In Re: M/s. Five Star Shipping
GST
2018 (10) TMI 1517 – APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA – 2018 (18) G. S. T. L. 701 (App. A. A. R. – GST)
APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA – AAAR
Dated:- 23-10-2018
MAH/AAAR/SS-RJ/11/2018-19
GST
SMT. SUNGITA SHARMA, AND SHRI RAJIV JALOTA, MEMBER
PROCEEDINGS
(Under Section 101 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST 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 MGST Act.
The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and
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yage execution, which is the ancillary service offering of the Appellant, Consultancy Service and the consequential Support Service provided by the Appellant are generically referred to as Marine Consultancy Service (“MCS”) together by the Appellant.
C. MCS is provided by the Appellant in terms of a typical Consultancy Agreement executed by and between the Appellant and the ship owners. Details of service provided by the Appellants are provided in the Annexure attached to the agreement entered with FSO.
D. This appeal (as also the Application for Advance Ruling) concerns only supplies made to overseas clients known as Foreign Ship Owners (“FSO”) and is accordingly limited and worded.
E. MCS service of the Appellant is provided to the FSOs who wish to have and therefore seek out potential employment (charterers) for their vessels. Entire engagement between the Appellant and FSO is on principal to principal (“P2P”) basis and has the essential nature of consultancy, that is, provision
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ion of the contract i.e., it is paid upon the agreed additional support services, lay time calculations, etc. being provided to FSO by the Appellant.
I. As an industry and market practice, fee is a percentage of revenue, which has been contractually agreed between the FSO and the charterer. This arrangement is premised on concept of value added service i.e., 'no contract' will result in 'no fee'.
J. No state level taxes were applicable on the service offerings of MCS by the Appellant. The Appellant had obtained Service Tax registration as per the erstwhile indirect tax regime in the State of Maharashtra. MCS service provided by the Appellant to FSO and Indian ship owners qualifies as Business Auxiliary service (“BAS”) in terms of Chapter V of the Finance Act, 1994 (“the Act”). Hitherto, MCS provided by the Appellant was treated as “bundled service” comprising of Consultancy Service and Support Service, wherein Consultancy Service was the principal service giving essential characteris
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this Hon'ble Authority in respect of the composite supplies of MCS by the Appellant to FSO. Specifically, the advance ruling is sought on the following questions:
A.1 Whether MCS provided to FSO constitutes “composite supply” with the principal supply of consultancy service?
A.2 Whether MCS provided to FSO will qualify as an export of service in terms of Section 2(6) of the IGST Act as the place of supply of MCS (as a composite supply) will be determined in terms of Section 13(2)(a) of the IGST Act, i.e. the 'location of recipient of service'?
B.1 In the alternate, where services are provided to FSO distinctively as supply of consultancy service and support service with separate and demarcated fees for their consultancy service and for support service:
a. Whether consultancy service will qualify as business consultancy service in terms of the scheme of classification of services [Annexure to Notification 11/ 2017 – Central Tax (Rate), dated 28th June, Notification”)]?
b. Whether t
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ication of services provided in Notification No. 11/ 2017 – Central Tax (Rate) dated 28th June, 2017. As regards Question 3, the Authority has held that the Support Service provided by the Appellant qualifies as “intermediary service”.
M. Aggrieved by the Impugned Order, the Appellant is filing the present Appeal, on the following grounds which are without prejudice to one another.
GROUNDS OF APPEAL
1. The grounds of appeal are set out in detail herein after, which are taken in the alternative and are without prejudice to one another.
The supply of MCS by the Appellant constitutes 'composite supply' with the principal supply of Consultancy Service
2. The Appellant is an Indian service provider who provides supply of MCS service to foreign parties known as FSOs. The offering of MCS service by the Appellant is in the form of composite supply of services with the principal supply being Consultancy Service. The Support Service provided by the Appellant is in conjunction with the Consu
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as a supply of two or more services which are 'naturally bundled' and supplied in conjunction with each other in the ordinary course of business one of which is the 'principal supply'
4. A composite supply is defined in Section 2(30) of the CGST Act as below:
“Section 2(30) – “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”
5. The concept of composite supply is similar to the concept of 'naturally bundled service' under the erstwhile negative list regime. Appellant is supplying MCS to the FSO which is a composite supply of Consultancy Services and Support Services (may include services for or completing employment) which are inherently tied up (bundled) and integrally enjoined, as a commercial offering. Consultancy S
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r causes which have prospects to impact trade.
