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TMI Blog2021 (7) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose of determining an intermediary as per the definition. An intermediary will merely facilitate or arrange the supply of goods or services between two or more people but will not be providing such supplies on his own account. Here, the word, such is of paramount importance. Such goods in the present case are the raw materials supplied by the vendors to Airbus Invest SAS, France - the activities performed by the applicant are fulfilling the parameters mentioned in the definition of Intermediary as per Section 2 (13) of IGST Act, 2017. The activities carried out in India by the Applicant would constitute a supply as Intermediary services classifiable under SAC 998599 - The services rendered by the Applicant do not qualify as export of services in terms of sub-section 2 of Section 6 of the IGST 2017 and consequently, are exigible to GST at the rate of 18% in terms of clause (iii) of entry no. 23 of N/N. 11/2017-Central Tax (R) dated 28.06.2017. - KAR ADRG 31/2021 - - - Dated:- 1-7-2021 - DR. M.P. RAVI PRASAD SRI. MASHHOOD UR REHMAN FAROOQUI, MEMBER Represented by : Sri K J Shah, C A Authorised Representative ORDER UNDER SECTION 98(4) OF THE CGST ACT, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... best value to its customers. d) For sourcing various goods and services, Airbus Group is dependent on numerous key suppliers and subcontractors to provide it with the raw materials, parts, assemblies, systems, equipment and services that it needs to manufacture its products. Over the years, its global sourcing footprints has expanded across the globe including North America, South America, Europe, Africa, Middle East, and other Asia-pacific regions including India. e) Additionally, to promote further globalisation of its sourcing footprint, Airbus has established regional offices across multiple countries such as North America, China East Asia and India. 4. The applicant submitted the following with regard to Airbus Group global sourcing strategy and the agreement entered with its regional entities for obtaining support services in relation to its global procurement / Sourcing strategy . i. As a part of its global sourcing strategy, Airbus Group has a specialized global sourcing team which is responsible for formulation and implementation of entire group sourcing strategies which in turn achieves the overall objectives of the group and making it competitive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to supplier development activities which includes the activities such as: A.1.1. Based on Airbus SAS guidelines received in connection with Generic Supply-chain and Quality requirements for suppliers, the applicants conduct onsite assessments on and even monitor the performance of various suppliers approved by Airbus SAS under the supplier development program. Post the said assessment, Airbus India shares a report with Airbus SAS covering the following attributes such as: Supplier business performance and its maturity development status delivery and quality performance of the supplier nominated under the program product quality and production performance Surveillance audit of the supplier evaluation of the risk of the supplier risk benefit analysis in connection with new SP strategy implementation of Advanced Product Quality Planning (APQP) Market situation in India and its Neighboring countries etc., A.1.2. The Applicant provides support to various suppliers nominated under the supplier development program by Airbus SAS in their various operations such as running activities, recovery, transfer of work (ToW), and assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue chain analysis, maintaining updated information database; B.1.8. Airbus India to assist Airbus SAS in identifying and accessing the local capabilities in Indian region and provide necessary guidance to local vendors and update them about product changes and expectations; B.1.9. Airbus India to provide its support to Airbus SAS during RFP/RFI process, but excluding any commercial and contractual negotiations with Indian suppliers will be carried out independently by Airbus SAS; B.1.10. Under the aforesaid agreement, the role of Airbus India is limited only to review the potential supplier, his operations, operations / quality standards and report its observations and provide relevant expertise from time to time to Airbus SAS. Airbus India does not have any role or right or decision in the following activities and the ultimate right / management decision vests with Airbus SAS: to confirm the identified / potential supplier from whom the products may be sourced, to communicate with the supplier about his selection; to sign a contract and place the order with the supplier identified; to issue purchase order and pricing of the product to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Support services in obtaining an initial quote and terms of contract from the suppliers and sharing with Airbus SAS; Review of the suppliers selected by Airbus SAS performance production quality in terms of adhering to the production schedule shared by Airbus SAS and understand the challenges, if any; providing continuous update of the supplier operations to Airbus SAS; Services / activities specifically excluded under the agreement from the purview of Airbus India: Decision of continuing the relationship and procurement with supplier who has been identified or reported for any unethical or non-compliant behavior / activity in the supply chain, since the same is vested with Airbus SAS; Deciding the supplier from whom the merchandize will be sourced; Communication to supplier about his selection; Reviewing of quote obtained and terms of contract from the suppliers and discussion with supplier; Negotiating with the supplier, agreeing on the terms and conditions; Signing a contract / issuing purchase order and placing request for supply; Sharing the production schedule with the supplier; Payment to the suppliers; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uirements, processes to be carried out, information on supplier landscape, their operations, capabilities, market conditions, etc., in order to meet the Airbus group agreed procurement quality standards, processes and strategy. 