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2021 (7) TMI 477 - AAR - GSTLevy of GST - Supply of services by India Branch to the customers located outside India - Inter Company Agreement with M/s. Sutherland Mortgage Services Inc. USA - location of the supplier of services - N/N. 09/2017 - Integrated Tax (Rate) dated 28.06.2017 as inserted by N/N. 15/2018 - Integrated Tax (Rate) dated 26.07.2018 - HELD THAT - The explanations to Section 8 of the IGST Act, 2017 creates a legal fiction that the establishment of a person in India and any other establishment of the same person outside India are two separate legal persons for the purpose of goods and services tax law. In view of the legal fiction created by the explanations to Section 8 of the IGST Act, 2017 even though the applicant and SMSI, USA cannot be treated as distinct persons under the law of contracts or in commercial or accounting parlance they are separate legal persons / distinct persons as far as the applicability of goods and services tax law is concerned. Therefore, the recipient of services as per the agreement has to be determined in the light of the legal fiction. On a plain reading of the clauses of the Agreement it is evident that the services are provided by the applicant to SMSI, USA and not to the customers of SMSI, USA and the consideration for the services rendered is liable to be paid to the applicant by SMSI, USA. The applicant has submitted three flow charts showing different scenarios of the flow of services claiming that the actual flow of service is directly from them to the overseas customers of SMSI, USA - Even if it is assumed that the services are provided directly to the customers of SMSI, USA by the applicant, the applicant can only be considered as providing the services on behalf of SMSI, USA to the overseas customers. Thus, in any view of the matter the recipient of the services rendered by the applicant as per the Agreement is SMSI, USA the Head office of the applicant. Thus, the recipient of services of the applicant is SMSI, USA the Head office of the applicant and hence a distinct person in accordance with Explanation I in Section 8 of the IGST Act, 2017. Hence the condition at sub-clause (v) of clause (6) of Section 2 of the IGST Act, 2017 defining export of service that the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8 is not satisfied and accordingly the service provided by the applicant do not constitute export of service as defined in Section 2 (6) of the IGST Act, 2017 and consequently the applicant is liable to pay IGST - In view of entry at SI No. 10F of N/N. 09/2017 Integrated Tax (Rate) dated 28.06.2017 as inserted by N/N. 15/2018 Integrated Tax (Rate) dated 26.07.2018 the services provided by the applicant is exempted from IGST from 27.07.2018 onwards.
Issues Involved:
1. Whether the supply of services by the India Branch of M/s. Sutherland Mortgage Services Inc. USA to customers located outside India qualifies as export of services under the IGST Act, 2017. 2. Determination of the recipient of the services provided by the India Branch. 3. Applicability of GST on the services provided by the India Branch to the customers located outside India. Issue-Wise Detailed Analysis: 1. Whether the supply of services by the India Branch of M/s. Sutherland Mortgage Services Inc. USA to customers located outside India qualifies as export of services under the IGST Act, 2017: The applicant contended that the services provided by the India Branch to the customers located outside India qualify as export of services, which is considered zero-rated supply under Section 16 of the IGST Act, 2017. They argued that the services are provided directly to the customers outside India, not to their Head Office (SMSI, USA), and thus meet all conditions prescribed in Section 2(6) of the IGST Act, 2017 for export of services. 2. Determination of the recipient of the services provided by the India Branch: The Authority for Advance Ruling (AAR) initially held that it lacked jurisdiction to decide on the determination of the 'place of supply,' which is crucial in determining if the services qualify as export. However, the Hon'ble High Court of Kerala quashed this decision, stating that the determination of liability to pay tax on any goods or services falls within the ambit of questions the AAR can address. Upon reevaluation, the AAR focused on the definition of 'recipient' under Section 2(93) of the CGST Act, 2017, and the legal fiction created by explanations to Section 8 of the IGST Act, 2017. These provisions treat the establishment of a person in India and any other establishment of the same person outside India as distinct legal persons for GST purposes. Therefore, despite the applicant's argument that services are provided directly to overseas customers, the AAR concluded that the recipient of the services is SMSI, USA, the Head Office, due to the legal fiction. 3. Applicability of GST on the services provided by the India Branch to the customers located outside India: Since the recipient of the services is deemed to be SMSI, USA, the services do not qualify as export of services under Section 2(6) of the IGST Act, 2017. Consequently, the services are liable to IGST. However, the AAR noted that from 27.07.2018 onwards, services supplied by an establishment in India to any establishment of the same person outside India are exempt from IGST under entry at SI No. 10F of Notification No. 09/2017 - Integrated Tax (Rate) dated 28.06.2017, as inserted by Notification No. 15/2018 - Integrated Tax (Rate) dated 26.07.2018. Conclusion: The AAR ruled that the supply of services by the India Branch of M/s. Sutherland Mortgage Services Inc. USA to customers located outside India is liable to GST for the period from 01.07.2017 to 26.07.2018. From 27.07.2018 onwards, these services are exempt from GST as per the specified notification. Ruling: The supply of services by the applicant as per the Inter-Company Agreement with M/s Sutherland Mortgage Services Inc, USA is liable to GST for the period from 01.07.2017 to 26.07.2018 and thereafter is exempted from GST as per entry at SI No. 10F of Notification No. 09/2017 - Integrated Tax (Rate) dated 28.06.2017 as inserted by Notification No. 15/2018 - Integrated Tax (Rate) dated 26.07.2018.
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