6. The foregoing services are provided as a single offering of Consultancy Service, failing which the provision of service will not be meaningful. Consultancy Service helps the client (i.e. FSO) with market intelligence and trade analysis, etc. which helps them in identifying potential charterers and thereafter zeroing on one or more such potential charterers. Thus, the Consultancy Service provided by FSO in tune helps the FSO to augment its business and expand its client base and all these services are provided as one service.
7. Support Services, on the other hand, provided by the Appellant to FSO (client) is a relatively newer offering, and a requirement emerging in recent times as markets became more competitive. This offering is usually at the end of the employment of vessel and involves Appellant merely monitoring voyage execution, examining the lay time calculations and arranging for reconciliation of accounts to crystalize receiv
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lant to the FSO and Support Service is provided at the end of supply at the time of completion of employment of the FSO by the charterer. The Appellant has appointed numerous research analysts to undertake market research, track, collate, analyse the geo-political situation, suggest a suitable rate for the transaction and monitor port development. No FSO separately ever seeks provision of Support Service although academically it is possible. It has not been appreciated that MCS has evolved over a period of time and Support Service is typically provided as value addition to the FSO. Consultancy Service, in the ordinary course of business is provided in tandem with Support Service as a value addition and this is the industry practice.
10. One of the service provided by the Appellant amidst the gamut of service is the principal supply or the main/ primary supply. In case of the Appellant, the principal or the primary supply by the Appellant is the Consultancy Service which helps the FSO
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s concept has been carried forward from the Service tax law. Reference is therefore made to taxation of Services: An Education Guide (June 20, 2012), which provides that to demonstrate that a service is supplied in conjunction with each other in the ordinary course of business, the supply of services should meet some of the following criterion which are indicative, not conclusive and in fact satisfied by the Appellant:
* The perception of the recipient of service i.e., a large number of service receivers expect these services to be provided as a package. Appellant is providing the service as a package as the FSO prefers to engage with one service provider to receive gamut of services which augments their business and it is convenient to pay singular consideration which is a percentage of the value of freight received by the FSO.
* Majority of similar service provider in the industry provide similar bundle of service. Service provided by Appellant to FSO has an evolving nature. Previo
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etc. helps FSO to reach out to potential charterers which is the main objective of FSO's business. Once FSO enters into a contract with the charterers, Appellant is also called upon to provide Support Service in relation to the voyage. Therefore, without Consultancy Service FSO will not be able to efficiently contract with potential charterers and provide services and Appellant may not be called upon to provide Support Service. Rather, practically and anecdotally, it has never been the case where Support Service is given alone and without Consultancy Service.
* The service recipient pays single price regardless of the services within the package, Appellant is obliged to provide all services under the Agreement including the Consultancy Service and Support Service. These services are provided by Appellant to and for FSO on need basis. MCS is never provided to or for Charterer and fee for MCS is only paid by the FSO. This is another important indicator of the perception in Service recip
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India and owing to this expect Consultancy Service and Support Service together as MCS and as a result it is commercially inexpedient for Appellant to so offer it.
* Different elements are integral to one overall supply. Service recipient's end objective is employment of vessel. Appellant provides Consultancy Service to FSO. The information disseminated by Appellant under Consultancy Service is used by FSO for employment of vessels. Once FSO itself fixes the charterer, Appellant is required to provide Support to FSO by enabling conclusion of the transaction inasmuch as reconciliation and calculation of lay time to receive charter hire earnings for the employed vessel. Thus, the supply is intrinsically linked and are integral to one another and so clearly in conjunction.