7.4 In addition to the above submission and without prejudice to any other view by your kind authority, the Applicant would wish to submit that the activities rendered by them cannot be classifiable under the following service codes / scheme of classification of services on those reasons as discussed in subsequent paragraphs: Chapter, Section, Heading or Group Description of Service in the Tariff Entry 9985 Other support services 9961 Services in wholesale trade 9962 Services in retail trade 7.5 The classification entry (i.e. 9985 - Other support Services ) may not be applicable in the given context, since the services / activities rendered by the applicant are more specifically covered under the heading 9983 - Other professional, technical and business services. Moreover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to understand whether the person qualifies to be an agent or a broker , it is imperious to understand the meaning of expression agent or broker . The term agent is defined under clause 5 of Section 2 of the Central Goods and Services Tax Act, 2017 (hereinafter referred as CGST Act, 2017 ) and said provisions are made applicable to IGST Act, 2017 by virtue of provisions contained in section 20 of IGST Act, 2017: CGST Act, 2017: In terms of clause 5 of section 2 ibid, agent means person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another. 7.10 Judicial precedents under prior indirect tax laws while analysing the scope of the term agent have held the following: Agency relationship is typically determined in light of the terms and recitals of the contract, intention of the parties (as apparent from the said contract) and the surrounding circumstances in the course of the dealings between the parties; An agent ideally should have control and possession over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty of any kind. Additionally, as per the Black s Law dictionary, broker has been defined to mean an agent who acts as an intermediary or negotiator, especially between prospective buyers and sellers, a person employed to make bargains and contracts between other persons in matter of trade, commerce, or navigation. 7.16 The said terms have also been explained in the legacy indirect tax regime by which an additional insight can be obtained on who will be regarded as a broker or an agent and what sort of activities would be regarded as provided by an agent or a broker : i) Finance Act, 1994: The terms broker and agent have not been defined in the Finance Act, 1994 (as applicable on or after 1st October 2014). However, under Section 65B(55) ibid it has been specified that any words and expressions used but not defined in Chapter V and defined in the Central Excise Act, 1944 or the Rules made thereunder are to apply mutatis mutandis in relation to Service Tax as they apply with respect to Excise Duty. ii) Central Excise Act, 1944: Under the said Act; the term broker or commission agent was defined under Section 2(aaa) as a person who in the ordinar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciding on the terms and conditions of the contract; issue of purchases order/placing order; accepting the invoice of supplier and making the payment etc.; Accordingly, it is conclusive to note that the services rendered by the Applicant do not fall within the definition of intermediary services. c) Also, the Applicant agreed to provide services on its own account and not on behalf of any other entities. Such services are provided on a principal-to-principal basis and not in the capacity of an agent or broker. d) Technical advisory and business Support services provided by the Applicant to Airbus SAS are in the nature of auxiliary services and the Applicant at no point in time has any authority to negotiate or undertake any commercial decisions such as prices and other terms and to enter into/ conclude contracts, or to front end the bidding process, or provide the technical assistance for or on behalf of its Group Company; and e) The Applicant performance and remuneration received for such performance is in no way linked to the purchase prices. Further, as per the Agreement, the Applicant receives the remuneration of Service fees on a cost plus bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would be carrying out any such activity which may be deemed to be a direct or indirect act of facilitating or arranging a sale of goods or supply of services between Airbus SAS and identified suppliers. In other words, Airbus India providing support services which mainly include role limited to providing necessary information, review advise from quality perspective and all the decision relating to following is the responsibility of Airbus SAS team and Airbus India does not have any role or authority: accepting a supplier, agreeing the price, deciding on the terms of the contract activities relating to issuance of purchases order/placing order, accepting the invoice of supplier and making the payment etc. In view of the above, it is conclusively proved that the services agreed to be rendered by Airbus India does not fall within the definition of intermediary services. 7.26 Further, the Applicant submits that their functions are mainly to technical advisory, guidance and business support assistance services concerning with quality control standards, performance standards, safety standards of the suppliers and in no way is involved in eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight that the definition of intermediary provided under clause 13 of section 2 of IGST Act, 2017 is pari-materia to the definition provided under the Finance Act 1994. The Education Guide, 2012 issued by the CBEC inter alia provides the various factors that needs to be considered in determining whether a person is acting as an intermediary or not. The relevant extract is reproduced hereunder: Nature and value: An intermediary cannot alter the nature or value of the service, the supply of which he facilitates on behalf of his principal, although the principal may authorize the intermediary to negotiate a different price. Also, the principal must know the exact value at which the service is supplied (or