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TMI Blog2021 (7) TMI 477X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of the legal fiction. On a plain reading of the clauses of the Agreement it is evident that the services are provided by the applicant to SMSI, USA and not to the customers of SMSI, USA and the consideration for the services rendered is liable to be paid to the applicant by SMSI, USA. The applicant has submitted three flow charts showing different scenarios of the flow of services claiming that the actual flow of service is directly from them to the overseas customers of SMSI, USA - Even if it is assumed that the services are provided directly to the customers of SMSI, USA by the applicant, the applicant can only be considered as providing the services on behalf of SMSI, USA to the overseas customers. Thus, in any view of the matter the recipient of the services rendered by the applicant as per the Agreement is SMSI, USA the Head office of the applicant. Thus, the recipient of services of the applicant is SMSI, USA the Head office of the applicant and hence a distinct person in accordance with Explanation I in Section 8 of the IGST Act, 2017. Hence the condition at sub-clause (v) of clause (6) of Section 2 of the IGST Act, 2017 defining export of service that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customers located outside India. SMSI, USA requires the following services performed on behalf of its customers who are located outside India; (i) Mortgage Orientation; (ii) Primary Servicing; (iii) Special Servicing; (iv) Cash Management and (v) Analytics and Reporting. The applicant is providing such services covered by the Agreement dated 22.06.2012. The Agreement is entered only for the purpose of transfer pricing regulation as the branch has no separate legal entity. SMSI, USA has also entered into agreement with customers outside India for providing the services from USA and India branch. SMSI, USA is reimbursing the applicant for the costs incurred to perform the services. The valuation is done as cost plus 10% mark up to comply with the Transfer Pricing Regulations. The applicant issues commercial invoice to SMSI, USA their Head Office and receives the payment in convertible foreign currency. According to the applicant the services are provided to the customers located outside India and not to SMSI, USA their Head Office and therefore services would qualify as export of services, which is considered as zero-rated supply in terms of Section 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provision as per clause (e) of sub-section (2) of Section 97 is in wide terms and the Parliament has clearly mandated that the latter issue of determination of liability to pay tax on any goods or services or both, should also be matters on which the applicant concerned could seek advance ruling from the Advance Ruling Authority on which the said authority is obliged to render answers thereto. The Parliament has made the said provision envisaging that in transactions in nature, where India is now a growing economy and has to make its substantial performance in economic growth and development not only domestic investments, but even foreign investments would also be heavily required and that host of tax laws has been subsumed into the overarching umbrella of the goods and services tax regime introduced by the Parliament and the Parliament would have certainly taken cognizance of the fact and has intended that very often applicants would require clarity and precision about various aspects of taxation in the transactions and that there should be certainty and precision in those matters, so that the applicant concerned is given the right to seek advance ruling even in such a larger i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter requires interdiction in judicial review in the instant writ proceedings. In that view of the matter, it is ordered that the above said view taken by the Advance Ruling Authority is legally wrong and faulty and is liable to be quashed and accordingly declared and ordered. PERSONAL HEARING: 6. In compliance of the direction of the Hon'ble High Court as detailed above the Authority for Advance Ruling granted opportunity of hearing to the Applicant on 28.10.2020 by virtual mode. S/Shri. K.Sivarajan, Debasis Nayak and Smt Nisha Menon, Pricewater House attended the hearing on behalf the applicant. They invited attention to the written submissions made along with the application and also submitted additional submissions. They also made a detailed presentation emphasizing and elaborating the various grounds relying on case laws in support of their contention that the actual recipient of the services rendered by them are the overseas customers and hence the service rendered by them satisfies all the conditions prescribed in Section 2 (6) of the IGST Act, 2017 and accordingly qualify as export of services and consequently would be a zero rated supply in terms of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a branch of SMSI, USA as the mortgage law of USA prevented outsourcing of work to separate legal entity. Therefore SMSI USA has set up a branch office in India, and provides services io the customers in USA from the branch office in India. Section 2 (71) of the CGST Act, 2017 defines the term location of supplier as follows;- (71) location of the supplier of services means,- (a) where a supply is made from a place of business for which the registration has been obtained, the location of such place of business: (b) where a supply is made from a place ether than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment; (c) where a supply is made from, more than one establishment, whether me place of business or fixed establishment, the location of the establishment most directly concerned with the provisions of the supply; and (d) in absence of such places., the location of the usual place of residence of the supplier. The perusal of the above definition makes it clear that the location of the supplier is the place for which registration has been obtained. In their c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided from Sutherland's Mortgage facility located in Houston TX and in India. Services may be provided from an alternate location as agreed by both parties in writing. (Reference to Pg No. 32 of the Paper Book) DHI Mortgage Company Ltd and Sutherland Mortgage Services Inc The services will be provided from Sutherland's Mortgage facilities located