commission, Goods and Services Tax - GST

[Madhavan iyengar]

X based in Maharahstra India has a GST regn X helps in procurement of orders for its overseas clients based in US and Germany X receives commission from the clients in US and Germany for the procurement of orders. Thus X is acting as intermediary and accordingly based on POPS the location is Maharashtra state.

In the above case X will raise invoice fro commission on the overseas clienst ,

Issues: X should discharge which tax IGST or CGST/SGST and can it treat the amount of commission received as inclusive or it has to calculate the tax on the amount received. ??

Posts / Replies

[KASTURI SETHI]

Dear Querist,

1.IGST

2. Why the question of cum tax ? Will X receive tax from foreign client ? Is tax already included in the amount of commission ? Is there such agreement to this extent ? Pl. clarify.

[SHARAD ANADA]

Reply Rto query 1

Section 8(2) of IGST Act defines that supply of services where the location of supplier or location of recipient is in same state or in same union territory, it would qualify to be as Intra-State supply but the same is subject to provisions of Section 12.

Section 12 shall apply to determine the place of supply of services where the location of supplier of services and location of recipient of services is in India. Section 13 shall apply to determine the place of supply of services where the location of supplier of services and location of recipient of services is outside India.

There is no specific provision to determine the place of supply of intermediary services in Section 12, therefore the general provisions contained in Section 12(2) would apply to determine the place of supply where the location of supplier and location of recipient in India. But, in contrast there is specific entry in Section 13 to determine the place of supply for intermediary services where the location of supplier of services or location of recipient of services is outside India.

Now, we are discussing whether intermediary services is Inter-State or Intra-State where the location of supplier or location of recipient is outside India as there is ambiguity on the same.

Considering the supplier is located in Maharashtra, the place of supply would also be Maharashtra as per Section 13(8) of IGST Act.

In the present transaction, the place of supply and location of supplier are in the same state. One may argue that this transaction would qualify to be as an Intra-State supply as per Section 8(2) of IGST Act. If we carefully see, lawmakers have used the words “subject to provisions of section 12” in Section 8 of IGST Act. The literal meaning of the term ‘subject to’ is ‘dependent upon’. Thus, when a provision is made subject to another provision, the former cannot override the later. Let us look at the legal implications of the words ‘subject to proviisons of’ as held by Hon’ble courts in various judgments.

In the case of South India Corporation(P) Ltd. Vs. Secretary, Board of Trivandrum and Another reported at AIR 1996 Supreme Court SC 207 = 1963 (8) TMI 30 - SUPREME COURT OF INDIA, the Supreme Court observed that the provision which is subject to other provision is placing that another provision to which it is made subject to in case of any disagreement in between two.

In case of Commissioner of Central Excise, Bhavnagar Vs Savrashtra Chemicals Ltd. Reported at 2007 (212) E.L.T 7(S.C) = 2007 (5) TMI 4 - SUPREME COURT OF INDIA, the court noticed the meaning of word ‘subject to’ is liable, subservient or affected by.

In case of K.RC.S Balakrishna Chetty and Sons and Co. Vs. State of Madras reported at AIR 1961 SC 1152 = 1960 (11) TMI 73 - SUPREME COURT OF INDIA, the three bench judge of Supreme Court observed that the meaning of word ‘subject to’ is ‘conditional upon’.

From the reading of above legal positions, a view can be taken that it is necessary to fulfil the condition of section 12 to fall in Section 8(2) of IGST Act. Thus, it is wrong to term intermediary services as an Intra-State supply of services in case where the location of supplier or location of recipient is outside India. This is for the reason that Section 12 is applicable only to determine place of supply where the location of supplier and location of recipient is in India and not covers the cases where the location of supplier or location of recipient is outside India.

Therefore, in this view, it shall qualify to be in the course of inter-state trade or commerce on the lines of Section 7(5)(c) as the same is a residuary entry to cover all cases not covered elsewhere.

The statutory text of section 7(5)(c) is reproduced as follows-:

Supply of goods or services or both-

a) When the supplier is located in India and the place of supply is outside India.

b) To or by a Special Economic Zone developer or a Special Economic Zone unit: or

c) In the taxable territory, not being an intra-State supply and not covered elsewhere in this section.

shall be treated to be a supply of goods or services or both in the course of inter-State-trade or commerce.

Thus, there is much ambiguity as shown above on the fact whether the intermediary services where the supplier is in India and recipient is outside India is intra-state or inter-state. Still, prima-facie on the wordings of the statue, it is to be treated as an inter-state supply of service. The same need a clarification by Department otherwise it is prone to litigation.

Reply to query 2

Please refer CGST Rule 35

[Madhavan iyengar]

sirs so what we are concluding based on the discussions and detailed analysis by shri anada and sethiji, the tax payable is IGST, and not CGST / SGST in all the cases where commission is received by intermediary based in india from the foreign parties.

As far as tax amount is concerned as stated the valuation rules will apply and the amount received has to be treated as inclusive and the formula to be applied and tax portion arrived at

[Mahadev R]

Following is one of the 65 FAQ released on banking service. In this it is clarified that it is subject to CGST + SGST. There is a divergent view on this. Payment of CGST + SGST could be safer option.

Q.25 Would intermediary services provided to an offshore client and services provided by a banking company to its offshore account holders be treated as an intra-State supply or an inter-State supply for payment of GST?

Ans: Under clause (b) of section 13(8) of the IGST Act, 2017 the place of supply of such services is the location of the provider of services. As the location of supplier and place of supply are in same State, such supplies will be treated as intra-State supply and Central tax and State tax or Union territory tax, as the case may be, will be payable.

[KASTURI SETHI]

Dear Sh.Mahadev R. Ji,

FAQ mentioned by you specifically pertains to Banking service as mentioned by you. Here the query is about service of procurement of order. What is here worth mentioning is that there is a major difference between Sections 12 and 13 of IGST Act, 2017. Section 12 uses the word, "AND" and Section 13 uses the word, "OR" .

However, Sh.Sharad Anada has discussed this aspect in detail in his reply above. He has left no stone unturned. Will you please discuss further to make it clearer ? Thanks.

[Madhavan iyengar]

thanks all sethiji anadaji and mahadevji

the deliberations have been of very high order and would congratulate all on this.

your stand of shri anadaji and sethiji has been vindicated by maharashtra aar ruling wherein they have gone thread bare into the provisions and explained why IGST would be applicable advance ruling no.

GST-ARA-23/2018-19/B-87 = 2018 (12) TMI 227 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA

AUGUST 10, 2018 =

Question :- (i) Whether the "Commission" received by the Applicant in convertible Foreign Exchange for rendering services as an "Intermediary" between an exporter abroad receiving such services and an Indian importer Of an Equipment, is an "export of service" falling under section 2(6) & outside the purview of section

13 (8) (b), attracting zero-rated tax under section 16 (1) (a) of the Integrated Goods and Services Tax Act, 2017?

Answer:- Answered in the negative.

Question :- (ii) If the answer to the Q (i) is in the negative, whether the impugned supply of service forming an integral part of the cross-border sale/purchase of goods, will be treated as an "intra-state supply" under section 8 (1) of the IGST Act read with section 2(65) of the MGST Act attracting CGST/MGST? And, if so, at what rate?

Answer:- The said supply will be treated as Inter-State supply and not intra state supply and IGST will be levied @ 18%.