2018 (10) TMI 597 – AUTHORITY FOR ADVANCE RULINGS, KARNATAKA – 2018 (18) G. S. T. L. 129 (A. A. R. – GST) – Classification of supply – Intermediary Services or not – pure and mere promotion and marketing services – determination of place of supply of services – Composite supply – zero rated supply – export of services or not – POPOS Rules.
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Whether pure and mere promotion and marketing services will be “intermediary services” for the purposes of section 12 of the Integrated Goods and Services Tax Act, 2017 for determining the place of supply of such services?
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If after sale support services are also provided under a composite contract, would it then be composite supply? What will be the principal supply for such contracts?
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Whether the above contracts would qualify as exports if the client is overseas entity, in terms of clause (6) of section 2 of the Integrated Goods and Services Tax Act, 2017 and will be a zero-rated supply as provided in section 16 of IGST Act, 2017?
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travelling expenses. It is also stated that for spare parts, the commission would be paid for values equal or superior to € 250 and repairs are not subject to commission.
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In sub-clause 6 of Clause IV, it is seen that the consideration is payable for the services which include pre-sales, marketing, sales, installation and warranty period services and the commission payable is for the complete bundle of services.
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Intermediary services – Held that:- The agreement copy provided by the applicant shows clearly that the price is negotiated by the applicant for the machinery or equipments and intimated to the overseas supplier. It is also seen that the Principal who is the overseas supplier reserves the right to conclude or reject or change the contract, but he shall inform the decisive reasons to the applicant – Even the agreement entered by the applicant with the Principal, call the applicant an agent and since he is facilitating the supply of goods between the overseas supplier
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is related to the supply of goods, as no consideration flows to the applicant without a supply being effected by the Principal and hence it is tightly bound to supply of goods to the Principal.
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Export of services or not? – Held that:- The issue has to be decided on the basis of the place of supply applicable to each of the transaction. This Authority is not competent to decide on this issue of determination of place of supply and hence does not answer this question.
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Ruling:- The contract of services supplied are not pure and mere promotion and marketing services and the services provided is of the nature of facilitating the supply of goods, and hence would amount to “intermediary services” for the reasons enumerated in the aforesaid paragraphs for the purposes of determination of place of supply of such services.
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The after-sale services provided are not in the nature of a composite contract and they are independent from the services provided in paragraph 1 above and
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ee of ₹ 5,000-00 each under the CGST Act and the KGST Act. 2. The Applicant is a Private Limited Company and is registered under the Goods and Services Act, 2017. The applicant has sought advance ruling in respect of the following questions: a) Whether pure and mere promotion and marketing services will be intermediary services for the purposes of section 12 of the Integrated Goods and Services Tax Act, 2017 for determining the place of supply of such services? b) If after sale support services are also provided under a composite contract, would it then be composite supply? What will be the principal supply for such contracts? c) Whether the above contracts would qualify as exports if the client is overseas entity, in terms of clause (6) of section 2 of the Integrated Goods and Services Tax Act, 2017 and will be a zero-rated supplt as provided in section 16 of IGST Act, 2017? 3. The applicant furnishes some facts relevant to the stated activity: 3. The applicant states that he is
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e goods in India. The orders for the products would be placed directly by the prospective customers on the overseas entity. The applicant is not engaged in trading of such goods, either on his own account or on the account of the overseas client. The promotion and marketing of the products included the following activities: i. Applicant would advertise the details of the goods to the prospective customers; ii. Demonstration of the products to the various prospective customers located in India; iii. Communicate and correspond about all the relevant information to the prospective customers in connection with the goods; iv. Communication to the overseas clients about comments and queries of the prospective customers; and v. Review the credit rating of the prospective customers of the overseas entity on regular basis; b. After sale support services On the basis of the order issued by the prospective customer to the overseas entity, the overseas entity supplies the products to their custome
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placement and expected delivery dates and long term project and prospect lists; ii. Results of regular observation of marketing conditions, information in the public domain relating to the activities of competitors; and iii. Results of participation in trade fairs. 5. The assessee has submitted that intermediary means a person who arranges or facilitates the supply of goods or services or both, between two or more persons, but does not include a person who supplies such goods or services or both on his own account. In this regard, the following are to be considered: a. Services provided by the applicant to overseas entity (service recipients) is on principal-to-principal basis; b. Applicant is providing services to service recipients and not on behalf of the service recipients to any other person, say, the prospective customers in India; c. Service recipients would be dealing with Indian customers directly and the applicant is not authorised to enter into any contract or arrangement o
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AAR/ST/08/2016, Application No. AAR/44/ST/15/2014) = 2016 (3) TMI 355 – AUTHORITY FOR ADVANCE RULINGS wherein the Authority had clearly demarcated the meaning of intermediary services and ruled that pure marketing and promotion services would not be intermediary services. 6. The applicant submits that in the aforesaid Advance Ruling, it is stated as under: The definition of intermediary as envisaged under Rule 2 (f) of POPS does not include a person who provides the main service on his own account. In the present case, applicant is providing main service i.e. business support services to WWD US and on his own account. Therefore, applicant is not an intermediary and the service provided by him is not intermediary service. Further, during arguments, applicant drew our attention to one of the illustration given under paragraph 5.9.6 of the Education Guide, 2012 issued by CBEC. Relevant portion is extracted as under: Similarly, persons such as call centres, who provide services to their cl
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pplicant submitted that clause (30) of section 2 of the CGST Act, 2017, provides the meaning of composite supply which reads as under: Composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. In this case where after-sale support services are also provided along with the promotion and marketing services under a composite contract, it will be in the nature of composite supply because of the following reasons: (i) Two taxable supplies of services is being made under a single service agreement; (ii) There is a single price for both the services; (iii) The different elements of the services are not available separately; (iv) The different elements are integral to one overall supply – if one or more is removed, the nature of supply wou