obtained) on his behalf and any discounts that the intermediary obtains must be passed back to the principal. Separation of value: The value of an intermediary s service is invariably identifiable from the main supply of service that he is arranging. It can be based on an agreed percentage of the sale or purchase price. Generally, the amount charged by an agent from his principal is referred to as commission . Identity and title: The service provided by the intermedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s performed by the Applicant i) Market research analysis ii) Identifying and preparing list of potential suppliers x iii) Initial rescreening of potential supplier to check the ability to deliver the goods x iv) Organizing 8s participating in seminars, events, fairs x vi) Bidding process / Invitation to tender process x vii) Negotiation of Pricing Commercial decisions x viii) Agreeing on the terms of the Contracts x ix) Involvement in procuring orders x x) Co-ordinate for shipment of goods between parties x xi) Co-ordinate for payments between parties x xii) Commission linked to main supply N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said ruling has been made here only to draw principles of said rulings. Advance Ruling in the case of Asahi Kasei India Private Limited Facts of the case: 9.1 Asahi Kasei India Private Limited ( The Applicant ) is a company incorporated in India in August 2012. The Applicant is a subsidiary of Ashai Kasei Corporation, Japan. The Applicant provides sales promotion and marketing support to Asahi Kasei group. For this, the Applicant has entered into a Services Agreement with Asahi Kasei Corporation, Japan and Marketing Services Agreement with various group companies of Asahi Kasei group. The scope of work under the Agreement is broadly stated below: a) Collecting and analyzing information i.e. market analysis and supporting Asahi Kasei group in getting new business; b) Providing marketing administration support and back-office support (including accounting Support); c) Networking i.e. co-ordinate with the government authorities and relevant universities to join relevant trade associations; d) Supporting sales activity of Asahi Kasei group. Issue for consideration: 9.2 Whether the service supplied by the Applicant under the Service Ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt ( MSA ) Et its Schedules in detail. The services provided by NES India would be as following: Accounting, Sales Invoicing, Purchase Invoicing, Cash receipt posting, Bank Payment entries, Other receipt entries, Credit Control work, Support Assignment work, Payroll assistance, Storing and scanning of data to the data storage disk and any other work would be required by you as per your requirements. 9.9 Nature of Relationship as per agreement: In performing services pursuant to this Agreement, the Party providing such service will be an independent contractor of the Party for whom such services are performed, and this Agreement will not be deemed to create a partnership, joint venture or other arrangement between the Parties. Issue for consideration: 9.10 Whether the transaction in question is a Zero-Rated Supply or a Normal Supply under the GST Act? If the said supply is a Zero-Rated Supply, then can the same be considered as an export of service under the GST Act? Authority Ruling: 9.11 From the scrutiny of the MSA it was observed that the relationship between the parties is that of independent contractors i.e., the agreement does not intend to create relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be classified as business support services or as intermediary services 9.17 Attention is also invited towards the ruling in case of GoDaddy India (pertains to erstwhile regime) wherein the Hon ble AAR held that the entire bundle of services provided by GoDaddy India to GoDaddy.com LLC (including marketing and promotion) should be classified as business support services and not as intermediary services . Authority Ruling: 9.18 After due consideration, the Hon ble AAR held that the entire bundle of services provided by GoDaddy India to GoDaddy.com LLC (including marketing and promotion) should be classified as business support services and not as intermediary services . 9.19 The prime reasons on which the Hon ble AAR based its Ruling were as follows: a) Services were being provided by GoDaddy India with the sole intention of promoting the brand GoDaddy US in India, and increasing its business in India; b) GoDaddy India would provide a bundle of support services in an integrated manner on a principal-to-principal basis and thus it cannot be considered an intermediary service (based on a reading of Paragraph 5.9.6 of the Education Guide, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company are as per the agreement involved in locating the potential customers in India for the products of the foreign company located abroad. Although the services are provided with respect to buyers in India, but the benefit of the same would be accrued to the company located abroad and not to Indian Company. Furthermore, it is also an undisputed fact that Respondent Company do not render any service to any Indian customers, the services rendered by the Respondent could not be held as intermediary services , rather it amounts to export of services. AMD India Private Limited versus CST, Bangalore Judicial decision: 9.23 In the above said case, the Hon ble bench of CESTAT has held that the appellant is a subsidiary of its holding company and is providing services under the Master Services Agreement and the same Master Services Agreement does not provide that the appellant will facilitate or will arrange the purchase and sale on behalf of the AMD entities outside India. Thus, the services rendered by the appellant do not fall under the definition of intermediary and it satisfies all the conditions prescribed under rule 6A of the Service Tax Rules, 1994. Analog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xport of services in terms of clause 6 of Section 2 of the Integrated Goods and Services Tax Act 2017 (hereinafter IGST Act, 2017 ) and consequently, be construed as Zero rated supply in terms of Section 16 of the said act? submitted as under: 10.1 In order to conclude any supply of service as Export of service , it is imperative to understand the definition of the term export of services as defined under clause 6 of section 2 of the IGST Act, 2017. The relevant extract is set out hereunder: (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 foreign exchange, and (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; 10.2 From the above definition, it can be noted that in order to qualify whether any supply of service as Export of Services the below mentioned cumula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovides that the location of the recipient of services shall be the place of supply of services. Thus, applying the above rationale to the instant case, it can be concluded that the place of supply of services shall be the location of Airbus SAS is currently outside the India. 