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TMI Blog2018 (12) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... sons and who cannot change the nature of supply as provided by the principal. Applicant is covered by the said definition of an intermediary because they are definitely acting as a broker and facilitating the process for sale of materials by their foreign principals to the Indian parties because they locate the customer, negotiate the prices and probably ensure the sale, they also provide for discounts to the said customers, out of the commissions received bythem, as mentioned in the PO. It is very clear from the facts of transaction that the applicant is neither providing services nor supplying the goods on their own account. Since the applicant, being the supplier of service is located in India and the recipient of Service i.e. supplier of goods is located outside India, Section 13 of the IGST Act, 2017 would be applicable to determine the place of service - Since the place of supply of services in the instant case is in taxable territory, the said intermediary services cannot be treated as export of services under the provisions of the GST laws. In order to classify as ‘export of service’, as per section 2(6) of the Integrated Goods and Service Tax Act, 2017, one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference provision under the CGST Act/ MGST Act would be mentioned as being under the GST Act . 02. FACTS AND CONTENTION - AS PER THE APPLICANT The submissions, as reproduced verbatim, could be seen thus- STATEMENT OF THE RELEVANT FACTS HAVING A BEARING ON THE QUESTIONS 1. The facts relevant for the purposes of this application, briefly stated, are as under: The Applicant, M/s. Micro Instruments, Mumbai, (for brevity: Micro ) is a sole Proprietary Concern, duly Registered under the CGST/SGST and IGST Acts ( Reg. no. 27AHSPB0847K1Z2), having its registered Office at 15, Shri Kripa, Ramakrishna Society, Ram Mandir Road, Kherwadi, Bandra (E), and is carrying on trading business in Laboratory Instruments, its spare parts, Laboratory Equipment, and other related activities such as servicing, repairs and maintenance of Laboratory Eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er document, but Accounting was done only on the basis of the Credit Note/s. 3. Now, in the circumstances, the following questions arise for consideration decision by this Honourable Advance Ruling Authority, Maharashtra State, Mumbai: (i) Whether the Commission received by Micro in convertible Foreign Exchange as an Intermediary in International/cross boarder transaction, for acting as a Broker or facilitator, in procuring from an Indian Customer/s purchase order/s (P.O.) for importing Laboratory Equipment from Germany, is liable to GST either under CGST/SGST Act, 2017 or the IGST Act, 2017? And if so, the rate of CGST, SGST and IGST respectively. (ii) If liable to GST, whether the entire amount of Commission as converted in rupees, will be the taxable Value for tax quantification or whether the following deductions can be claimed: (a) Deducting expenditure on free supplies, which is a charge on the commission amount under the Contractual Terms as per P.O. (b) Deduction of tax element treating amount of net Commission (as per (a) above) as inclusive of CGST/SGST Act or IGST Act as the case may be. 4. For the purposes of examining the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry services; (c) Services consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels, up to a period of one month. (v) The term Intermediary is defined in Section 2(13) of the IGST Act, which says: (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 . (vi) Consequently, Micro being an Agent or Broker (or Commission Agent) and facilitator between the German -seller of the goods and the Indian-buyer of the goods, it shall be covered under the definition of Intermediary under Section 2 (13) of the IGST Act; but may not be regarded as providing intermediary Services , which expression is a coined phase, by the Draftsman, and not defined in any GST Law, i.e. CGST/SGST Act 2017 or IGST Act, 2017. Apparently, Intermediary is an adjective and qualifies services . {Adjective: 4. being between; intermediate. 5. Acting between persons, parties, etc.; sewing as an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present case, the condition No. (iii) in section 2/6) is not getting fulfilled because of the terminology used in section 13(8) (b) of the IGST Act, ( intermediary services ) read with section 2(13) defining intermediary to include broker or agent who arranges or facilitates the supply of goods or services, and consequently the place of supply gets coincided with the place of supplier , both in the taxable territory, India, and rendering the transaction taxable under the CGST/SGST Act, by denying the benefit of export of services or IGST Act legitimately due by virtue of the recipient of Services being in non-taxable territory, abroad. In the light Of the above discussion, one may consider that the supply of services by Micro would fall in the tax-net, fastening tax burden of 18% (9% CGST + 9% SGCT) under Services Tariff Heading 1-10.9997 (residuary entry). 7. Now, therefore, the CGST/ SGST will be payable in the Taxable Territory on account of the place of supply , being the place where the Supplier, i.e. Micro, is registered, that is in the State of Maharashtra. 