IN RE: SEGOMA IMAGING TECHNOLOGIES INDIA PRIVATE LIMITED
GST
2018 (12) TMI 650 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – 2019 (20) G. S. T. L. 611 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – AAR
Dated:- 20-8-2018
GST-ARA-30/2018-19/B-92
GST
SHRI B.V. BORHADE, AND SHRI PANKAJ KUMAR, MEMBER
PROCEEDINGS
(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under section 97 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 MGST Act”] by SEGOMA IMAGING TECHNOLOGIES INDIA PRIVATE LIMITED, the application seeking an advance ruling in respect of the following questions.
1. Whether the supply of photography service is liable to SGST under the Maharashtra Goods and Service Tax Act, 2017 (MGST Act, 2017) and CGST under Central Goods and Service Tax Act
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a Imagining Technologies India Pvt Ltd (hereinafter referred as Segoma India) is Indian private limited company set up under Indian Companies Act.
* Segoma India is 100% Subsidiary of Segoma Ltd (hereinafter referred as Segoma Israel) which is based in Israel.
* Segoma Israel is subsidiary of R2Net which is based in US. R2Net has agreement with customers for listing Diamonds online on website www.jamesallen.com.
* As per agreement between R2 Net and customers of R2Net, R2NET lists on the system only those diamonds that are photographed with R2Net's proprietary Diamond Display Technology. Customer agrees to send its diamonds and/or gemstones to be photographed in R2Net's photography centers on a regular basis.
* R2Net has appointed Segoma Israel for photography service. Intern, Segoma Israel has made agreement with Segoma India to do photography service.
* Customers of R2Net give diamond on returnable basis to Segoma India. Segoma Israel does not have role in receiving diamond
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of export of service
As per section 2(6) of IGST Act, “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 of IGST Act
1.3. Testing of conditions
* Condition 1: Based on above facts, Segoma India is located in India.
* Condition 2: Segoma Israel is located outside India.
* Condition 3: Based on above facts, diamonds are physically required to do photography service.
Section of IGST Act, states that the place of supply of service supplied in respect of goods which are required to be made physically available by the recipient of services to th
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tible foreign exchange.
* Condition 5: as per section 2(6)(v) of IGST Act, 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.
Explanation 1 of section 8 of IGST Act, which is as follow:
* Where a person has an establishment in India and any other establishment outside India then such establishments shall be treated as establishment of distinct persons.
* A person carrying on a business through a branch or an agency or a representational office in any territory shall be treated as having an establishment in that territory.
Based on above facts, Segoma India is established under India company Act and it is not branch, agency or representational office of Segoma Isreal. So Segoma India is distinct person for section of 2(6)(v) of IGST Act and not covered under explanation 1 of section 8 of IGST Act.
1.4 Conclusion on Condition of export
If all following conditions are satisfied t
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pply of photography service is liable to SGST under the Maharashtra Goods and Service Tax Act, 2017 (MGST Act, 2017) and CGST under Central Goods and Service Tax Act, 2017 (CGST Act) or IGST under Integrated Goods and Service Tax Act, 2017 (IGST Act, 2017)
4. Or is it a zero rated “export” supply within the meaning of Section 2(23) r/w Section 2(6) Of the IGST Act, 2017?
Point 15 Statement of relevant facts having a bearing on questions raised
* Segoma Imaging Technologies India Pvt. Ltd (hereinafter referred as Segoma India) is an Indian private limited company set up under Indian Companies Act.
* Segoma India is 100% Subsidiary of Segoma Ltd (hereinafter referred as Segoma Israel) which is based in Israel.
* Segoma Israel is subsidiary of R2Net which is based in US
* R2Net has appointed Segoma Israel for photography service. For all over the world, Segoma Israel has made agreement with Segoma India to do photography service in India. Segoma India provides Diamond Photograp
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India does not give copy of photos to vendors of R2Net and does not charge any fees to vendors of R2Net. Segoma Israel does not have role in receiving diamond.
* Segoma India charges Segoma Israel for providing above service of photography on cost plus 15% mark up on principal to principal basis. Segoma Israel is having its server in Israel. Segoma Israel makes payment in convertible foreign exchange to Segoma India.
