9911796707
TMI Blog2018 (10) TMI 1517X X X X Extracts X X X X X X X X Extracts X X X X ..... be seen from the definition of the intermediary. The Appellant, in their appeal submissions, have also been highlighting the industrial practice, wherein a FSO avails Consultancy Service and Support Service bundled together as Marine Consultancy Service from the same supplier for it increases effectiveness and helps in cost economization. However, from the study of market practices or trends in vessels chartering industry available on the website bearing address general cargoship.com/charter-markets.html, it has come to our notice that the ships are normally “fixed” on charters with the assistance of the shipbrokers, who may be the FSO’s brokers or charterers brokers. Here the FSOs’ brokers are those, who find and arrange employment for their principals’ ships and charterers’ brokers are those who find ships to carry out their principals’ requirements. The Appellant is actually facilitating the supply of the main services i.e. chartering of the vessels by the FSO to their clients i.e. charterers, thereby clearly acting as an intermediary, as the chartering of the vessels is not the main service of the Appellant, but their principal i.e. the FSO. Appellant are performing all these s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (State of Maharashtra). Its partnership deed inter alia records that the partnership business shall be that of consultants. B. The service by the Appellant essentially includes collecting market intelligence information and updates which is directed to the ship owners engaging the Appellant. This is the principal service of the Appellant and is known as Consultancy Service. Separately, service provided by the Appellant also includes providing Support Service to Indian/ foreign ship owners so as to identify charterers who are seeking to optimise revenue for their vessels and monitoring voyage execution, which is the ancillary service offering of the Appellant, Consultancy Service and the consequential Support Service provided by the Appellant are generically referred to as Marine Consultancy Service ("MCS") together by the Appellant. C. MCS is provided by the Appellant in terms of a typical Consultancy Agreement executed by and between the Appellant and the ship owners. Details of service provided by the Appellants are provided in the Annexure attached to the agreement entered with FSO. D. This appeal (as also the Application for Advance Ruling) concerns only supplies made to ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to MCS. These services not covered under a specific rule of the Place of Provision of Service Rules, 2012 ("PPSR") . Therefore, Rule 3 of the PPSR that is, default rule under the PPSR was applicable. As per Rule 3 of PPSR, the place of provision of service was 'the place of recipient of service'. Therefore, the place of provision of service was the place of FSO, which was outside India. Tax treatment under GST K. The Appellant is providing MCS to both Indian and FSO. There is clarity regarding the GST implication on service provided to Indian ship owner as both provider and recipient of service are located in India however, there is inadequate clarity regarding the GST implication on services provided to FSO (located outside India). Therefore, the Appellant approached the Authority for Advance Ruling ('the Authority") by filing an application requesting Advance Ruling on January 19, 2018 regarding MCS provided by the Appellant to FSO. The Appellant sought an Advance Ruling from this Hon'ble Authority in respect of the composite supplies of MCS by the Appellant to FSO. Specifically, the advance ruling is sought on the following questions: A.1 Whether MCS provided to FSO constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply' with the principal supply of Consultancy Service 2. The Appellant is an Indian service provider who provides supply of MCS service to foreign parties known as FSOs. The offering of MCS service by the Appellant is in the form of composite supply of services with the principal supply being Consultancy Service. The Support Service provided by the Appellant is in conjunction with the Consultancy Service rendered by it. Therefore, the offering of MCS service by the Appellant can be said to be the offering of two services in conjunction with each other, which are naturally bundled together. 3. It is submitted that in the facts and circumstances of the present case, the impugned findings that the supply of MCS by the Appellant would not constitute a "composite supply" with the principal supply being the supply of Consultancy Service, is completely erroneous and unsustainable. From 01st July, 2017 (GST regime), all forms of supply of service made for a consideration by a person in the course of furtherance of business qualifies as supply which is liable to GST in terms of Section 7(1)(a) of the CGST Act unless exported or exempted. Where two or more services are provided by a supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy Service helps the client (i.e. FSO) with market intelligence and trade analysis, etc. which helps them in identifying potential charterers and thereafter zeroing on one or more such potential charterers. Thus, the Consultancy Service provided by FSO in tune helps the FSO to augment its business and expand its client base and all these services are provided as one service. 