8. In the context of the case on hand, the aforesaid interpretative process makes taxable int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f goods in the course of inter-State trade or commerce. (2) Supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-State trade or commerce. (3) Subject to the provisions of section 12, supply of services, where the location of the supplier and the place of supply are in (a) two different States; (b) two different Union territories; or (c) a State and a Union territory, shall be treated as a supply of services in the course of inter-State trade or commerce. (4) Supply of services imported into the territory of India shall be treated to be a supply of services in the course of inter-State trade or commerce. (5) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the nature of intermediary as defined in section 2 (13) of the IGST Act, for bringing together the Principals abroad (Germany,) and the Indian Customer (M/s. Panama Laboratory), who wants to buy a high-end product. What is received by Micro may be called brokerage for the sale of goods. Even if it is called commission it is specifically understood as being in respect of and in relation to the transaction of sale of goods directly made by the German-seller and the Indian buyer, and which at the hands of the Indian-buyer, M/s. Panama Laboratory, is an Import in every sense of the term. In other words, the nature of supply is intended to be and actually an international or cross-border transaction, export/ import of goods simpliciter, which under the GST regime is tan inter-state supply, covered by the IGST Act, 2017; and if that be the true position in law, the role of intermediary cannot be dissected and separately treated for GST law. 19. All the analysis discussion above, finally boils down to and depends on the true meaning and purport of the expression: intermediary services in section 13 (8) (b) of the IGST Act. If it is not the same thing as Intermedia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . What is the significance of use of the two terms/ expressions, apparently looking similar, by the Legislature in the GST statutes. One thing is clear that they are not synonymous terms or expressions, having the same meaning as another word or phrase in the same language. 22. One has to construe the true meaning of the undefined expression, namely, intermediary services , which is not simply a coined expression, but seems to have acquired a well set connotation. This expression is not used for the first time by the Legislature. 23. It may be added that this precise expression: Intermediary service was adopted by the Delegated Legislation while framing the Place of Provision of Service Rules, 2012 (POPS Rules, 2012). In those Rules, Rule 2 (f) had defined intermediary as below : (F) Intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the main service) between two or more persons, but does not include a person who provides the main service on his account.; The POPS Rules, 2012 came into force effective 01-07-2012 and Rule 9 of the said Rules, 2012 is ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n service. The expression intermediary service is thus, a nomen juris ( nomen juris, literally term of law; a technical legal term) and its use is having a specific legal concept and connotation. When that expression is used in any subsequent legislation, it has to be interpreted and understood in the same sense nothing less or more. (VIDE The Madras General Sales Tax Act, 1939 (Madras Act 9 Of 1939) was enacted in pursuance of the powers contained in entry 48 of List II of Seventh Schedule of the Government of India Act, 1935 which deals with sale of goods. The corresponding entry in the Constitution is entry No. 54 in List 11 of Seventh Schedule. It was in exercise of the powers under this entry that the Mysore Sales Tax Act, 1957 (Mysore Act No. 25 of 1957) was enacted. It is now settled law that the words sale of goods have to be construed not in the popular Sense but in their legal Sense and should be given the same meaning which they carry in the Sale of Goods Act, 1930. The expression sale of goods is a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement 25. In this conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions on the Statutory Rules of Interpretation. Suffice it to quote one: Raghunath Rai Bareja And Another vs Punjab National Bank and Others (CASE NO. Appeal (civil) 5634 Of 2006 Decided on 6 December, 2006 = 2006 (12) TMI 479 - SUPREME COURT OF INDIA (a) It may be mentioned in this connection that the first and foremost principle of interpretation of a statute in every system of interpretation is the literal rule of interpretation. (b) The other rules of interpretation e.g. the mischief rule, purposive interpretation etc. can only be resorted to when the plain words of a statute are ambiguous or lead to no intelligible results or if read literally would nullify the very object of the statute. (C) Where the words of a statute are absolutely clear and unambiguous, recourse cannot be had to the principles of interpretation other than the literal rule, vide Swedish Match AB vs. Securities and Exchange Board, India, AIR 2004 SC 4219 = 2004 (8) TMI 389 - SUPREME COURT OF INDIA . (d) As held in Prakash Nath Khanna vs: CIT., 2004 (9) SCC 686 = 2004 (2) TMI 3 - SUPREME COURT , the