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TMI Blog2023 (7) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... nciples of natural justice. 12. In view of the foregoing, the Advance Ruling in question is set aside and the case is remanded back to the Gujarat Authority for Advance Ruling (GAAR) to issue necessary ruling after hearing the appellant afresh." 2. Briefly, the facts are that the applicant, M/s. Hilti Manufacturing India (P) Ltd., is engaged in the manufacture and supply of diamond cutting tools, other innovative tools required by the construction industry and providing in-house research & development service on diamond inserts. 3. The applicant is located at Plot No. 423, G1DC Estate, PO Kabiilpore Navsari, Gujarat-396424. Their additional manufacturing facilities are Iocated at Plot No. 244 to 251, 48 & 29(Unit-I) and Plot No. C-IB, 53/54-1 & 2, GIDC Industrial Estate, Sisodra, Navsari (Unit-3). The applicant has a separate Research and Development [for short - 'R&D'] unit wherein activities are carried out for their own purposes as well as for other customers; that they carry out R&D activities on behalf of entities situated outside India i.e. on the product samples/goods sent by the foreign entities for R&D purposes and they submit a detailed report thereafter. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the process and is not supplied by the applicant to M/s. HAG; * that it is not mentioned in the agreement dated 18.3.2014 that the goods on which the applicant needs to carry out the R&D activities are supposed to be supplied by HAG; * that the applicant raises periodic invoices & the consideration is received by the applicant in convertible foreign currency. 8. On the merits, the applicant has stated as follows viz:- * a conjoint reading of sections 2(52), 2(102), 9(1), 7(1)(a), of CGST Act, 2017, & section 5(1) of the IGST Act, 2017, clearly show that scientific R&D carried out by the applicant is not movable property & hence would qualify as service; * that it would fall within the ambit of section 13(2) of the IGST Act. 2017 as service under GST; * 'location of supplier' & 'place of supply' will determine whether the transaction is an intra-state supply or inter-state supply; * R&D services provided to HAG by the applicant does not fall under any of the subsections from 3 to 13 of section 13 of IGST; * that the place of supply of the applicant's R&D services would fall under the default provision of section 13(2) of IGST Act. 2017; * th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 16 of the IGST Act. 2017; * as per section 13 of the IGST Act, place of supply of services shall be the location of the recipient in terms of Section 13(2), except for services specified under section (13)(3) of the IGST Act; that section (13)(3) of the IGST Act does not apply in this case; * that as per section 13(3)(a) of the IGST Act, place of supply of service shall be the location where services are performed in case it is supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services. 9. The following questions were raised before the Authority of Advance Ruling viz (i) Whether the services provided by the applicant to the entities located outside India is covered under Section 13(2) of the Integrated Goods and Services Tax Act, 2017? (ii) Whether the services provided by the applicant is liable to Central Goods and Service Tax and State Goods and Service Tax or Integrated Goods and Services Tax or is it eligible to be treated as a zero rated supply' under Section 16 of the Integrated Goods and S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on different facts; that as the appellant have got the subject advance ruling based on different set of facts, the advance ruling given is not valid in view of the provisions of Section 103 (2) and 104 (1) of the CGST Act, 2017. On the aforementioned findings, the matter was remanded back to the GAAR with the directions as mentioned in para (1) supra. 13. The applicant vide his submission dated 28.2.2023, has now stated as follows viz:- * that he is required to conduct R&D, testing and engineering activities for developing new products & process; the result are then communicated to HAG; the prototypes required for performance testing are manufactured by the applicant; * a substantial portion of the raw material involved in making the prototype is sourced by applicant; that certain material are provided by HAG; that these are made available by HAG. as a matter of convenience; * that no services are performed on such small portion of consumables, tool, reference material etc; * that the prototypes developed by the applicant on which testing is carried out gets exhausted and is not supplied to HAG; * that the reports & findings derived by the applicant is supplied to HAG. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... X 2.0 project, a substantial amount of consumable/goods are procured directly by the applicant from third parties, which are consumed in the process for providing R&D activity; * that during the span of such project which was for approximately 2 years, more than 900 items were procured during the year 2019 - 2021 for multiple projects (including VORTEX 2.0) whereas only 6 items were sourced from HAG. Moreover all these items (both directly procured and sourced from HAG) have been consumed in the R&D process. Discussion and findings 15. At the outset, we would like to state that the provisions of both the CGST Act and the GGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the GGST Act. 16. We have considered the submissions made by the applicant in their application for advance ruling as well as the submissions made during the course of personal hearing and additional submission post the said personal hearing. We have also considered the issue involved, the relevant facts & the applicant's submission/interpret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f supply of service is outside India; (iv) the payment for such service has been received by the supplier of service in convertible foreign exchange for in Indian rupees wherever permitted by the Reserve Bank of India]: and (v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation I in section 8;" Explanation 1 of the Section 8 of the IGST Act Explanation 1.