* Segoma Israel does processing on the images clicked by Segoma India. Technically, Segoma Israel reworks on the photos clicked by Segoma India by compressing 500MB heavy size images to a single Image. Segoma Israel further processes and makes the image more compatible. R2Net further processes the images after receiving from Segoma Israel.
Point 16 Statement containing the applicant's interpretation of law and/or facts, as the case may be, in respect of the aforesaid questions (i.e. applicant's view point and submission on issues on which the advance ruling is sought
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ition 3: Based on above facts, diamonds are physically required to do photography service. Section 13(3)(a) of IGST Act, states that the place of supply of service supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services in order to provide the service shall be the location where the services are actually performed.
Segoma India performs photography service in India. However, diamonds are not owned by Segoma Israel. As per section of IGST Act recipient of services should make available physically goods to service provider. However, in above transaction of photography, diamonds are made available by third party. Segoma Israel does not have role in receiving diamond. Segoma India issues memo of receipt of diamonds to vendors of R2Net. Accordingly, section 13(3)(a) of IGST Act should not be applied in above transaction.
Then as per section 13(2) of IGST Act, the place of supply of services except the service
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t is not branch, agency or representational office of Segoma Israel. So Segoma India is distinct person for section 2(6)(v) of IGST Act and not covered under explanation 1 of section 8 of IGST Act.
Diagrammatic Presentation
Analysis for services provided not falling under 13(3)(a)
The place of supply of services where the Supplier or Recipient located Outside India is determined by section 13 of IGST Act.
The provisions of this section shall apply to determine the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India.
The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services:
Provided that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services.
3) The place of supply of the following services shall b
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cipient of services to the supplier of services (or his agent) in order to provide the services.
The Diamond Vendors who are the owners of the diamonds make them available through delivery challan to Segoma India for photographs which is on Principal to Principal basis and not as an agent of R2net.
R2Net enters into agreement with diamond vendors in India and as per the clause 2.4 between R2Net and diamond vendors as below:
“R2NET lists on the System only those diamonds that are photographed with its proprietary Diamond Display Technology-Segoma. Vendor agrees to send its diamonds and/or gemstones to be photographed in R2Net's or Segoma photography centres on a regular basis”. Segoma has no relation with diamond vendors or R2Net it only provides photography services to Segoma Israel as per agreement with Segoma Israel.
Photography of Diamonds is a service in respect of goods which are required to be made physically available by recipient of service (directly to Segoma Israel).
Sec
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make available physically goods to service provider. In service of photography, diamonds are made available by vendors in India and payment is made by Segoma Israel who does not have role in receiving diamond. Segoma India receives goods on delivery challan and issues memo receipt for photography to the vendors which is returned after photography to vendor. Accordingly, section 13(3)(a) of IGST Act cannot be applied in above transaction.
Segoma India is not agent of R2Net
As per Section 2(13) of IGST Act, 2017
“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;
As per above definition “Intermediary” does not include a person who supplies the goods or services on his own account.
Segoma India provides photography services to Seg
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to its parent company. The Applicant Was not all concerned about the services provided by GoDaddy US directly to their Indian Customers, which related to domain name registration, transfer services, web hosting services, designing services etc. In this case, applicant was not in receipt of any remuneration/consideration from the Indian Customers of GoDaddy US. Applicant was to only receive a fee from GoDaddy US, being the operating cost incurred by the applicant plus mark up of 13% on such costs. It was noticed that applicant was to receive the said fees from GoDaddy US, even in respect of Indian Customers, who directly remitted the service charges to GoDaddy US through International Credit Card, wherein applicant is not in the picture. This fact further shows that the applicant is not providing any service to Indian Customers and hence could not be said to be an intermediary for the purpose of POPS rules.
Reimbursements of salary and other emoluments of employees under deputation c
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nsofar as the social security interests are concerned, will be taken care of by NAC, US. It is trite that he does not get the salary from NAC, US when he is offering services to NAC, India in that behalf, the benefits are mutually exclusive, at least so far as, they are concerned with the salary. The only obligation on NAC US is regarding the social securities which are not reimbursed by NAC, India to NAC US – merely because the social security of Mr. Sloan while he is in India is being taken care of by the NAC, US. The service of the individual with NAC, India cannot be viewed otherwise in view of the clear language of the provisions f law. There shall be no liability to pay service tax on the salary and the allowances payable by the applicant to the employee in terms of the dual employment agreement and such salary will not be eligible to levy the service tax as per the provisions of the Finance Act.