13. The Education Guide on Service tax which has also been referred in the GST flyer issued by the Central Board of Indirect Tax and Customs (“CBIC”) on Composite Supply and Mixed Supply and has been extensively reli
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Status' clause of the sample Consultancy Agreement dated 01.03.2017 (“Agreement”) to conclude that the supply of MCS by the Appellant would not constitute “composite supply” with the principal supply of service being supply of Consultancy Service. The Impugned Order's observation regarding the perception of the FSO is completely flawed. In this regard, the Impugned Order provides that the perception of the FSO is that the services listed in Exhibit A of the Agreement need not be bundled and could be performed by different service providers or from his staff too. This observation is in complete contrast to the prevailing market practice surrounding transactions of this kind. The general practice is that an FSO avails Consultancy Service and Support Service bundled together as MCS from the same supplier as it increases effectiveness and helps in cost economization.
16. Further, the Agreement annexed shows the general arrangement between parties in transactions of this nature and is the
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. Contracts represent business understandings between the parties. Commercial dealings between persons who are well versed in the transaction of business are regulated by contracts which parties opt to govern themselves. The law regulates those contracts and provides an ordered framework in which business dealings can be implemented. The duty of the Court when called upon to assess where the balance lies in a contractual dispute, is to read the contract as a whole in order to understand the business meaning which the parties attributed to their obligations. Interpretation in law must ensure in commercial matters that the view which the Court takes records the sense which the parties to an arms length transaction attribute to the terms which they incorporate. The law is not divorced from business realities nor can the vision of the Judge who interprets the law be disjointed from the modern necessities to make business sense to business dealings.”
17. The supplier of MCS begins by suppl
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hough the clause on 'Independent Contractor Status' of the Agreement permits the FSO to opt out from any of the service offered under the Agreement, this does not alter or reduce the consideration which is charged by the Appellant from the FSO. Regardless of this option given to and opted by the FSO, the FSO remit the consideration agreed under the Agreement and availing of such option by the FSO does not affect the consideration that he is obliged under the Agreement to pay to the Appellant. The Impugned Order has failed to appreciate and factor this aspect in its findings, thereby rendering the Impugned findings unsustainable.
18. Without prejudice, it is relevant to note that the Authority has concluded that the Agreement is in respect of a particular contract (MV AM OCEAN PRIDE/ MARUBENI CEMENT CHARTER PARTY CONTRACT DATED 3RD MARCH 2017) and not a general agreement. Therefore, a generalization regarding the perception of an FSO on the basis of the clause on 'Independent Contracto
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stion related to the transaction.
ii. Union of India (UOI) and Ors. v. Playworld Electronics Pvt. Ltd and Ors, 1988 (38) ELT 733 (S.C.) = 1989 (5) TMI 57 – SUPREME COURT – The same position was reiterated in this case where the Hon'ble Supreme Court pointed out that it was necessary to find out the true nature of the transaction before deciding upon it.
20. Therefore, even if a prima facie reading of the 'Independent Contractor Status' clause portrays that the services provided by the Appellant can be availed separately, on delving into the intention of the parties, it could have easily been confirmed that the services were intended to be provided bundled together and in the facts of the present case, the Appellant had provided the FSO with both Consultancy Service as well as Support Service. The findings of the Authority are based on fundamental misunderstandings of vital facts and fundamental mis-appreciation or misapplication of the relevant law and therefore the Impugned Order is
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clause of an agreement and isolating the other indicative parameters like market practice, how consideration is charged and collected, etc. renders the Impugned Order erroneous and unsustainable.
22. Further, the observation of the Impugned Order that there exists no service which can be identified to be a principal supply of service from the services listed in the exhibit to the Agreement is erroneous and flawed. Consultancy Service provided by Appellant to FSO augments its business viability and profitability. It is the Appellant's advice on vessel positioning, bunker trends, commodity market, etc. which helps FSO to reach out to potential charterers which is the main objective of FSO's business. The Appellant by utilizing the market intelligence gathered by the research analysts employed by it, with respect to vessel positioning, bunker trends, commodity market, inter alia others, suggests potential charterers that may require the services of the FSO. Thereafter, FSO indulges in n
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nt. Accordingly, Consultancy Service provided by the Appellant must be considered to be the principal supply of service.
