In Re: M/s. Sabre Travel Network India Pvt. Ltd.
GST
2018 (12) TMI 1006 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – 2019 (21) G. S. T. L. 87 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – AAR
Dated:- 26-7-2018
GST-ARA-08/2018-19/B-76
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 Sabre Travel Network India Pvt Ltd, the applicant, seeking an advance ruling in respect of the following question.
“Whether the marketing, promotion and distribution services (hereinafter referred to as the “Said Services”) provided by Sabre India to Sabre APAC would be subject to tax under the Central Goods & Services T
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A BEARING ON QUESTIONS ON WHICH ADVANCE RULING IS REQUIRED
BACKGROUND:
A. Sabre Travel Network (India) Pvt. Ltd. (hereinafter referred to as 'Applicant/Sabre India'), situated at 14th Floor, Urmi Estate, 95, Ganpatrao Kadam Marg, Mumbai – 400013, is a private limited company incorporated under the Companies Act, 1956. It is a wholly owned subsidiary of Sabre Asia Pacific Pte. Ltd. (hereinafter referred to as Sabre APAC'), a leading provider of travel solutions and services across the globe.
B. Sabre GLBL Inc„ an affiliate of Sabre APAC and Sabre India, has developed a global distribution system which uses a Computer Reservation System Software ('CRS Software') which it owns and operates. The said CRS Software performs various functions including airline seat reservations, scheduling, booking for a variety of air, car and hotel services, automated ticketing and fare displays, etc.
C. Sabre GLBL Inc., had granted to Sabre Marketing Nederland B-V., a non-exclusive right to mar
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e scope of the services provided by the Applicant under the terms of the said Marketing Agreement are:
i) Marketing services including advertising, identifying potential Customers, identifying business opportunities, demonstrating offerings;
ii) Consultancy and provision of information services;
iii) Marketing support services, including PR, promotions, sponsorship, and special events and trade shows; and
iv) Any other services necessary or advisable to perform its obligations under the said Marketing Agreement.
F. Marketing Agreement and its Operation:
In view of the above, the Applicant undertakes the following activities in relation to the marketing and promotion services provided by them under the Marketing Agreement dated 31 October 2016:
According, while marketing access to the CRS Software, the sales team of the Applicant approaches potential subscribers in India to whom they explain the features of the CRS Software and the flexibility of same to integrate with the po
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otted and the setup is activated, the Applicant's engineers install user interfaces to access the CRS Software in the subscriber's computer systems.
In this manner, once the organizational and workflow analysis is complete, the Applicant undertakes reporting of the results in the Subscriber Communication Management System owned by Sabre APAC. Consequently, the scouting of potential subscribers and the said organizational and workflow analysis of such potential subscribers are the deliverables by the Applicant which is submitted in the SCMS system in the form of a non-binding request.
Herein, the responsibility of the Applicant, stands completed on the identification of the potential subscribers to Sabre APAC. Subsequently, their responsibility of providing marketing support services (e.g. installation of interfaces to the CRS Software, consultancy, assistance, provision of information services, etc.) relating to the CRS System arises only once Sabre APAC decides to accept the potenti
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ons under the Marketing Agreement. Such services are provided with the aim to make the CRS Software the reservation system of choice for subscribers and to strengthen the subscribers trust in the brand 'Sabre' so as to augment Sabre APAC's business in India.
H. The entire gamut of services are provided in an integrated manner to Sabre APAC, and for consideration the Applicant raises a consolidated monthly invoice for the fees to be received from Sabre APAC for all the services rendered to them. The said fees, which is received in the form of convertible foreign exchange, is calculated on a cost plus a mark-up basis as per the terms of the said Marketing Agreement. Further, the amount so received is in accordance to the domestic arm's length requirements under the local transfer pricing laws. Hereto annexed and marked as 'Exhibit B” are sample copies of invoices issued to Sabre APAC.
I. Basis the above facts, the various roles and responsibilities of the Applicant and Sabre APAC Under
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re APAC has been sublicensed the right to market and promote CRS software within the Asia Pacific region. It has also been sub-licensed its marketing Subscriber agreements are rights to local-country entered into by the Applicant distributor.
The Applicant has been granted the non-exclusive right to market and promote CRS Software within the territory Of India. Pursuant the same, the Applicant identifies potential customers, demonstrates offerings, etc.
In context with the scope and explanation of Para 2.3 and 2.4 of the said agreement, it is evident that the applicant has the right to negotiate and execute agreements with Subscribers.
