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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 ..... against the ruling dated 9.7.2021 challenging the jurisdiction of the AAR to rule on the question of place of supply. The merits of the matter to be decided in the backdrop of the judgement of the Hon'ble High Court of Kerala in the case of M/s. Sutherland Mortgage Services Inc. [WP(C) No. 32634/2019(D) dated 3.2.2020. [ 2020 (3) TMI 186 - KERALA HIGH COURT] . 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 applicant seeks a ruling from the GAAR . The supply of services would therefore fall under section 13(2), it is already concluded that it would not fall within sub-clauses 4 to 13. However the testing activities related to HAG items, meaning thereby that the R D service is performed 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 sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration all aspects of the matter and decide the case afresh following the principles 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 en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing activity is done gets exhausted 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; that when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply 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 Services Tax Act, 2017. 10. The GAAR vide its order No. GUJ/GAAR/R/26/2021 dated 9.7.202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 14. Personal hearing was held virtually in the matter on 23.3.2023 wherein the applicant reiterated his submission. They relied on the case of M/s. Sutherla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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/interpretation of law in respect of question on which the advance ruling is sought. 17. Before dealing with to the submissions made by the applicant, we would like to reproduce the relevant sections, for ease of ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 for human consumption, on the value determined under section 15 of the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 a cultural, artistic, sporting, scientific, educational or entertainment event, or a celebration, conference, fair, exhibition or similar events, and of services ancillary to such admission or organisation, shall be the place where the event is actually held. (6) Where any services referred to in sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 taxable territory: (b) the credit card or debit card or store value card or charge card or smart card or any other card by which the recipient of services settles payment has been issued in the taxable territory; (c) the billing address of the recipient of services is in the taxable territory; (d) the internet protocol address of the device used by the recipien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 applicant seeks a ruling from the GAAR . 22. Provisions of section 13 of the IGST Act, 2017 shall apply in so far as determining the place of supply of services , is concerned. 23. We have gone through the sub-clauses 2 to 13 of section 13 of the IGST Act, 2017, mentioned supra. We find that that sub-clause 4 to 13, are not related to the issue on hand. What is in contention is sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in taxable territory to a person located in the non-taxable territory The place of supply of services shall be the location of the recipient of services subject to fulfillment of the following conditions:- (i) Supply of services from the taxable territory are provided as per a contract between the service provider located in taxable territory and service recipient located in non-taxable ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Standard Performance test - Core bits Misuse/Robustness test - GCS Other testing activities as agreed between parties from time to lime Product development and engineering related to Hilti items, specified in detail by Hilti,- Defining the project. Conducting the benchmark testing and feasibility studies. Analyzing data and targets (Performance and Cost) Designing the product and its requirements Making prototypes and conducting performance testing till reach th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned 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 physical possession or control of the service provider because without this the service cannot be rendered. To fall under this sub-clause, the service involves movable objects or things that can be touched, felt or possessed. Now let us compare these conditions with the type of service rendered by the applicant in the present case. The applicant, as is mentioned supra, provides [a] testing activities related to HAG items, specified in detail by HAG; [b] product development engineering related to HAG items specified in detail by HAG and [c]product development, testing engineering activities related to O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey 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 viz,- 4.4 From the perusal of the definition of person under sub-section (84) of section 2 of the CGST Act, 2017 and the definitions of company and foreign company under Section 2 of the Companies Act, 2013, it is observed that a company incorporated in India and a foreign company incorporated outside India, are separate person under the provisions of CGST Act and accordingly, are separate legal entities. Thus, a subsidiary/ sister concern/ group concern of any foreign company which is incorporated in India, then the said company incorporated in India will be considered as a separate person under the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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