24. It is relevant to note that the State Tax Officer in his submission before the Hon'ble authority on March 13, 2018 (“Revenue Submission”) acknowledged that that MCS is a composite supply of service in terms of Section 2(30) of the CGST Act, and despite this the Authority concluded contrarily.
The Impugned Order fails to rule on the classification of services provided by the Appellant
25. It is now well known that the Authority for Advance Ruling of other states and indeed this state too have ruled on and provided classification entry for goods and services provided.
26. The Impugned Order is flawed to the extent that the Authority has failed to exercise its jurisdiction and rule on the issue raised by the Appellant before it regarding the classification of MCS provided by the Appellant (which is Consultancy Service and Support Service bundled together) in ter
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ices for water transport nowhere else classified”) is the specific entry which provides the appropriate description of activities provided by Appellant. Therefore, MCS will be classified therein and leviable to GST at the rate of 18%.
Explanatory notes to the Scheme of Classification of Service
28. Explanatory notes to the scheme of classification issued by the Central Board of Indirect taxes and Customs provide which “indicate the scope and coverage of the heading, groups and service codes of the Scheme of Classification of Services. These may be used by the assessee and the tax administration as a guiding tool for classification of services”. Explanatory note to SAC 996759 which deals with “other support services for water transport” provides the following:
“This service code includes water transport supporting services directly connected with vessel operations not elsewhere classified and also include services not directly connected with vessel operations such as ice breaking, ve
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s for maritime transport (745)]. Thus, it can be safely concluded that MCS provided by Appellant to FSO would be classified as Support Services in transport, other than GTA.
31. In the invoice raised by Appellant on FSO, which categorizes the supply of service by Appellant to FSO as MCS, supports the commercial understanding. Consequently, in the financials of Appellant for the year 2017-18 in the Profit and Loss accounts income from MCS has been reflected as revenue.
MCS cannot be classified under Heading 9983 of the Notification
32. Further, MCS will not be classified under Heading 9983(ii) at Serial No. 21 as “other professional, technical and business services other than (i) above” Relevant entry under Heading 9983 is SAC 998399 at Serial No. 364 of the Annexure which is “other professional, technical and business services nowhere else classified”. Services classified under this head are leviable to GST at the same rate of 18%. It is evident that this is the residuary entry whic
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of MCS by the Appellant to an FSO would qualify as an export of service under Section 2(6) of the IGST Act, and subsequently the tax liability on the supply of MCS.
Export of service is defined under Section 2(6) of the IGST Act as following:
'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; 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″
34. The Appellant satisfies the conditions (i), (ii), (iv) and (v) prescribed above as the supplier of service i.e. the Appellant is located in India, the recipient of service i.e. the FSO is located outside India, payment for supply of MCS service
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vices. If the supply of MCS does not qualify as an export of service under Section 2(6) of IGST Act even though it satisfies all the conditions prescribed under Section 2(6) of IGST Act, it would amount to export of taxes which is against what the Government intended.
36. Therefore, the Authority defeats the purpose of making an application for advance ruling by not ruling on the question of classification of services, which is well within the ambit of Section 97(2) of CGST Act and is essential to be determined to decide the place of supply and consequentially the taxability of a transaction is flawed and bad in law. Non-consideration of the question relating to place of supply which has direct nexus with the taxability of the transaction has caused grave hardship to the Appellant.
