2022 (11) TMI 1118 - AAAR - GST

Taxability - transaction of providing space on its web portal for advertisements provided by a foreign entity ie Lenzing Singapore Pte Ltd - place of supply of services - correct classification of the services provided - rate of tax - HELD THAT - Clause (e) of Section 97(2) covers within its scope the determination of place of supply if such determination is linked with the liability to pay tax and in such cases the Authority has the jurisdiction to pass a ruling on the issue of place of supply. The lower Authority was incorrect in not passing a ruling on the question of taxability of the transaction of selling advertising space on its web portal to a foreign entity. Whether we are within our powers to decide the question of taxability on merits and pass an original ruling on the same when the lower Authority has failed to pass any ruling on the said question? - HELD THAT - It is therefore evident from the provisions of the statute that the Appellate Authority can pass an original ruling only when the matter is referred to them under Section 98(5). Where a ruling has been pronounced by the lower Authority an appeal by the aggrieved party lies before us and we, under the appeal proceedings, can pass such order as we think fit, either confirming or modifying the ruling. In the instant case, there is no ruling pronounced by the lower Authority on the question of taxability. In the absence of a ruling, there is nothing for this Authority to confirm or modify. We can only go so much as to say whether the lower Authority was correct in not giving a ruling on the question of taxability which we have already held as being incorrect. The statute is unambigiously clear that an order passed under Section 98(2) rejecting an application cannot be appealed before us. The fact that only a ruling pronounced in an order issued under Section 98(4) is appealable before us justifies our stand that 'modifying' does not include answering the unanswered question. We therefore, do not agree with this argument put forth by the Appellant - The Appellant has also made out a case that the powers of this Authority includes remand even if the said power has not been explicitly stated in Section 101(1) of the CGST Act. Case remanded to the Advance Ruling Authority for a fresh consideration.

Summary

Issues Involved:
1. Taxability of the transaction of providing advertisement space on the web portal to a foreign entity.
2. Jurisdiction of the Advance Ruling Authority to determine the place of supply.
3. Powers of the Appellate Authority to decide on issues not ruled upon by the lower Authority.

Detailed Analysis:

1. Taxability of the Transaction:
The appellant, an e-commerce operator, provides advertisement space on its web portal to a foreign entity, receiving consideration in foreign exchange. The appellant sought a ruling on whether this transaction is taxable under GST and the correct classification and rate of tax for this service. The Advance Ruling Authority (AAR) classified the service under SAC 998365, "Sale of internet Advertising Space (except on commission)," with a tax rate of 9% CGST and 9% SGST. However, the AAR refrained from ruling on the taxability, citing lack of jurisdiction to determine the place of supply.

2. Jurisdiction of the Advance Ruling Authority:
The appellant contended that the AAR erred in not deciding the taxability of the transaction, arguing that the determination of place of supply is incidental to determining tax liability, which falls within the scope of Section 97(2)(e) of the CGST Act. They relied on the Kerala High Court decision in the case of Sutherland Mortgage Services Inc, which held that the determination of place of supply is included in the larger issue of "determination of liability to pay tax on any goods or services or both." The Appellate Authority agreed with this interpretation, holding that the AAR was incorrect in not passing a ruling on the taxability of the transaction.

3. Powers of the Appellate Authority:
The appellant argued that the Appellate Authority has the power to decide on the merits of the issue when the lower Authority fails to do so. They cited several judicial precedents to support their claim that appellate powers are an extension of the original proceedings and include the authority to decide questions germane to the dispute. However, the Appellate Authority clarified that it can only confirm or modify a ruling already pronounced by the lower Authority. Since the AAR did not pronounce a ruling on the taxability, there was nothing for the Appellate Authority to confirm or modify. The Appellate Authority emphasized that its powers are derived from Sections 99 to 106 of the CGST/KGST Acts and are limited to confirming or modifying rulings issued under Section 98(4).

Remand for Fresh Consideration:
Given the peculiar situation where the AAR did not rule on the taxability of the transaction, the Appellate Authority decided to remand the case to the AAR for fresh consideration. The AAR is directed to pronounce a ruling on the taxability of the transaction, taking into account the place of supply provisions. This decision aligns with previous AAAR rulings in similar cases, ensuring that the appellant's interests are justly addressed.

Conclusion:
The Appellate Authority set aside the order of the AAR and remanded the case for fresh consideration, directing the AAR to rule on the taxability of the transaction after considering the place of supply provisions. The appeal was disposed of on these terms.