language employed in a statute is the determinative factor of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... text in which the provision occurs and the purpose for which it is made. (iv) In the case on hand, the section 13(8) of the IGST Act is intended to apply to specified services , and clauses (a) and (c) relate to pure services . Clause (b) Cannot take in its fold services in relation to goods ; because the entire GST Law maintains dichotomy between the goods and services . (v) Further, it is well settled that every word or phrase in a clause takes colour from the other related clauses in the same section, namely, sub-section (8), section 13 of IGST Act. (vi) As stated earlier, if the Legislature wanted to have wider meaning of services , it would have used the phraseology services of intermediary rather than Intermediary services (vii) It is not open to inject definition of intermediary as Amended in 2014, by interpretative process when the context of Section 13 (8) is specifically restricted made applicable to specified/selected services . (viii) When reading intermediary as an adjective , one has to give due meaning to it and read that expression to convey those services which are contradistinguished from the main services. (ix) In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (5) Supply of goods or services or both, - (a) when the supplier is located in India and the place of supply is outside India; Will apply, and consequently zero-rated tax benefit under section 16 would be available. PRAYER : 33. The Applicants most respectfully pray that the application be allowed, and (a) that it be held that there will be no CGST/SGST applicable on the services provided by the Intermediary (Micro) acting as a Broker to facilitate Imports of goods by the Indian Customer from the Seller-supplier (Germany) under the cross-border transaction, (b) If in the unlikely event it is held that either CGST/SGST or IGST is payable, then: (i) the rate of GST payable, (ii) and the taxable value , gross or net commission (after deducting value of free supply of goods by Micro, as per PO) for levy of GST may also be determined. (c) The Applicants crave leave to add, delete or modify the submissions made herein either before or at the time of hearing. STATEMENT CONTAINING APPLICANTS INTERPRETATION OF LAW IN RESPECT OF THE QUESTIONS RAISED IV-STATUTORY PROVISIONS: 7. Before proceeding to make legal submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a Broker (or Commission Agent) and facilitator between the German -seller of the goods and the and the Indian-buyer of the goods, shall be covered under the definition of Intermediary under Section 2 (13) of the IGST Act bringing about a deal for export-import of goods/equipment , a cross-border transaction in the nature of inter state sale under IGST Act. IV-STATUTORY PROVISIONS: RULES OF INERPRETATION: 8. At this stage, it is necessary to refer to well settled Rules of Interpretation of statues: (i) Legislative enactment is an edict. One has to read what is expressly stated in the enactment. (ii) It is not necessary to survey innumerable Apex Court decisions, suffice it to quote one: Thus, in Madamanchi Ramappa Anr. Vs. Muthaluru Bojjappa AIR 1963 SC 1633 = 1963 (3) TMI 77 - SUPREME COURT OF INDIA (vide para 12) the Apex Court observed : What is administered in Courts is justice according to law, and considerations of fair play and equity however important they may be must yield to clear and express provisions of the law. . (iii) The first and foremost principle of interpretation of a statute is the literal rule of interpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi Transport Corporation vs. D.T.C. Mazdoor Congress on 4 September, 1990 = 1990 (9) TMI 334 - SUPREME COURT ), the doctrine of reading down is applied where the provisions of the statute are vague and ambiguous and it is possible to gather the intention of the legislature from the object of the statute, the context in which the provision occurs and the purpose for which it is made. In the case on hand. the title of section 13(8) of the IGST Act shows that it is meant to apply to specified services , and clauses (a) and (c) relate to pure services . Clause (b) cannot take in its fold services in relation to goods ; because the entire CSI* Law maintains dichotomy between the goods and services . Section 2(102) of the CGSST Act: services means anything other than goods, money and securities but includes... (ii) Further, it is well settled that every word or phrase in a clause takes colour from the other related clauses in the same section, namely, sub-section (8), section 13 of IGST Act. (iii) As stated earlier, if the Legislature wanted to have wider meaning of services , it would have used the phraseology services of intermediary rather than I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture uses a particular phraseology, full meaning must be given by following the rules of English grammar. In that sense, the word: intermediary being an adjective of services, in section 13(8) (b), the defined word: intermediary cannot be brought-in to inject the concept of services relating to goods. (C) The expression, intermediary services had acquired definite connotation when the POPS Rules, 2012 were brought in to play, namely, the services differentiated from the *main services . Since the term intermediary services is