GST cannot be levied on a transaction which is outside the jurisdiction of GST law
37. In arguendo, if the Appellant's services that is, Support Services is characterized as an “intermediary service”, it
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erms of the doctrine of territorial nexus as laid down by the Hon'ble Apex Court in GVK Inds. Ltd. & Anr. vs. Income Tax Officer & Anr. [(2011) 332 ITR 130 (SC)] =2011 (3) TMI 1 – SUPREME COURT OF INDIA (“GVK Industries case”). In this case the Hon'ble Apex Court has held that:
Para 18
“It is obvious that Parliament is empowered to make laws with respect to aspects or causes that occur, arise or exist, or may be expected to do so, within the territory of India, and also with respect to extra-territorial aspects or causes that have an impact on or nexus with India as explained above in the answer to question No. 1 above. Such laws would fall within the meaning, purport and ambit of the grant of powers to Parliament to make laws ” for the whole or any part of the territory of India”, and they may not be invalidated on the ground that they may require extra-territorial operation. Any laws enacted by Parliament with respect to extra-territorial aspects or causes that have no impact
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service provided by the Appellant does not qualify as a “composite supply” within the terms of Section 2(30) of CGST Act, there would be no bundling of Consultancy Service and Support Service. Essentially, both the services would be provided independent of each other and the consideration for the services rendered would be obtained separately. Since, both the service would be availed separately by the FSO, the Support Service provided by the Appellant cannot be termed as an “intermediary service” as it would not be for the facilitation of any other supply of service but would be a service provided independently on his own account.
42. The Impugned Order is erroneous and misdirected, in as much as that the supply of Support Service provided by the Appellant would not qualify as an “intermediary service” within the terms of Section 2(13) of IGST Act. An intermediary service in terms of Section 2(13) of the IGST Act, is extracted below:
“Section 2(13) – “intermediary” means a broker, a
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and is purely for Appellant to provide its services to FSO. Additionally, the supply of service is for the purpose of fulfilling the contractual obligations between the FSO and the Appellant by undertaking to do all activities necessary for the successful completion of the MCS service rendered by it on its own account. Therefore, the Support Service provided by the Appellant cannot be considered as a service rendered for the purpose of helping or aiding the FSO in its contract with the charterer. It must be understood as an ancillary service provided for the successful completion of the service rendered by the Appellant to the FSO.
44. Further, it is relevant to note that Section 2(13) of CGST Act which defines “intermediary service” intends for the participation of three parties, namely, the supplier of goods or services, the recipient of goods or services and a facilitator. Section 2(13) evidences the establishment of a link between all the three parties, which is absent in the fac
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a Principal to Principal (“P2P”) basis. Further, the Appellant has no role to play in negotiating the terms of the contract between the FSO and potential charterer. The Appellant's role involves the provision of market intelligence to the FSO which helps the FSO in identifying potential charterers that would be interested in contracting with it and thereafter to provide Support Service for the transport of goods by ship.
46. The Appellant enters into a contract with the FSO for the supply of MCS service which consists of Consultancy Service and Support Service, and the fee for the provision of service will be a percentage of the gross revenue of the transaction and would be predetermined by the FSO and the Appellant and would be paid only on the successful completion of the voyage of the vessel chartered. The Appellant employs research analysts who gather the requisite market intelligence and on the basis of this intelligence gathered, the Appellant provides the FSO with a list of pot
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thority has merely relied on the part of the Agreement which provides that the FSOs may elect to avail any of the services. However, the same clause also provides that the service shall be provided on a non-exclusive basis and neither party has the authority to bind the other party. Thus, this clause selectively referred by the authority should be looked at in its entirety to understand that the Appellant does not have the ability or power to enter into contracts, etc. and actions of the Appellant were not binding on the FSO.
49. Reference in this regard is made to the Advance Ruling in the case of In Re: Godaddy lndia Web Services Pvt. Ltd. [2016 (46) S.T.R. 806 (A.A.R.)] = 2016 (3) TMI 355 – AUTHORITY FOR ADVANCE RULINGS. In this case, the applicant was involved in providing Support Services in relation to marketing, branding, offline marketing, oversight of quality of third party customer care centre and payment processing, on a principal to principal basis to a domain service prov
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he charterers who are the customers of the FSO.
