2022 (12) TMI 340 - AAR - GST

Classification of services - export of services or not - services provided by the company to its parent company relating to the test benches which are in the name of MRO services - be classified under heading 9987 as Maintenance, Repair or Overhaul services in respect of aircrafts, aircraft engines and other aircraft components or parts or not - place of supply - location of the recipient - N/N. 02/2020-Integrated Tax dated 26th March 2020. HELD THAT - The contract is for Maintenance and Repair of MERMOZ system which is used for testing the air worthiness of the aircraft. Therefore the impugned services are relevant to maintenance and repair services of instruments for testing airworthiness of an aircraft - the impugned services are covered under maintenance and repair services of other machinery and equipment and are classifiable under SAC 998719. The entry at SI.No. 25(ia) and concessional rate of GST of 5% is applicable to only Maintenance, repair or overhaul services in respect of aircrafts, aircraft engines and other aircraft components or parts. In the instant case the applicant is providing maintenance and repair services of test bench equipment (Mermoz system) which are used for testing air worthiness of an aircraft. The said equipment does not qualify to be an aircraft or as an aircraft engine. To be termed as 'other aircraft components or parts', it should form a constituent piece or ingredient that is used to build an aircraft, which is not the case here. The test bench equipment (Mermoz system) neither forms part of aircraft nor forms a component of aircraft and therefore the said entry at SI.no.25 (ia) of Notification No. 11/2017-Central Tax(Rate), dated 26.06.2017 as amended vide Notification No.02/2020-Central Tax (Rate), dated 26.03.2020 and the concessional rate of GST of 5% is not applicable. The place of supply needs to be determined to decide whether the impugned supply of services by the applicant amounts to export of services or not. The determination of place of supply is beyond the jurisdiction of this authority and we don't intend to discuss the other issues / points of the definition.

Issues Involved:
1. Classification of services provided by the applicant to its parent company.
2. Determination of the place of supply for the services provided.
3. Classification of services if not considered under MRO services and whether it can be considered as exports of services.

Detailed Analysis:

1. Classification of services provided by the applicant to its parent company:

The applicant, a wholly-owned subsidiary of the parent company, provided services related to test benches used by the Indian Air Force for testing aircraft equipment. The services included writing incident reports, supporting problem investigations, performing maintenance, installing software, assisting in daily operations, providing advice, and generating reports. The applicant sought to classify these services under "9987 i(a): Maintenance, Repair or Overhaul services in respect of aircrafts, aircraft engines and other aircraft components or parts" as per Notification No. 11/2017-Central Tax (Rate), dated 26.06.2017, as amended.

The Authority examined the nature of the services and the agreement between the applicant and the parent company. It was determined that the services pertained to the maintenance and repair of the MERMOZ system, which is used for testing airworthiness of aircraft. The services were classified under SAC 998719, which covers maintenance and repair services of other machinery and equipment, including instruments for measuring, checking, and testing.

The Authority concluded that the services provided by the applicant do not qualify as "Maintenance, repair or overhaul services in respect of aircrafts, aircraft engines and other aircraft components or parts" and hence are not covered under Sl.no. 25 (ia) of the Notification No. 11/2017-Central Tax (Rate), dated 26.06.2017, as amended.

2. Determination of the place of supply for the services provided:

As the first question was answered in the negative, the second question regarding the place of supply became redundant and no ruling was provided.

3. Classification of services if not considered under MRO services and whether it can be considered as exports of services:

The services were classified under SAC 998719 as "maintenance and repair services of other machinery and equipment." The applicant also sought to determine if these services could be considered as exports of services. The definition of "export of services" under Section 2(6) of the IGST Act 2017 was referenced, which includes criteria such as the supplier being located in India, the recipient being outside India, the place of supply being outside India, payment received in convertible foreign exchange, and the supplier and recipient not being merely establishments of a distinct person.

However, the determination of the place of supply is beyond the jurisdiction of the Authority for Advance Rulings. Therefore, the Authority did not provide a ruling on whether the services could be considered as exports of services.

Ruling:

i. The services provided by the Applicant to its parent company are not classifiable under 'Maintenance, repair or overhaul services in respect of aircrafts, aircraft engines and other aircraft components or parts' and hence not covered under Sl.no. 25 (ia) of the Notification No. 11/2017-Central Tax (Rate), dated 26.06.2017, as amended.

ii. No Advance ruling is given on the issue of place of supply as the first question was answered in the negative.

iii. The classification of services provided to the parent company is 'maintenance and repair services of other machinery and equipment' under SAC 998719. On the question of whether it can be considered as export of services, ruling cannot be given as it involves the determination of place of supply, which is outside the jurisdiction of this Authority.

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