7. Support Services, on the other hand, provided by the Appellant to FSO (client) is a relatively newer offering, and a requirement emerging in recent times as markets became more competitive. This offering is usually at the end of the employment of vessel and involves Appellant merely monitoring voyage execution, examining the lay time calculations and arranging for reconciliation of accounts to crystalize receivables of FSO. Occasionally, support may involve postal or ministerial acts of transmitting messages between FSO and charterer. Yet at all times services are directed at, at insistence of and for benefit of FSO alone. 8. The Appellant can thus be considered as a service provider who supports FSOs in identifying, sourcing and procuring business and thereafter, smoothly concluding it. Therefore, the ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy Service) is the principal supply. 12. The term 'naturally bundled and supplied in conjunction with each other in the ordinary course of business' is not defined in CGST Act or IGST Act but this concept has been carried forward from the Service tax law. Reference is therefore made to taxation of Services: An Education Guide (June 20, 2012), which provides that to demonstrate that a service is supplied in conjunction with each other in the ordinary course of business, the supply of services should meet some of the following criterion which are indicative, not conclusive and in fact satisfied by the Appellant: • The perception of the recipient of service i.e., a large number of service receivers expect these services to be provided as a package. Appellant is providing the service as a package as the FSO prefers to engage with one service provider to receive gamut of services which augments their business and it is convenient to pay singular consideration which is a percentage of the value of freight received by the FSO. • Majority of similar service provider in the industry provide similar bundle of service. Service provided by Appellant to FSO has an evolving nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and increased competition both domestic and overseas, has made it necessary for Appellant to provide the entire gamut of service as a package. • Different elements not available separately. Neither FSO approach Appellant to provide only Consultancy Service or only Support Service, nor is the Appellant able to or actually engaged to provide each of the elements of service separately. In fact, the Appellant has in the past not provided these two services separately and always provided these conjointly. The FSOs (industry) require, generally, the provision of services (MCS) as a bundle of service being based outside India and owing to this expect Consultancy Service and Support Service together as MCS and as a result it is commercially inexpedient for Appellant to so offer it. • Different elements are integral to one overall supply. Service recipient's end objective is employment of vessel. Appellant provides Consultancy Service to FSO. The information disseminated by Appellant under Consultancy Service is used by FSO for employment of vessels. Once FSO itself fixes the charterer, Appellant is required to provide Support to FSO by enabling conclusion of the transaction ina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of this nature and is the standard form of contract employed by the industry for transactions of this nature. The Authority has acted in an arbitrary manner by resorting to an isolated reading of the "Independent Contractor Clause" present in the Agreement to determine whether the MCS service supplied by the Appellant would qualify as "composite supply" or not. The Authority has failed to apply its mind soundly to the issue at hand by not taking into consideration the legal principle that a contract must be looked at as a whole to ascertain the business meaning attributed to it by the. Reliance in this regard can be placed on Mumbai Metropolitan Region Development Authority v. Unity Infraproject Ltd. 2008 (5) Bom CR 196 = 2008 (2) TMI 925 - BOMBAY HIGH COURT. In this case, the Hon'ble Bombay High Court has held that- Para 11 "In interpreting a contract, the Court cannot place emphasis on an isolated provision divorced from the context and unrelated to the other provisions which govern contractual obligations. Contracts represent business understandings between the parties. Commercial dealings between persons who are well versed in the transaction of business are regulated b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts findings, thereby rendering the Impugned findings unsustainable. 18. Without prejudice, it is relevant to note that the Authority has concluded that the Agreement is in respect of a particular contract (MV AM OCEAN PRIDE/ MARUBENI CEMENT CHARTER PARTY CONTRACT DATED 3RD MARCH 2017) and not a general agreement. Therefore, a generalization regarding the perception of an FSO on the basis of the clause on 'Independent Contractor Status' present in the Agreement was uncalled for and is flawed and bad in law for this reason. In this regard, the Appellant is submitting another sample agreement entered between the Appellant and an FSO which too is a template agreement that the Appellant enters into with the FSOs. 19. At any rate, the Authority ought to appreciate that the intention behind the transaction is relevant to ascertain the true nature of an agreement. The words of an agreement must not be construed in such a manner as to defeat the intention of the parties involved in the transaction. Reliance in this regard can be placed on the following decisions: i. N.M. Goel and Co. v. Sales Tax Officer, Rajnandgaon and Ors, 1988 (38) ELT 733 (S.C.) = 1988 (10) TMI 106 - SUPREME COURT O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us and unsustainable. 