2020 (8) TMI 516 - AAAR - GST

Classification of Services - Management services - intermediary services or not - reimbursement of expenses - requirement of registration under GST - liability of Mr. Santosh to pay tax on the services rendered by him to H-J Family of Companies - time and value of the supply of services - only grievance of the Appellant is regarding the finding by the lower Authority that the management services are being provided in the capacity of an intermediary as defined in Section 2(13) of the IGST Act - challenge to AAR decision. HELD THAT - The nature of the transactions of the Appellant as explained by him in his appeal is examined. It is seen that the Appellant is appointed as an Independent Regional Sales Manager for the Middle East and Indian Markets by the H-J Family of Companies, a company engaged in the business of manufacturing and selling various categories of distribution transformer components and accessories. The Appellant is required to make a presentation of the products offered by the H-J Family of Companies. The latter specifies the presentation and the technical details of the said products. The Appellant reports to a Sales Manager based in the office of H-J Family of Companies in Europe and furnishes a report on the status of the sales development (with customers in the Middle East and Indian markets). The Appellant does not conclude contracts between H-J Family of Companies and the final customer and does not directly receive or deal with the products of H-J Family of Companies in any manner. It is also seen that the customers enter into contracts directly with H-J Family of Companies - When we apply the general understanding of the term arranging or facilitation to the instant case, the Appellant facilitates the sale of the products of H-J Family of Companies by undertaking sales presentations to the prospective customers in the Middle East and India. It must be appreciated that devoid of the product, there is no purpose in the sales presentations made by the Appellant. It is only with the sole intention of facilitating the sales of the product of the principal i.e H-J Family of Companies that the Appellant provides the service. 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 service of facilitating a supply of goods between the Principal and the customers is provided by the Appellant to the overseas client (H-J family of Companies). The Appellant is not supplying such goods on his own account. The decision of the AAR is upheld that the service of sales presentations of the products of H-J Family of Companies is classifiable as Other professional, technical and business services under Service Code 9983.11 and the same is being rendered as an intermediary service as defined under Section 2(13) of the IGST Act - appeal dismissed.

Summary

Issues Involved:
1. Classification of services rendered by the Appellant.
2. Requirement of registration under the CGST Act, 2017.
3. Tax liability on the services rendered.
4. Time and value of the supply of services.

Detailed Analysis:

Classification of Services Rendered:
The primary issue is the classification of the services provided by the Appellant to H-J Family of Companies. The lower Authority classified the service under Service Code 9983.11 as "Other professional, technical and business services," specifically as an intermediary service. The Appellant contended that the services should be classified under "Market research and public opinion polling services" (Service Code 998371) and not as intermediary services. The Appellate Authority upheld the lower Authority's classification, noting that the Appellant facilitates the sale of products through sales presentations, which falls under the definition of an intermediary as per Section 2(13) of the IGST Act.

Requirement of Registration:
The lower Authority ruled that the Appellant is required to be registered under the CGST Act, 2017. This decision was based on the classification of the services as intermediary services, which necessitates registration due to the nature of the supply. The Appellate Authority upheld this requirement, affirming that the services provided by the Appellant necessitate registration under the Act.

Tax Liability on Services Rendered:
The lower Authority determined the applicable tax rates for the services provided by the Appellant:
- Intra-State Supply: 9% under CGST and 9% under KGST.
- Inter-State Supply: 18% under the IGST Act.
The Appellant argued that the services should be considered as export of services and thus zero-rated. However, the Appellate Authority confirmed that the services are intermediary services, which are taxable and do not qualify as export of services.

Time and Value of Supply:
The lower Authority stated that the time of supply would be determined as per Section 13(2) of the CGST Act, 2017, and the value of supply would include the amount received by the Appellant and any reimbursed expenses. The Appellate Authority upheld this determination, agreeing with the lower Authority's interpretation of the provisions regarding the time and value of supply.

Conclusion:
The Appellate Authority upheld the Advance Ruling No KAR/ADRG 64/2019, confirming that:
1. The services provided by the Appellant are classified under Service Code 9983.11 as "Other professional, technical and business services" and are intermediary services.
2. The Appellant is required to be registered under the CGST Act, 2017.
3. The services rendered are subject to tax at the rates specified for intra-State and inter-State supplies.
4. The time and value of the supply are to be determined as per the provisions of the CGST Act, 2017.

The appeal filed by the Appellant was dismissed on all counts.