50. Similarly, reference is made to the decision of the Authority of Advance Ruling in the case of In Re : Universal Services India Pvt. Ltd [2016 (42) S.T.R. 585 (A.A.R.)] = 2016 (5) TMI 750 – AUTHORITY FOR ADVANCE RULINGS. In this case, the service provider providing payment processing facilities to a domain service provider was held not to be a provider of “intermediary service” within Rule 2(f) of the Place of Provisions of Services Rules, 2012, as the service provided by him was on his own account and remuneration entitled to him was payable by the domain service provider alone and no remuneration of any kind was obtained from any of the customers of the domain service providers. As is the case of the Applicant where MCS is provided by the Applicant on its own account and remuneration to him is payable by the FSO and no remuneration of any kind is paid or payable by the charterer.
51. Further, it is relevant to note that there exis
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e” within the terms of Section 2(13) of IGST Act. This is contrary to fact record.
53. Appellant and the FSO are in a fiduciary relationship in terms of which the Appellant is obligated to act for the benefit and interest of FSO. In this regard, the appellant may be required to interact with the charterer for the successful completion of the service provided by the FSO. But, this interaction does not give rise to any contractual obligation between the Appellant and the charterer. Further, any interaction of this kind is only to fulfil the contractual obligations with respect to the services provided by the Appellant to the FSO and cannot be construed as provision of services by the Appellant to the charterer. Therefore, any interaction of this nature must not be understood as facilitation of services between the FSO and charterer by the Appellant and must be perceived as ministerial acts carried out by the Appellant in the course of fulfilling the contractual obligations that exist be
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mployed by the Appellant. Thus, they are rendering the consultancy services to their clients. In addition to this consultancy services, they are also providing support services after the contracts between the FSOs and their clients for the chartering of the vessels owned by the FSO are finalised and the actual navigation of the vessels commence, when they are required to monitor the vessels' voyage execution for smooth and efficient operations so as to optimize performance for the ship owners along with the other ancillary services like examining lay time calculations, accounts settlements with the charterers etc. They termed their above said activities as a package of services called Marine Consultancy Services (herein after referred to as “MCS”), which is the comprehensive combination of the consultancy services and support services.
57. However, Smt. Rukmani S. lyer, State Tax Officer, appearing on behalf of the Department, countered all the arguments made by the Appellant either o
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ntermediary service” in terms of Section 2(13) of IGST Act. The other questions regarding determination of the 'place of supply' in respect of the above mentioned services and under the above discussed circumstances, which have been raised in the Application filed before the Authority for Advance Ruling has not been taken up since the Appellant have agreed and acceded to the findings of the Advance Ruling Authority, wherein the members of the AAR have observed that since, the determination of the place of supply of a service is not covered under the spectrum of the specific issues/questions, which may be raised before the Advance Ruling Authority for the purpose of the clarification, as provided under the Section 97(2) of the CGST Act, 2017.
59. Coming to the issue no. 1, first of all, we will discuss the meaning of the 'Composite Supply'. As per Section 2(30), “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods
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ine the lay time calculations and account reconciliation etc., which the appellant are classifying as support services. Thus, consultancy services are followed by the support services.
61. The Appellant has further submitted that while exploring the potential charterers for the vessels owned by the FSO, they have to interact with those potential charterers, to know their requirements and expectations related to the chartering services. They further added that they do not play any role in the eventual agreements entered between the FSO and the charterers for the chartering of the vessels. They also submitted that they do not have any obligation towards or agreement/contracts with these charterers.
62. Further, on perusal of the sample agreement dated 01.03.2017 entered between Singapore Shipping International Pte. Ltd. (FSO) and Five Star Shipping (the consultant/Appellant) under and pursuant to the MV AM Ocean Pride/Marubeni Cement Charterer Party Contract dated 03.03.2017 submitted
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ded by the Appellant. To decide this issue, first we would like to discuss the scope of the intermediary services, which is being reproduced herein below as provided in the Section 2(13) of the IGST Act, 2017:-
2(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;
Thus, necessary conditions for any activity to be an intermediary service are asunder:-
(i) There should be supply of goods or services or both;
(ii) There should be the involvement of three persons (i) the supplier of the goods or services or both (ii) the receiver of the supply of the goods or services or both and (iii) the intermediary who arranges or facilitates the said supply of goods or services or both subject to the condition the said supply is not made by
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lying this service i.e. chartering of vessel service, as the vessels are not owned by them but the by the FSO. Thus, all the conditions or parameters for the intermediary services have been fulfilled by the services being provided by the Appellant to the FSO.