22. Further, the observation of the Impugned Order that there exists no service which can be identified to be a principal supply of service from the services listed in the exhibit to the Agreement is erroneous and flawed. Consultancy Service provided by Appellant to FSO augments its business viability and profitability. It is the Appellant's advice on vessel positioning, bunker trends, commodity market, etc. which helps FSO to reach out to potential charterers which is the main objective of FSO's business. The Appellant by utilizing the market intelligence gathered by the research analysts employed by it, with respect to vessel positioning, bunker trends, commodity market, inter alia others, suggests potential charterers that may require the services of the FSO. Thereafter, FSO indulges in negotiation of terms of the contract with the charterer it finds most suitable among the potential charterers suggested by the Appellant. Once FSO enters into a contract with the charterers, Appellant is called upon to provide Support Service in relation to the voyage. 23. Therefore, without Consultancy Service, FSO will not be able to efficiently contract with potential c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant to FSO is in relation to transportation of goods by vessel only, the Appellant held the opinion that Heading 9967 under which SAC 996759 at Serial No. 148 of the Annexure to the Notification ("other supporting services for water transport nowhere else classified") is the specific entry which provides the appropriate description of activities provided by Appellant. Therefore, MCS will be classified therein and leviable to GST at the rate of 18%. Explanatory notes to the Scheme of Classification of Service 28. Explanatory notes to the scheme of classification issued by the Central Board of Indirect taxes and Customs provide which "indicate the scope and coverage of the heading, groups and service codes of the Scheme of Classification of Services. These may be used by the assessee and the tax administration as a guiding tool for classification of services". Explanatory note to SAC 996759 which deals with "other support services for water transport" provides the following: "This service code includes water transport supporting services directly connected with vessel operations not elsewhere classified and also include services not directly connected with vessel operations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was reiterated in the case Coastal Container Transporters Association vs. Union of India [(2018) 65 GST 413 (Gujarat)] = 2018 (1) TMI 501 - GUJARAT HIGH COURT. As this is a generic entry, it is submitted that the specific entry of SAC 996759 would prevail. The Authority has failed to answer a question permissible under Section 97(2) of CGST Act. 33. The Authority has failed to appreciate that determination of classification, which is permissible question under Section 97(2) of CGST Act, is necessary to ascertain the place of supply of service, which in turn would equip the Appellant to determine whether the supply of MCS by the Appellant to an FSO would qualify as an export of service under Section 2(6) of the IGST Act, and subsequently the tax liability on the supply of MCS. Export of service is defined under Section 2(6) of the IGST Act as following: '2(6) 'export of services' means the supply of any service when,- i. the supplier of service is located in India; ii. the recipient of service is located outside India; iii. the place of supply of service is outside India; iv. the payment for such service has been received by the supplier of service in convertible fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diary service", it must not be lost sight of that - * The service provided by the Appellant in this case would be in relation to employment of a vessel (i.e. service provided) by the Appellant located outside India * The destination of Appellant's service is outside India * To the charterer located outside India, and * Contract for plying of vessel between FSO and the charterer is signed outside India and executed outside India. 38. Therefore, as the service of Appellant is provided in relation to a service which is intangible in nature and is initiated, executed and concluded outside India, between parties located outside India in relation to a vessel located outside India, and the service of Appellant is used/ consumed outside India, the transaction be regarded as being outside the territorial jurisdiction of GST law, which extends up to 200 nautical miles from base line inside sea in India. In other words, the jurisdiction of the CGST Act or IGST Act does not extend to such transactions, in terms of the doctrine of territorial nexus as laid down by the Hon'ble Apex Court in GVK Inds. Ltd. & Anr. vs. Income Tax Officer & Anr. [(2011) 332 ITR 130 (SC)] =2011 (3) TMI 1 - S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice but would be a service provided independently on his own account. 