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TMI Blog2019 (11) TMI 398X X X X Extracts X X X X X X X X Extracts X X X X ..... it is adequately clear that question on determination of the 'place of supply' has been excluded from the above mentioned specific and exhaustive set of questions, in respect of which advance ruling can be sought under the CGST Act. This clearly indicates that we cannot pass any ruling in respect of the question which involves the determination of the place of supply of the goods or services or both. It can decisively be concluded that the question posed by the Appellant i.e. whether the GST is applicable on the Investment Advisory and Management Fees collected from the overseas Investors, is beyond the jurisdiction of the Advance Ruling, and hence cannot be decided by the Advance Ruling Authority. - MAH/AAAR/SS-RJ/07/2019-20 - - - Dated:- 4-10-2019 - SMT. SUNGITA SHARMA, AND SHRI RAJIV JALOTA, MEMBER PROCEEDINGS (Under Section 101 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) At the outset, we would like to make it clear that 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 such dissimilar provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... experience in the field of investments who are primarily responsible for the functioning of the Appellant. These are supported by a team of 9 persons responsible for accounting, HR, secretarial, IT, admin and other allied functions. 7.3 Founded in 2009, the Appellant is guided by its vision to generate Superior Returns by Creating Distinctive Investments with Conviction and forging lasting Partnerships with all Stakeholders. 8. Services provided by the Appellant 8.1 The Appellant provides Investment Advisory Management Services. The Appellant raises Funds from various investors located throughout the world, pools the Funds in an Investment Vehicle registered by SEBI under the SEBI (Alternate Investment Fund) Regulations, 2012 ( AIF ) and makes investment in various Indian Companies to provide Returns to the investors in the capacity of Investment Manager. The Modus Operandi of the Appellant is explained below. 8.2 The Services provided by the Appellant can be broadly categorized into the following - a) Setting up of the Fund b) Fund Raising c) Pooling of Investments into AIF d) Managing the Investments pooled in the AIF The detailed act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vesting it in accordance with a defined investment policy for the benefit of its investors; . The SEBI introduced AIF for enabling pooling of Investments by Companies like the Appellant to provide Investment Advisory Management Services for the funds pooled in the AIF and provide Returns on the Investments. 8.3.5.2 Income Tax: The Pass-Through nature of income is provided in Sec 10(23FBA) read with Sec 115UB of the Income Tax, 1961 which is reproduced below Section 10: In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included (23FBA) any income of an investment fund other than the income chargeable under the head D. - Profits and gains of business or profession ' It may be noted that for the purposes of section 10 (23FBA), the expression investment fund shall have the meaning assigned to it in clause (a) of the Explanation 1 to section 11513B (reproduced below); '; (a) Investment fund means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which has been granted a certificate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r are specific terms for certain investors like a) fee and other commercials terms are investor specific, b) process of calling capital would have investor specific conditions to be adhered by Appellant c) one or more investors may have rights to approve certain decisions (in respect of investment) of Appellant d) investor may have certain specific terms agreed in respect of functioning of certain aspects of operations of the Appellant 8.5 Pooling of Investors into AIF At the time of registration with SEBI, the AIF specifies the Appellant as the proposed Investment Manager of the AIF which is effective on completion of registration with SEBI. After such registration from SEBI, the Commitments are obtained from investors / Contributors and pooled into the AIF. The investors do not generally know each other - either before or after the fund-raising activity. The relationship of each investor is with the Appellant only. The Appellant raises the funds from various investors and pools them into the AIF. It is NOT a case where the investors pool into a Fund on their own and thereafter appoint the Appellant as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Fee is negotiated with each Contributor and accordingly a separate Advisory Management Fee Agreement is entered with each Contributor. 9.3 The Appellant raises invoices at regular intervals every year on the Contributors. The Domestic Contributors pay in Indian Currency and the Overseas Contributors pay in US Dollars. 9.4 IMPORTANT: The Contributors are liable to make payment of the Advisory Management Fee to the Appellant for the services. In event of any failure to make payment of fees by any Contributor, the Appellant has no recourse to recover the fees from the AIF. This is specifically agreed in the Investment Management Agreement (IMA) (Para 6.2 Page 13), Contribution Agreement (Para 3.2 Page 9). Relevant Extract from the Agreements relating to said nonrecourse is reproduced below - Advisory and Management Fee For the investment advisory and management services rendered in respect of the Fund Assets, the Investment Manager shall be entitled to receive from the Contributors an Advisory and Management Fee (the Advisory and Management Fee ), Such Advisory and Management Fee shall be payable by the Contributors and shall be computed on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) the recipient of service is located outside India; The Overseas Contributors ( Recipient as per Sec 2(93) of CGST Act) are located outside India (iii) the place of supply of service is outside India; Yes. As Per Sec 13(2) of the IGST Act, 2017 (iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; Yes. Consideration received in convertible foreign exchange (v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8; The Supplier and Recipient are distinct Persons. 12 AAR's Findings 12.1 The AAR has gone beyond the law to make assumption with regard to who is the recipient of Service by completely disregarding the facts emanating from the agreements. 12.2 Instead of relying on such facts, the AAR has conveniently assumed the Person Liable to make the Payment to be the AIF, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In fact, in the event of failure to make payment of fees by any Contributor, neither the Fund nor the other Contributors in the Fund can be held responsible. From the above, it is evident that the Contributors are liable to make payment of fees to the Appellant for the services received and the Fund has no obligation to make the payment at all. b) The Services provided by the Appellant are as established in Para 8.1 to 8.7. To state that receipt of payment from the investors is probably an Internal Arrangement is absurd. The Appellant and the investors are un-related parties having business relationship. c) Moreover, any Person may agree to pay for a service only if they are receiving any benefit of the service. The Contributors make payment to the Appellant because they are the beneficiary of the service and liable to make payment to the Appellant for the Investment Advisory Management Services rendered. d) With regard to the statement made by the AAR that - Person Liable to Pay cannot be equated with Person who has paid -we submit that, the Contributors are the Persons who are liable to Pay and have therefore made the payment. 13.2 As per Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services, made to this entity will be subject to GST. Aggrieved by this order issued by the AAR, the Appellant has filed the instant appeal and has specifically sought the ruling with regard to the Investment Advisory and Management Fees, collected from the Overseas Investors for the services rendered by them. 17. Now, before setting out to discuss the merits of the impugned AAR order, we would like to ascertain as to whether we have the legal jurisdiction in the CGST Act to decide this issue of taxability on the said Investment Advisory and Management Fees, collected from both the Domestic as well as the Overseas Investors, as the case may be. To ascertain this issue, we would like to revisit the provisions laid out in this regard in the CGST Act, 2017. Section 97(2) of the CGST Act, 2017, which deals with the specific and exhaustive set of questions, in respect of which the advance ruling can be sought under this act, is being reproduced herein under: Section 97 (2) The question on which the advance ruling is sought under this Act, shall be in respect of, (a) Classification of any goods or services or both under the Act; (b) Applicability of a notificat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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