Customer support and payment processing services provided by the service provider
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ds this, the applicant proposes to open a separate bank account in India wherein the payment collection gateway company appointed by the applicant will deposit the money so collected from the customers of WWD US. The applicant would charge a fee equal to the operating costs incurred by the applicant plus a mark-up of 13% on such costs. The applicant is not authorized to enter into any contract or arrangement on US or which bind it in any manner whatsoever. WWD US will directly contact and provide services to customers in India. The Advance Ruling Authority held that from the facts, the applicant would not be receiving any fees in respect of processing the payments of the customer remitted directly through the payment gateway. Since the service is being provided on own account, the service is not covered by Rule 9 (intermediary services) but covered under Rule 3 of the POPS rules, 2012. The Advance Ruling Authority relying on the CBEC Education Guide dated 20th June 2012 issued by Minis
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transaction is taxable under GST Acts or not.
I wish to submit few points before Authority in relation to submission by dealer.
A. Under heading “Question of Law”, the dealer has sought ruling from Authority that whether Transactions summarized in “Brief Facts” fall under Export of Services under Section 2(6), attracting Zero rated Tax under Section 16(1)(a) of IGST Act 2017.
Section 2(6) of IGST Act states
(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.
* As per Section 97(2) of CGST MGST Act 2017, The question on which the advance
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nd vii, dealer has quoted that -“legislature is presumed to have made no mistakes and legislature intends to say, what it has said.”
B. Without prejudice to above, I would like to attract your attention to following provisions of Section 13 (3) of IGST Act which says:
The place of supply of the following services shall be the location where the services are actually performed, namely:-
(a) services 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:
Provided that when such services are provided from a remote location by way of electronic means, the place of supply shall be the location where goods are situated at the time of supply of services:
Provided further that nothing contained in this clause shall apply in the case of services supplied in respect of goods which are temporarily imported into India
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of Services and hence fall under Section 13(3) (a) of IGST Act 2017.
D. Dealer has claimed to be a distinct person and out of ambit of Explanation 1 of Section 8 of IGST Act. The very section says:
Explanation 1.-For the purposes of this Act, where 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.
As per agreement copy submitted by dealer, M/s. Segoma India is Service provider, wholly owned subsidiary of Service recipient. M/s. Segoma Limited and Segoma India are “fixed establishment” as per section 2(7) of IGST Act 2017. Thus it does not satisfy the condition V of Section 2(6) IGST Act 20
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ma. Vendor agrees to send its diamonds and/or gemstones to be photographed in R2Nets's or Segoma photography centers on a regular basis.”
Whereas the point 2.4 of the operating policy is quoted incomplete by Learned Deputy Commissioner of State Tax (E-907 as follows:
“R2NET lists on the system only those diamonds that are photographed with its proprietary Diamond Display Technology- Segoma.”
We would like to invite the attention of your Honor that there are two distinct persons, one is R2Net's proprietary Diamond Display Technology having presence at New York and other Segoma photography centers having presence all over world. Hence, it is aptly clear that it is at the option of the vendors where to send the diamonds for photography. The diamonds are made available by vendors of R2Net in India and not by any means by the R2Net. Segoma India provides service to Segoma Israel and hence Segoma Israel is the recipient and not R2Net.
As per section 13(3)(a) of the IGST Act, 2017
The pl
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ered by section 13(3)(a) and transaction qualifies as export of services.
2. Learned Deputy Commissioner of State Tax (E-907) believes that Segoma India does not satisfy the condition V of Section 2(6) of IGST Act, 2017 i.e. conditions to qualify as export of services.
We therefore would like to submit to your Honor that as per section 2(6)(v) of IGST Act,
“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”
Explanation 1 of section 8 of IGST Act, which is as follows:
* Where a person has an establishment in India and any other establishment outside India then such establishments shall be treated as establishment of distinct persons.
* A person carrying on a business through a branch or an agency or a representational office in any territory shall be treated as having an establishment in that territory. Based on above facts, Segoma India is established under Indian companies Act
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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;
The condition here stated is that payment received by the supplier of service should be in convertible foreign exchange. The said condition is correctly satisfied. The sample FIRC and invoices are submitted in the earlier submission on 31st July 2018.