42. The Impugned Order is erroneous and misdirected, in as much as that the supply of Support Service provided by the Appellant would not qualify as an "intermediary service" within the terms of Section 2(13) of IGST Act. An intermediary service in terms of Section 2(13) of the IGST Act, is extracted below: "Section 2(13) - "intermediary" means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account." 43. According to the Webster's Encyclopedic Unabridged Dictionary of the English Language, the term "arrange" means ('to prepare or plan". Further, the Black's Law Dictionary, 9th Edition defines the term "facilitation as "the act or an instance of aiding or helping". Since, in the facts of the present case, the provision of Support Service can by no means be considered as being provided for the purpose of preparing or planning the transaction between the FSO and the charterer. Support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant's role involves the provision of market intelligence to the FSO which helps the FSO in identifying potential charterers that would be interested in contracting with it and thereafter to provide Support Service for the transport of goods by ship. 46. The Appellant enters into a contract with the FSO for the supply of MCS service which consists of Consultancy Service and Support Service, and the fee for the provision of service will be a percentage of the gross revenue of the transaction and would be predetermined by the FSO and the Appellant and would be paid only on the successful completion of the voyage of the vessel chartered. The Appellant employs research analysts who gather the requisite market intelligence and on the basis of this intelligence gathered, the Appellant provides the FSO with a list of potential charterers that the FSO can contract with. Further, the service provided by the Appellant is on his own account and reliance in this regard can be placed on para 1 of the Agreement which provides that the Appellant is required to provide independent advice uninfluenced by commercial concerns and that the Appellant is not required to be an advocate for the FS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FSO who then directly negotiates, enters into contracts, and renders service to the charterers who may be located in India or abroad. Remuneration for service is provided by the FSO to the Applicant and no payment is received from the charterers who are the customers of the FSO. 50. Similarly, reference is made to the decision of the Authority of Advance Ruling in the case of In Re : Universal Services India Pvt. Ltd [2016 (42) S.T.R. 585 (A.A.R.)] = 2016 (5) TMI 750 - AUTHORITY FOR ADVANCE RULINGS. In this case, the service provider providing payment processing facilities to a domain service provider was held not to be a provider of "intermediary service" within Rule 2(f) of the Place of Provisions of Services Rules, 2012, as the service provided by him was on his own account and remuneration entitled to him was payable by the domain service provider alone and no remuneration of any kind was obtained from any of the customers of the domain service providers. As is the case of the Applicant where MCS is provided by the Applicant on its own account and remuneration to him is payable by the FSO and no remuneration of any kind is paid or payable by the charterer. 51. Further, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diary services as envisaged by the Advance Ruling Authority as they do not represent, or act on behalf of, the Foreign Ship Owners ( herein after referred to "FSO")while negotiating the terms and conditions of the contracts/agreements, related to the chartering of the vessels entered between FSO and their clients, thereby, not facilitating or arranging for the said supply of the vessels chartering services by the FSO to their clients in any manner. They are just suggesting the name of the potential charterers of the vessels to the FSO by way of the market research and analysis undertaken by the various professionals/experts employed by the Appellant. Thus, they are rendering the consultancy services to their clients. In addition to this consultancy services, they are also providing support services after the contracts between the FSOs and their clients for the chartering of the vessels owned by the FSO are finalised and the actual navigation of the vessels commence, when they are required to monitor the vessels' voyage execution for smooth and efficient operations so as to optimize performance for the ship owners along with the other ancillary services like examining lay time calcu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and are supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. 