nomen juris. it must be interpreted in its legal sense only: (d) It therefore. follows that the section 13(8) (b) cannot be held as taking away the benefit of export service as defined in section 7 (5) (a) of the IGST Act. Consequently zero-rated tax benefit under section 16 would be available. VI-PRAYER: 13. In the circumstances, the Applicant most respectfully prays: (a) That it be held that the services of the Applicant as an intermediary are received consumed by the Principals in Germany, and as such the place of supply is Germany as per section 13(2) of the IGST Act, and hence all the conditions in sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term. Whether a transaction is Export of Services or not is dependent upon the fact as to whether Supply of Services is out of India or Not. Consequently, if the MAAR proceeds ahead with examination and consideration of this fact, discussion and finding on aspect of place of supply will be inevitable. The Act limits AAR to decide issued earmarked for it under Section 97(2) of MGST/CGST Act. Therefore, where a question also involves examination of place of Supply (which is not amongst the issued which can be decided by AAR), the question cannot be taken by the authority for lack of jurisdiction. (Ref. Decision by Haryana Authority for Advance Ruling HAR/HAAR/R/2018-19/6) = 2018 (7) TMI 1334 - AUTHORITY FOR ADVANCE RULINGS HARYANA . Secondly, we may refer to submission by dealer under heading Rules of Interpretation (Page No-6, point No-ii) which argues about consideration must yield to clear express provisions of the law . Also as per point No. vi and vii, dealer has quoted that - legislature is presumed to have made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The applicant, Ms Vishaka Prashant Bhave, is the proprietor of the firm M/s. Micro Instruments (hereinafter referred to, as MI ) and had made the subject application in her capacity as a proprietor. Briefly stated, MI is providing services to its Principals at Germany, by way of procuring Purchase Orders (P. O.) from the parties in India who desire to purchase advanced type of Laboratory Equipment from their Principals. A floor price is fixed by the Principals for the said equipments and MI negotiates the terms of supply including fixation of price above such floor price, for which they receive commission in convertible foreign exchange . After the negotiations are concluded, the prospective customer in India places the order directly on the Principals at Germany, arranges for remittance of purchase price arrived at and the material is directly supplied to them by the foreign Principals. The applicant has submitted that in most cases the P.O. states the name of MI and also mentions that the Indian Purchaser will be entitled to have some discounts to be provided by MI, which is thus provided by MI. Services with respect to the materials purchased are to be provided by the for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... freely convertible currency. We agree with this contention of the applicant that they are providing taxable services in the instant case. Since the applicant, being the supplier of service is located in India and the recipient of Service i.e. supplier of goods is located outside India, Section 13 of the IGST Act, 2017 would be applicable to determine the place of service. As per Section 13 (8) (b) of the said Act, the place of supply of Intermediary Services shall be the location of the supplier of services , in this case, the applicant. Since the place of supply of services in the instant case is in taxable territory, the said intermediary services cannot be treated as export of services under the provisions of the GST laws. In order to classify as export of service , as per section 2(6) of the Integrated Goods and Service Tax Act, 2017, one of the crucial condition as contained under sub-clause (iii) requires that the place of supply of service should be outside India. In the subject case, the place of supply shall be location of the supplier of services and therefore such intermediary services cannot be classified as export of services . Further, we find that thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 12 of the IGST Act. As per section 12, the provisions of section 12 would be applicable only for determining the place of supply of service where the location of supplier of services and the location of recipient of the services is in India. When recipient is located outside India the said provisions of section 12 cannot be made applicable and since provisions of section 8(2) are inter-linked with provisions of section 12, the same cannot be made applicable in case the recipient of service is located outside India. Thus we find that in case the intermediary services are provided to the recipient located outside India, the inter-state provisions as contained under section 7(5) (c) shall be applicable and hence IGST is payable under such transaction. 06. In view of the extensive deliberations as held hereinabove, we pass an order as follows : ORDER (under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) NO.GST-ARA-23/2018-19/B-87 Mumbai, dt. 10/08/2018 For reasons as discussed in the body of the order, the questions are answered thus - Question :- (i) Whether the Commission re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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