- For the purposes of this Act, where a person has,- (i) an establishment in India and any other establishment outside India: (ii) an establishment in a State or Union territory and any other establishment outside that State or Union territory: or (iii) an establishment in a State or Union territory and any other establishment being a business vertical registered within that State or Union territory, then such establishments shall be treated as establishments of distinct persons. Section 5. Levy and collection.- (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll apply in the case of services supplied in respect of goods which are temporarily imported into India for repairs or for any other treatment or process and are exported after such repairs or treatment or process without being put to any use in India, other than that which is required for such repairs or treatment or process:] (b) services supplied to an individual represented either as the recipient of services or a person acting on behalf of the recipient, which require the physical presence of the recipient or the person acting on his behalf with the supplier for the supply of services. (4) The place of supply of services supplied directly in relation to an immovable property, including services supplied in this regard by experts and estate agents, supply of accommodation by a hotel, inn, guest house, club or campsite, by whatever name called, grant of rights to use immovable property, services for carrying out or co-ordination of construction work, including that of architects or interior decorators, shall be the place where the immovable property is located or intended to be located. (5) The place of supply of services supplied by way of admission to, or organisation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank of India may. with the previous approval of the Central Government and by notification in the Official Gazette, specify. (9) The place of supply of services of transportation of goods, other than by way of mail or courier, shall be the place of destination of such goods. (10) The place of supply in respect of passenger transportation services shall be the place where the passenger embarks on the conveyance for a continuous journey. (11) The place of supply of services provided on board a conveyance during the course of a passenger transport operation, including services intended to be wholly or substantially consumed while on board, shall be the first scheduled point of departure of that conveyance for the journey. (12) The place of supply of online information and database access or retrieval services shall be the location of the recipient of services. Explanation -For the purposes of this sub-section, person receiving such services shall be deemed to be located in the taxable territory, if any two of the following non-contradictory conditions are satisfied, namely:- (a) the location of address presented by the recipient of services through internet is in the taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Kerala in the case of M/s. Sutherland Mortgage Services Inc. [WP(C) No. 32634/2019(D) dated 3.2.2020. 20. Now the applicant is before us arguing that the correct facts were not presented before the GAAR in the earlier round, the applicant we observe has taken a complete U-turn and stated that he is required to conduct R&D, testing and engineering activities for developing new products & process; the result are then communicated to HAG by way of detailed reports; that the prototypes required for performance testing are manufactured by the applicant. On being specifically asked during the course of personal hearing, the applicant has also submitted the details of goods received from HAG and the manner of use of such items. 21. On summarizing what is stated before us, we find that the applicant develops a prototype. Some of the materials/goods that go into the making of the prototype are supplied by HAG [the recipient]. The prototype is not supplied to the recipient as it gets consumed in the process. After conducting the R&D, testing and engineering activities for developing new products & process, the applicant communicates the result to HAG. It is on this activity that the appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly in case of performance based services is to be determined as per the provisions contained in clause (a) of sub-section (3) of Section 13 of the IGST Act and generally the place of services is where the services are actually performed. But an exception has been carved out in case of services supplied in respect of goods which are temporarily imported into India for repairs or for Any other treatment or process and are exported after such repairs or treatment or process without being put to any use in India, other than that which is required for such repairs or treatment or process. In case of cutting and