Subscribers agreement entered into by the Applicant in its own name and on its own account. The clauses referred pertains to the incentives and other benefits that Sabre India may offer to the Subscribers viz. travel agents and others who may want to use the CRS. This is because the use of CRS is generally free and there is nothing of significance nor
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support services in relation to which may include grievance redressal service, repairs and maintenance services, etc.
8.
Promotional Activity
Involved, as may be required on case to case basis
Use of any and all advertising and promotion techniques, service and support, promotion materials, participation in trade shows, sponsorship services, etc.
9.
Advising on marketing strategies and local market conditions
Formulation and adoption of strategies, based on inputs of the Applicant
Advise Sabre APAC on any changes in market, organization, any political, financial, legislative, industrial or other events in within the prescribed territory of India.
10.
Provide information on market trends, competitors, and new products and services in the Territory
Decision making based on inputs received from the Applicant
Advise Sabre APAC on any changes in market, organization, any political, financial, legislative, industrial or other events in within the prescribed territory of India.
J
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es provided by the Applicant to Sabre APAC are the main service provided by the applicant to Sabre APAC on applicant's own account.
L. In light of the aforesaid facts, the Applicant seeks to determine the liability to pay tax on services rendered by the Applicant to Sabre APAC under the Marketing Agreement dated 31 October 2016 and to obtain a ruling with regard to the following questions Of law as mentioned in Annexure Il to this application and accordingly submits this application before the Hon'ble Authority for Advance Ruling.
Grounds for Application /Interpretation of law in respect of the questions on which advance ruling is sought
The Applicant makes the following factual and legal submissions in relation to the aforesaid questions:
The Applicant is a registered Goods and Service Tax (hereinafter referred to as 'GST') assesse holding registration certificate bearing no. 27 AAACA4836H2ZR and is engaged in the business of providing marketing, promotion and distribution service
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CGST Act With respect to issues already pending or decided under other provisions of the CGST Act would not apply in the present case.
Therefore, in accordance with the legal provisions under Chapter XVII of the CGST Act, 2017 the Applicant is of the view that the present Application to 'determine the liability to pay tax on services' as prescribed under Section 97(2)(e) of the CGST Act is maintainable before the Authority.
APPLICANTS INTERPRETATION OF LAW AND FACTS
The principal question raised by the Applicant is whether the the marketing, promotion and distribution services (hereinafter referred to as “Said activities”) provided by the Applicant to Sabre APAC would be subject to tax under the Central Goods & Services Tax Act 2017 and the Maharashtra Goods & Services Tax Act 2017 (hereinafter referred to as “Said Tax Acts”) or would remain excluded under the said tax Acts as the said activities qualify as export of service in accordance with Section 2(6) of the Integrated Goods &
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bre APAC would remain excluded from the Said Acts Since the same would qualify as export of services as defined under Section 2(6) of the Integrated Goods and Service Tax Act, 2017 (hereinafter referred to as 'IGST Act') read with the said Acts. In order to substantiate the said proposition it is necessary to explain the provisions prescribed under the GST law which are analyzed as follows:
1.2 It is submitted that under the GST Act, the eligibility to tax of any activity is dependent on two aspects, viz. whether it is taxable under the provisions Of the GST Acts and secondly whether the same is eligible for any exclusion for purpose of taxation under the GST Acts. Accordingly, it is necessary to first identify the taxability of the services under GST Acts and further the parameters for any exclusion from tax as are applicable in the facts and circumstances of the present case.
1.3 Determination of taxability:
1.3.1 It is submitted that as opposed to the erstwhile indirect tax regi
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the services are to be rendered by the Applicant from India to Sabre APAC situated in Singapore. This is an inter-state supply as defined under Sec 13 of the IGST Act, 2017 read with Sec 2(57) of the CGST Act, 2017. A reference would have to be made to the definition of 'export of services' under Section 2(6) of the Integrated Goods and Service Tax Act 2017 (hereinafter referred to as 'IGST Act').
1.4 Exclusion from Tax:
1.4.1 Further, in light of the above, the incidence of GST will follow the destination principle and the tax revenue will accrue to the state where the goods or services are consumed. For this reason only, specific provisions have been framed under the IGST Act for the determination of the place of consumption of goods and services. In this manner, for the supply of any services where the location of the supplier or the location of the recipient is located outside India, the place of supply would be determined as per SABR Section 13 of the IGST Act. The said provisi
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rules mentioned in para 1.4 above has been consumed in India and not when it has been consumed outside the territorial boundaries of India. Consequently, where the services are provided from India and consumed outside India, they said activities would be excluded from taxation if they satisfy the test as export of services as per Section 2(6) of the IGST Act. The said provision defines export of services as under:
(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″.