4) Payment is received in convertible foreign exchange As per the agreement, the invoice would be raised and money would be received / collected in convertible foreign currency, thus it could be easily concluded that the aforesaid criteria would be satisfied by the Applicant. 5) Supplier of service and recipient of service are not merely establishment of distinct person Explanation 1 to Section 8 of the IGST Act, 2017 inter alia provides that where a person has an establishment in India and any other establishment outside India, then such establishments shall be treated as establishments of different legal persons. The term person has been defined to include a Company. In the instant case, the service recipients i.e. Airbus SAS is not an establishment formed by the Applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guidance to the vendors regarding the product expectation of Airbus Invest SAS, France. They obtain initial quotations and terms of the contract from the suppliers and share the same with the Holding company; review performance and production quality in terms of adhering to the production schedule of the suppliers selected by the Holding Company; create awareness of Airbus ethics and compliance guidelines amongst the suppliers approved and nominated by Airbus Invest SAS, France. The applicant also carry out audit on the procurement process, reports on un-ethical practices of suppliers and provides support to team in India and Europe for special projects. However, the applicant does not select the vendors, does not issue any purchase order, does not decide the price quotation and does not involve in payment to the vendors and does not enter into any agreement with the vendors on any terms and conditions in respect of the supply. 15. With this background, we proceed to address the first question, which is appended below: Whether the activities proposed to be carried out in India by the Applicant would constitute as a supply of Other professional, technical and business servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the phrase, ...any other person, by whatever name called only denotes representation, which is also a characteristic of a broker or an agent. We observed that the applicant plays an important part in identifying the vendors, making them understand the product requirement, advising and guiding them not merely on technical aspect of the product but also the ethical aspect in relation to such activities, without which, Airbus Invest SAS, France will not be able to procure the goods from the vendors. Thus the instant activity is nothing but facilitating the supplies to them from India. The applicant s submission that the approval authority for such vendors lies with Airbus Invest SAS, France does not make a difference to the role of facilitation undertaken by the applicant. In fact, we note that this work of facilitation is understood by them as technical advisory, guidance and business support assistance concerning quality control standards, performance and safety standards of the suppliers. By doing all this, they are merely facilitating the supplies to their holding company as all these activities are directed at the vendors. We also note that it is not necessary that a commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase invoicing, bank payment entries, pay roll assistance etc to the overseas company. These are the main services which were provided by the tax payer on its own account. Whereas, in the present case, supply of goods is not occurring on applicant s account. c. Verizon India Pvt Ltd [2017 (12) TMI 830-CESTAT], Analog Devices India Pvt Ltd [2017 (12) TMI 830 -CESTAT], AMD India Pvt Ltd [2017 (12) TMI 772- CESTAT]- All these cases pertain to the positive tax regime in service tax when the concept of intermediary and POPS Rules 2012 had not come into being and hence not relevant to the present case. In view of the foregoing discussions, we conclude that the applicant is an intermediary. Now, we proceed to classify the said service and its SAC code. 18. We find that the SAC 998599 covers the following activities: 998599 Other support services n.e.c. This service code includes business brokerage and appraisal services other than for real estate; business services of intermediaries and brokers; specialist advice other than for real estate, insurance and engineering (specialist services in art, specialist services for courts of law, etc.); services by agencies and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods and Services Tax Act 2017 (hereinafter IGST Act, 2017 ) and consequently, be construed as Zero rated supply in terms of Section 16 of the said act? We find that Export of service is defined, under Section 2(6) of the IGST Act, 2017, as under: 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 foreign exchange [or in Indian rupees wherever permitted by the Reserve Bank of India] 2 ; and (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 services of the applicant are covered under intermediary services, as concluded at para 17 above and hence the place of supply is India in terms of Section 13(8) of the IGST Act 2017. Thus the activities of the applicant are exigible to GST at the rate of 18% in terms of clause (iii) of entry no. 23 of Notification No. 11/2017-Central ..... X X X X Extracts X X X X X X X X Extracts X X X X
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