in Houston TX, Clark, Philippines and Chennai, India. Services may be provided from an alternate location as agreed by both parties in writing. (Reference to Pg No. 49 of the Paper Book) Flagstar Bank and Sutherland Mortgage Services Inc The services will be provided from Sutherland's Mortgage facilities as well as personnel working from their homes. Services may be provided from an alternate location as agreed by both parties in writing. (Reference to Pg No. 39 of the Paper Book) Loan Protector Insurance Services and Sutherland Mortgage Services Inc Services will be provided out of a Sutherland facility located in India 7.6. The SOW between the SMSI, USA and the customers specifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices to be provided by the Flagstar. Any required IVR and data connectivity shall be provided by the Sutherland. From the perusal of the above sample SOW it is clear that services are not provided by the applicant to SMSI, USA but provided directly to the customers located in USA. 7.8. The services provided by the applicant cannot be reviewed by SMSI, USA before the same is delivered to the customers. The services are directly delivered to the customers by the applicant without any consolidation at SMSI, USA. The perusal of the definition of recipient makes it very clear that recipient, is one who is liable to pay the consideration. In their case the customer of SMSI are legally entitled to receive the service from SMSI and is obliged to make the payment to SMSI, which SMSI, USA invoices for the services. SMSI, USA reimburses the applicant the cost to perform such services. The valuation is done at cost plus 10% mark up to comply with the Indian transfer pricing regulation. Therefore, although the invoices are raised by SMSI, USA and remittances for the same are also received from SMSI, USA the actual rendering of the services happens directly to the customers located in U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of SMSI, USA and not to SMSI, USA. As all the conditions of export of service are satisfied the service rendered by them are zero rated in terms of Section 16 (2) of the IGST Act, 2017. 7.11. They relied on the Judgment of the Hon'ble High Court of Mumbai in the case of Tech Mahindra Ltd Vs CCE reported in 2014 (36) STR 241 (Bom) wherein the question before the Hon'ble High Court was whether the service to the overseas customers with regard to on-site work (services provided by foreign subsidiary/ branches to overseas customers) will be treated as export of service from India. The Court held that the service provided from the onshore location to the customer is not export of service although; (1) the contract with the customer was executed by the Head office; (2) invoice was issued by the head office for both onshore and offshore services and (3) there was no privity of contract between the customer and the subsidiary / branches of the head office. The Court arrived at this decision by relying on the actual flow of service even in case there is no privity of contract between the parties. The actual flow of service in their case is between SMSI India Branch and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement with reference to the definition of recipient of service in the CGST Act, 2017 and the explanations to Section 8 of the IGST Act, 2017. 11. Section 2 (93) of the CGST Act 2017 defines recipient of supply of service as follows; (93) recipient of supply of goods or services or both, means,- (a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration; (b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and (c) where no consideration is payable for the supply of a service, the person to whom the service is rendered, and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied . Explanation 1 and 2 of Section 8 of the IGST Act, 2017 reads as follows; Explanation 1.- For the purposes of this Act, where a person has,- (i) an establishment in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that Service Provider agrees to provide to Company as described in a Service Statement. 1.15. Service Statement means a written description of services that Service Provider will provide Company, together with a listing of fees to be paid and costs to be reimbursed in exchange for performance of the applicable services. 2. Services: 2.1. Services Generally: Pursuant to separate Service Statements attached hereto and made a part hereof, Service Provider shall provide to Company and Company shall purchase from Service Provider the Services described in such Service Statements. Billing and provision of Services shall be as directed in this Agreement and the applicable Service Statement. In the event of conflict or inconsistency between a Service Statement and this Agreement, the Service Statement will control. 5. Fees and Cost Reimbursement: 5.1. Fees; Review: In consideration of Service Provider providing the Services, Company shall pay to the Service Provider the fees set forth in the applicable Service Statements. The fees may be adjusted from time to time by mutual written agreement without limiting the foregoing. Fees, based on cost plus mark up b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omers. Thus, in any view of the matter the recipient of the services rendered by the applicant as per the Agreement is SMSI, USA the Head office of the applicant. 15. The applicant has placed reliance on the judgment of the Hon'ble High Court of Bombay in the case of Tech Mahindra Ltd Vs CCE, Pune III reported in 2014 (36) S.T.R. 241 (Bom) in support of their contention that the actual flow of services is relevant and in their case the actual flow of services is to the customers of SMSI, USA. In view of the discussion and finding above on the basis of the clauses in the Agreement that the recipient of services of the applicant is SMSI, USA the judgment is distinguishable on facts and hence not applicable. 16. On the basis of the discussion above, it is concluded that the recipient of services of the applicant is SMSI, USA the Head office of the applicant and hence a distinct person in accordance with Explanation I in Section 8 of the IGST Act, 2017. Hence the condition at sub-clause (v) of clause (6) of Section 2 of the IGST Act, 2017 defining export of service that the supplier of service and the recipient of service are not merely establishments of a distinct person ..... X X X X Extracts X X X X X X X X Extracts X X X X
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