polishing activity on unpolished diamonds which are temporarily imported into India are not put to any use in India, the place of supply would be determined as per the provisions contained in subsection (2) of Section 13 of the IGST Act. 26. Vide Notification No. 04/2019-Integrated Tax dated 30.9.2019, CBIC has further clarified as under viz Sr.No. Description of services or circumstances Place of Supply 1 Supply of research and development services related to pharmaceutical sector as specified in Column (2) and (3) from SI. No. 1 to 10 in the Table B by a person located i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over to Hiiti in both, source and object code, saved to a data carrier in a machine readable format, together will all relating documentation. HMI will do all such acts and deeds necessary, including making any filings with any governmental authority and executing any instruments or agreements that may be required or as may be requested by Hilti, to grant and vest the aforementioned rights and benefits in Hilti. The right of use in the copyrights or similar rights shall include, without limitation, the right of Hilti to copy, to transmit and/or save on picture, sound and data carrier, to edit, to alter and to translate such results and to divulge and spread them, whether in original or modified format, without having to obtain the consent of HMI. APPENDIX I Services provided by HMI to Hilti HMI provides Services in the following areas:- * Testing activities related to Hilti items, specified in detail by Hilti,- * Standard Performance test - GCS * Grinding Cup wheel - 4 "to7" * Cutting blades - handheld 4 "-16" * Slitting blades - handheld 5 "-7" * Standard Performance test - floor saw blades - 12" -24 " * Standard Performance test - bench saw blades - 12"-20 " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by the applicant to HAG, is in respect of the following areas viz,- (A) Testing activities related to HAG items, specified in detail by HAG (B) Product development & engineering related to HAG items, specified by HAG (C) Product development, testing & engineering activities related to OEM items. 29. Vide the additional submission dated 30.3.2023, applicant has further submitted that the materials supplied by HAG are not substantial, viz consumables/capital goods including tools, reference material etc. They have also listed some items which were provided by HAG, which is mentioned at para 14, supra. They have also stated that the listed materials are imported from HAG to support faster execution, further stating that except for set plate, the rest of the items can be purchased in India. 30. Sub-clause (3) of section 13 of the IGST Rules, 2017, primarily covers the following viz,- * Under this sub-clause, services related to goods, which require such goods to be made available to the service provider or a person acting on behalf of the service provider so that the service can be rendered, are covered; * Under this sub-clause, the goods temporarily come into the physi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the goods provided by HAG and hence as far as this portion of the service is concerned, it would fall within the ambit of sub-clause 3 of section 13 of IGST Act. 32. IGST is levied u/s 5(1) of the IGST Act, 2017 on all inter-state supplies of goods or services or both. Further, under section 7(5) of the IGST Act, 2017, supply of services wherein the supplier is located in India and the place of supply is outside India, will be treated as supply in the course of inter-state trade or commerce. Thus IGST is payable unless the supply is 'export of service'. 33. The applicant is on record stating that they are a part of HAG group. Supply of services by a subsidiary/sister concern etc of a foreign company, which is incorporated in India under the Companies Act, 2013 to establishments of the said foreign company located outside India is not barred by section 2(6) of the IGST Act, supra from being considered as export of services since they are not to be treated as supply between merely establishments of distinct persons under explanation I of section 8 of IGST Act, 2017. 34. We further rely on Circular No. 161/17/2021-GST dated 20.9.2021, wherein it is clarified as follows v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of service', more so in view of the fact that all the five conditions as enumerated under section 2(6) of the IGST Act, 2017, are met viz,- (i) The applicant [being supplier of service] is located in India; (ii) The recipient of service [HAG] is located outside India (iii) We have already held that the place of supply is the location of the recipient of service (iv) The applicant on record has stated in the application that the payment of the supply is received in foreign exchange (v) The supplier of service and recipient of service are not merely establishment of a distinct person in accordance with explanation 1 of section 8. 36. In view of the foregoing, we rule as under: RULING (i) The services provided by the applicant to the entities located outside India is covered under Section 13(2) of the Integrated Goods and Services Tax Act, 2017 in respect of the services mentioned in (B) and (C) under Appendix-I as per para 28. This is subject to the condition that the services supplied in respect of goods/prototypes which are required to be made physically available by HAG to the applicant. Further, in respect of the service listed in (A) under Appendix-I of para 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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