65. In view of the above, it is conspicuously evident that the Appellant is acting as an intermediary for the FSO. Though the Appellant is insisting that they are not having formal contracts with any of the potential charterers of the vessels, this is not the requirement or criterion for supply of the intermediary services, as can be seen from the definition of the intermediary, as reproduced above.
66. The Appellant, in their appeal submissions, have also been highlighting the industrial practice, wherein a FSO avails Consultancy Service and Support Service bundled together as Marine Consultancy Service from the same supplier for it increases effectiveness and helps in cost economization. However, from the study of market pract
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, with offers and counteroffers by either side; if main terms cannot be resolved, there is little or no point in negotiating further details.
5. Negotiations “on subjects”, e.g. “subject stem”, “subject receiver's approval”, etc., where the main terms have been agreed, but final agreement is subject to various secondary conditions being agreed.
6. Fixture, i.e. the full and final agreement, with all “subjects” removed.
Following fixture is a “post-fixture” or follow-up period during which the broker may undertake various administrative functions on behalf of his principal, such as (in some cases) collection of freight or hire.
Shipbrokers are remunerated by commission, called “brokerage”, payable by the ship owner to each broker involved in arranging a contract. In voyage or time charters the brokerage payable is stipulated in a Brokerage Clause and is normally 1.25% of the ship owner's gross receipts from hire, freight, dead freight and demurrage, payable to each broker involved.
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ounts for eventual settlement with the vessel charterers; which are the essential requirements for receiving the payment from the FSO. This brokerage or commission amount is a fixed percentage of the gross amount received from the charterers as consideration for this vessel chartering services.
68. In the sample agreement dated 01.03.2017 entered between Singapore Shipping International Pte. Ltd. (FSO) and Five Star Shipping (the consultant) under and pursuant to the MV AM Ocean Pride/Marubeni Cement Charterer Party Contract dated 03.03.2017, on perusal of the Compensation and reimbursement clause at Sr. No. 3 therein, it is discerned that the FSO is paying, in each particular charter party contract, to the Appellant a fee of 1.25% of Gross Revenue (here “Gross Revenue” meaning the freight, dead freight and demurrage received under contracts through the consultant). Thus, by looking into the details of the above said agreement, which, inter-alia, stipulates the activities to be perfor
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the their principal i.e. the FSO. Thus, the Appellant is actually facilitating the supply of the main services i.e. chartering of the vessels by the FSO to their clients i.e. charterers, thereby clearly acting as an intermediary, as the chartering of the vessels is not the main service of the Appellant, but their principal i.e. the FSO. Appellant are performing all these services on behalf of their principal i.e. the FSO, thus acting as an intermediary. The above said intermediary services can be classified under the Service Accounting Code 999799, which is “Other Miscellaneous Services”, as per the Annexure to the Notification 11/2017 -C. T. (Rate) dated 28.06.2017 as the intermediary activities cannot be classified in any other service head/group of the above mentioned Annexure.
69. Further, in addition to the above intermediary activities, they are obliged to perform the other administrative activities like examination of lay time calculation, voyage account reconciliation for even
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on etc. Remaining administrative activities like examination of the lay time calculation, voyage accounts reconciliation and settlement thereafter etc. which is in the nature of 'accounting services' provided to the FSO, can be covered under the incidental services to the main services of the Appellant, which is the intermediary services, as the Appellant are obliged to provide all these services to the FSO as per the list of activities enlisted in the Annexure A to the above mentioned agreement. Thus, the entire gamut of the activities of the appellant can be considered as composite supply of the intermediary services and accounting services, of which the intermediary service is the principal service.
71. As regards the Appellant's submission made in the para K, that they had been classifying the above discussed activities as the Business Auxiliary services prior to the GST regime, where they have taken service tax registration under Business Auxiliary Services, and not under the Sup
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