According to the above analysis it may be concluded that Segoma India is providing services to Segoma Israel. Segoma Israel is the recipient of the services. The place of supply of services shall be the location of the recipient of service i.e. Israel and hence qualifies as export of services.
04. HEARING
The case was taken up for Preliminary hearing on dt. 03.072018 with respect to admission or rejection of present application when Sh. Pathik Shah, C.A. alongwith Sh. Mukhtar Shaikh, Asstt. Manager appeared and made contentions for
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e we deal with the issue it is necessary first to understand the relationship between the parties and the nature of transaction. Applicant (in short Segoma India) is accompany set up under Indian Companies Act. Applicant is 100% subsidiary of Segoma Ltd (in short Segoma Israel) which is based in Israel. Segoma Israel is also subsidiary of R2Net based in USA, (in short R2Net). The transaction in question follows following sequence. As per the agreement between R2Net and its customer, R2Net lists on the system only those diamonds that are photographed with R2 Nets Display Technology. For the purpose of photography service R2Net has appointed Segoma Israel who in turn made agreement with Segoma India to do photography service. As per the terms of agreement customers of R2Net send their diamonds and or gem stones to be photographed to Segoma India who issues memo of receipt of diamonds to customers of R2Net. At last Segoma India takes photos of diamond and upload photos of diamond on softw
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hin the meaning of section of 16 of the IGST Act. A supply of service must satisfy simultaneously all conditions of section 2(6) of the IGST Act to be considered as export of service, which are reproduced as below:-
Section 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;”
There is no doubt that the supply of service in the present case satisfies conditions at (i) and (ii) of Section 2(6) of the IGST Act. However as stated above, to qualify as an 'export of services' all the conditions must be satisfied simultaneously and therefore we n
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ct ourselves to the provisions Of subsection (3) of section 13 of the IGST Act which is as under:
Section 13(3) The place of supply of the following services shall be the location where the services are actually performed, namely: –
(a) services 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:
Provided that when such services are provided from a remote location by way of electronic means, the place of supply shall be the location where goods are situated at the time of supply of services:
Provided further that nothing contained in this clause shall apply in the case of services supplied in respect of goods which are temporarily imported into India for repairs and are exported after repairs without being put to any other use in India, than that which is required for such repairs;
(b) services suppl
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wned or made available only by the recipient of services. This line of argument in this respect is hard to accept and is not tenable. However from the plain reading of subsection (a) of subsection 3 of Section 13 of the IGST Act, we do not agree with the contention of the applicant that the goods that are required for rendering service by the supplier must be owned or made available only by the recipient of services. As per above clause, recipient of service who want to avail services has to make goods physically available on direct or indirect directions to the service provider and it does not matter who owned the goods. Accepting the proposition of law and its interpretation as made by the applicant, would clearly amount to addition of words which are absent in the provisions.
In our view where words of the statute are clear, plain and unambiguous then it must be given their ordinary meaning.
It is the cordial rule of interpretation that where the language used by the legislature i
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y provisions. Wherever the language is clear the intention of the legislature is to be gathered from the language used. While doing so what has been said in the statute as also what has not been said has to be noted. The construction which requires for its support addition or substitution of words or which results in rejection of words has to be avoided.”
Keeping in mind this proposition we are of the view that there is no need that the goods physically required for rendering services must be owned by the recipient of the services, on the other hand it is sufficient for the recipient to make them physically available to the service provider for rendering services.
Thus in this case the event of photography services pertaining to diamonds made physically available by the recipient of services to the provider of services is over and the service is clearly provided in India where the services are actually performed.
The next condition to be satisfied is that the payment for services in
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supplier of service and recipient of service should be separate legal person and not mere an establishment of distinct person, In the present case, it is observed that R2Net which is based in USA and Segoma Israel is its subsidiary. Further Segoma India is a subsidiary of Segoma Israel. So also we find that as per agreement between R2Net and their customer, R2Net lists on the system only those diamonds that are photographed with its proprietary Diamond Display Technology – Segoma. Thus applicant does not have liberty to photograph and upload images except those finalized by R2Net. In view of this it appears that applicant IS carrying on business in Indian territory as a representational office of Segoma Israel and thus is covered by Explanation 1 of Section 8 of the IGST Act. Applicant's submission in this regard is that they are established under the Indian Companies Act having separate PAN number and therefore it is not a branch, agency or representational office of Segoma Israel. Ho
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