority for Advance Ruling has been constituted in exercise of the powers conferred by section 96 of the Karnataka Goods and Services Tax Act, 2017, which Act extends to the whole of the state of Karnataka. The AAR is a creature of statute and has to function within the legal boundary mandated by the Acts. As the place of supply is not covered by Section 97(2) of the Acts, the AAR was right in refraining from answering this question on the grounds of of jurisdiction - AAR ruling upheld. AAR ruling upheld.
Issues Involved:
1. Classification of promotion and marketing services as "intermediary services". 2. Determination of whether after-sale support services under a composite contract qualify as a composite supply. 3. Qualification of the contracts as exports and zero-rated supply under Section 16 of IGST Act, 2017. Detailed Analysis: 1. Classification of Promotion and Marketing Services as "Intermediary Services": The Appellant argued that their promotion and marketing services provided to an overseas entity should not be classified as "intermediary services" under Section 2(13) of the IGST Act, 2017. They claimed these services were provided on a principal-to-principal basis and did not involve facilitating the supply of goods between two parties. Findings: The Authority determined that the Appellant's activities, which included identifying prospective customers, promoting products, addressing queries, and communicating with the Principal (overseas entity), facilitated the supply of goods from the Principal to the customers in India. These activities fit the definition of "intermediary services" as they arranged or facilitated the supply of goods between the Principal and the customers. The Appellant was not supplying these goods on their own account but was facilitating the supply, thereby falling within the definition of an intermediary. 2. Determination of Composite Supply: The Appellant contended that their after-sale support services, provided under a composite contract with promotion and marketing services, should be treated as a composite supply, with promotion and marketing services as the principal supply. Findings: The Authority examined the contract and found that the after-sale support services were not naturally bundled with the promotion and marketing services. The after-sale support services, such as installation and warranty services, were not required in every case of sale and were contingent upon the successful supply of goods. Therefore, these services were not supplied in conjunction with each other in the ordinary course of business and did not qualify as a composite supply. The price for after-sale support services was separately identifiable, reinforcing their independent nature. 3. Qualification of Contracts as Exports and Zero-rated Supply: The Appellant sought a ruling on whether the contracts in question would qualify as exports under Section 2(6) of the IGST Act and be treated as zero-rated supply under Section 16 of the said Act. Findings: The Authority for Advance Ruling (AAR) refrained from answering this question, stating that the determination of the place of supply was outside their jurisdiction as per Section 97(2) of the CGST/KGST Act. The Appellate Authority upheld this decision, noting that the AAR's jurisdiction does not extend to determining the place of supply. Conclusion: The Appellate Authority upheld the original ruling by the AAR, confirming that: 1. The promotion and marketing services provided by the Appellant are classified as "intermediary services". 2. The after-sale support services are not part of a composite supply with promotion and marketing services. 3. The question regarding the qualification of contracts as exports and zero-rated supply was outside the jurisdiction of the AAR. The appeal filed by the Appellant was dismissed on all accounts.
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