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tep in the complete process; b. After-sale support services can be given only once the product is sold; c. Customer will place order to the service recipients on the basis of promotion and marketing services provided by the applicant – it is only after the products are sold that after-sale services arises; d. The supply of the product by the overseas entity to the customer in India embeds within itself, the provision of after-sale support; e. Marketing determines the very sale of the product and as a complete offering, post-sales support is ancillary and incidental to the sale; f. The essential characteristic of the services provided by the applicant are marketing, sales promotion and brand building; co-ordination and providing all other support once the product is sold are by-products of the sale of the product; g. In terms of service agreement, promotion and marketing services is the predominant component while installation and warranty services are ancillary to such promotion and ma
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on 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 services, 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. In the present case, the consideration is payable for the supply of such services and the overseas entity is liable to pay that consideration for both promotion and marketing services and after-sale support services. So the recipient of both the services will be the overseas entity, which is located outside India. 10. The applicant submits that the place of supply shall be determined as provided in section 13 of the IGST Act, 2017 because the location of the supplier
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The payment of such service would be received by the supplier of services in convertible foreign exchange; and (e) 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 of IGST Act, 2017. Thus the supply of said services is export of services and consequently will become a zero-rated supply as provided in section 16 of IGST Act, 2017. 12. The applicant has made additional submissions and the same are as under 12.1 The activities of the applicant are limited to functioning as an agent of the overseas principals and the applicant does not and is not engaged in the business of buying and selling of the products. In this regard, the following are important to note: (a) Majority of the customers are research institutes or R&D centres. Under the Customs Law, they are eligible for exemptions / concessions with respect to custom duties on import of goods. Accordingly, they would always directly
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nstallation and warranty support) are normally undertaken as a bundle of services. The principals, i.e. overseas clients do not have any presence in India and the applicant is the sole representative in the Indian territory for the contracted products. 13.1 On the question as to why in certain cases, only marketing services are undertaken and the post-sale support services are not provided, the applicant submitted that the equipment that are manufactured by the applicant s principals and marketed by him in India are specialized equipment. Most of the equipment would need installation support. The applicant confirms in all such cases, he is the one providing the same and nevertheless, there could be certain equipment: Which donot need any installation: they are typically in the nature of plug and play; Which are installed more appropriately termed as configured remotely through computer or online networks or which requires specialized knowledge, in which cases, the same are undertaken b
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e could be treated as naturally bundled in the ordinary course of business Majority of service providers in a particular area of business provide similar bundle of services The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services in such that one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service Other illustrative indicators, not determinative but indicative of bundling of services in ordinary course of business are – o There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use; o The elements are normally advertised as a package; o The different elements are not available separately; o The different elements are integral to one overall supply – if one or more
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is regard, the same being specialized equipment, the spares also would have to be procured from the suppliers of equipment itself. It is in this context, that the agreement with the principals contains clauses with respect to discount that would be offered for purchase of spares from them. The applicant reiterates that the import of spares is not in connection with the marketing activities. 16. FINDINGS & DISCUSSION: 16.1 The applicant has provided a copy of the agency contract and the following are noted from the contract: (a) In clause II relating to the Duties of the Agent, in paragraph 1, the applicant is referred to as Agent – shall be act as intermediary on behalf of principal in negotiating business transactions with prospective customers in his territory, but the applicant shall not be entitled to conclude contracts on behalf of the principal. It is also seen that the applicant acting as an Agent shall take care of the interests of the principal and regularly visit the cust
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that the commission is calculated on the basis of the amount invoiced for the business transaction, free of VAT and rebates are deductible. Additional costs such as freight, cartage, packing insurance, custom duties, and all other charges and dues, costs for installation, expenses resulting from putting into operation and similar services which are essentially work and labour shall be deducted, even if they are not invoiced separately, shall also be deducted. It is also stated in the contract, where the agent orders goods from the principal at his own expense, the commission due can be deducted directly from the value of goods. Further, it is also stated that any expenses and spendings of the Agent resulting from his activities (regardless of whether they arise generally or in connection with a particular business transaction) shall be regarded as covered by commission that the Agent is entitled to, and such expenses excludes travelling expenses. It is also stated that for spare parts
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ction 2 of the IGST Act, 2017 defines an intermediary as under: (13) intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account. The agreement copy provided by the applicant shows clearly that the price is negotiated by the applicant for the machinery or equipments and intimated to the overseas supplier. It is also seen that the Principal who is the overseas supplier reserves the right to conclude or reject or change the contract, but he shall inform the decisive reasons to the applicant. Also the commission payable to the applicant is tied to the amount of sales that the applicant solicits and is typically an agency transaction. Even the agreement entered by the applicant with the Principal, call the applicant an agent and since he is facilitat
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e applicant to the principal and hence cannot be called as a naturally bundled services. Hence this does not amount to a composite supply and the same are treated as two supplies independent of each other and the valuation of each has to be computed as per Section 15 of the Central Goods and Services Tax Act. Both these independent supplies are only linked to the supply of goods from the ultimate supplier to the consumer and till that happens the transaction of after-sales supplies do not come into existence at all. But the supply of services in the form of intermediary services is related to the supply of goods, as no consideration flows to the applicant without a supply being effected by the Principal and hence it is tightly bound to supply of goods to the Principal. 16.5 The question relating to the whether the above contracts would amount to export of services has to be decided on the basis of the place of supply applicable to each of the transaction. This Authority is not competen
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