60. Here, the Appellant has submitted that they are providing the consultancy services and the Business Support Services to the FSO, one after the another i.e. first they are first providing the consultancy services by way of the provision of the list of the potential charterers of the vessels owned by the FSO, after doing all the professionals driven research and analysis of the data procured from the various authentic sources. They are classifying these activities as consultancy services. Out of this list of the potential charterers, when the FSO enters into agreement with any of these charterers for chartering of their vessels subject to the terms and conditions of the said agreement, the FSO again call for the services of the Appellant, this time to monitor the voyage execution and examine the lay time calculations and account reconciliation etc., which the appellant are classifying as support services. Thus, consultancy services are followed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to be an intermediary service are asunder:- (i) There should be supply of goods or services or both; (ii) There should be the involvement of three persons (i) the supplier of the goods or services or both (ii) the receiver of the supply of the goods or services or both and (iii) the intermediary who arranges or facilitates the said supply of goods or services or both subject to the condition the said supply is not made by the intermediary himself on his own account. 64. Applying these above conditions/parameters to the instant case, it is expressly understood that the Appellant is acting as an 'intermediary' in the present arrangement. This can be understood by the following sequence of facts. (i) There has been a supply of services, called Rental services of water vessels including passenger vessels, freight vessels and the like with or without operator as classified under SAC 996602, by FSO to the vessel charterer. (ii) There are involvement of three entities only, first one is Supplier of the chartering services, i.e. The FSO; Second one is the receiver of this chartering service i.e. the charterer and the third one is the Appellant, who have made this supply of servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects", e.g. "subject stem", "subject receiver's approval", etc., where the main terms have been agreed, but final agreement is subject to various secondary conditions being agreed. 6. Fixture, i.e. the full and final agreement, with all "subjects" removed. Following fixture is a "post-fixture" or follow-up period during which the broker may undertake various administrative functions on behalf of his principal, such as (in some cases) collection of freight or hire. Shipbrokers are remunerated by commission, called "brokerage", payable by the ship owner to each broker involved in arranging a contract. In voyage or time charters the brokerage payable is stipulated in a Brokerage Clause and is normally 1.25% of the ship owner's gross receipts from hire, freight, dead freight and demurrage, payable to each broker involved. 67. Thus, on perusal of the market/industry practices as mentioned above, it is prominently noticed that the appellant have made agreement keeping all the clauses related to the necessity or the requirement of the services being offered to the FSO similar to the practices observed in the vessels chartering industry, which include (a) the arrangement for the employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of which the final agreements in respect of the chartering of the vessels are being done, but also at the later stages, when they are called upon their principal i.e. the FSO, for rendering the voyage execution, on the behalf of the their principal i.e. the FSO. Thus, the Appellant is actually facilitating the supply of the main services i.e. chartering of the vessels by the FSO to their clients i.e. charterers, thereby clearly acting as an intermediary, as the chartering of the vessels is not the main service of the Appellant, but their principal i.e. the FSO. Appellant are performing all these services on behalf of their principal i.e. the FSO, thus acting as an intermediary. The above said intermediary services can be classified under the Service Accounting Code 999799, which is "Other Miscellaneous Services", as per the Annexure to the Notification 11/2017 -C. T. (Rate) dated 28.06.2017 as the intermediary activities cannot be classified in any other service head/group of the above mentioned Annexure. 69. Further, in addition to the above intermediary activities, they are obliged to perform the other administrative activities like examination of lay time calculation, voyag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service tax registration either under Business Consultancy Services or under Business Support Services. But, that was not the case. Instead, they opted for the Business Auxiliary Service. In this way, they are clearly contradicting their entire submissions and contentions and by doing so, their entire appeal has no grounds worthy of consideration. In view of the above discussions, we pass the following order- Order In view of the above discussion, we hold that the entire gamut of services performed by the Appellant are in fact of the composite supply of the intermediary services, classified under the Service Accounting Code 999799, which is other miscellaneous services, and the accounting services under the SAC 998222, of which the intermediary service is the principal supply. Therefore, the issues raised by the Appellant with regard to their activities in this appeal stands disposed in terms of the above discussion and findings. The individual questions, asked by the Appellant vide their application filed before the Authority for the Advance Ruling as well as vide their appeal filed before us have lost the context as well as relevance in light of all the above discussion and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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