Herein the term 'establishment of distinct persons' has been explained in
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ach of the distinct locations as per the provisions of the CGST Act.
ii) The recipient of service is located outside India: As per the Marketing Agreement dated 31 October 2016, the Applicant has a contractual obligation to provide services to Sabre APAC located at Abacus Plaza, 3 Tampines Central 1, Abacus + SABRE Plaza, #08-01, Singapore 529540. Thus, the recipient of services is located outside India. The expression “location outside India” for a service receiver has been defined in Sec 2(70) of CGST Act, 2017 and reads as follows.
(a) where a supply is received at a place of business for which the registration has been obtained, the location of such place of business;
(b) Where a Supply is received at a place other than the place of business for which registration has been Obtained (a) fixed establishment elsewhere), the location of such fixed establishment;
(c) where a supply is received at more than one establishment, whether the place of business or fixed establishmen
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e place of location of the supplier of service in accordance with Sec 2(71) of the CGST Act.
iv) The payment for such services is received in convertible foreign exchange: the consideration for the services rendered to Sabre APAC is received in convertible foreign exchange. Sabre India Charges a fee on a cost plus markup basis in US Dollars which the Applicant is entitled to irrespective of the number of booking made on the said CRS Software by the Subscribers viz. travel agent. The Foreign Inward Remittance Certificates (“FIRC') showing that the receipt of consideration is in convertible foreign exchange is annexed and marked as Exhibit-E.
v) The supplier of service and the recipient of service gre not merely establishments of a distinct person in accordance with Explanation 1 in Section 8 of the IGST Act: The Applicant is located in India and Sabre APAC is located outside India. Thus, the Applicant and Sabre APAC are distinct entities as per the terms of explanation 1 in Section 8
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avel agents in connection with the marketing activities under the Agreement.
1.5.4 Therefore, in view of the facts and the provisions of law as applicable in the present case, the Applicant has satisfied all the conditions under Section 2(6) of the IGST Act and therefore the activities would remain excluded from the applicability of the Said Acts since the Applicant is entitled to claim the benefit of zero-rated supplies as prescribed under Section 16 Of the IGST Act.
2. SERVICES RENDERED BY THE APPLICANT CANNOT FALL UNDERINTERMEDIARY SERVICES AS PER THE TERMS OF SECTION 2013 OF THE IGST ACT:
The services rendered by the Appellant are not in the nature of intermediary services.
2.1 At the outset the Applicant wishes to reiterate and emphasize that, the Applicant provides the services to Sabre APAC on principal to principal basis with the only intention of promoting and marketing of CRS Software in India.
2.2 In this regard it is also necessary to examine the scope of the express
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nture of any kind between Sabre APAC and Sabre India, or to authorize either Sabre APAC or Sabre India to act as agent for the other, and neither Sabre APAC or Sabre India shall have authority to act in the name or on behalf of or otherwise to bind the other in any way (including, without limitation, the making of any representation or warranty, the assumption of any obligation or liability and the exercise of any right or power).”
2.5 To ascertain whether the services provided by the Applicant are covered under the definition of 'intermediary or not, it is pertinent to analyze the term 'intermediary' in detail vis-a-vis activities performed by the Applicant as per the agreement entered into with Sabre APAC.
2.6 In terms of provisions of Section 2(13) of the IGST Act, '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
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f the words 'broker' and 'agent'. The words 'broker' and 'agent' have been defined in the Black's Law Dictionary as follows:
Broker: “An agent employed to make bargains and contracts between other persons, in matters of trade, commerce, or navigation, for a compensation commonly called “brokerage.”
Agent: “One who represents and acts for another under the contract or relation of agency, q. v. Classification. Agents are either general or special. A general agent is one employed in his capacity as a professional man or master of an art or trade, or one to whom the principal confides his whole business or all transactions or functions of a designated class; or he is a person who is authorized by his principal to execute all deeds, sign all contracts, or purchase all goods, required in a particular trade, business, or employment.”
2.10 The dictionary meanings extracted above, clearly indicate that, an element of 'representation' of 'acting on behalf of the other person' should be main
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ed things of the same type as the listed items.
2.12 Thus, applying the interpretative rule of Ejusdem Generis, the phrase 'by whatever name called' will include a person in the same genus as that of a broker or an agent. In other words, the phrase “'by whatever name called', will mean a person who is also appointed in a representative capacity.
2.13 Further, the second element of the definition provides the nature of activities performed by the broker or agent which would be classified as intermediary services. As per the definition, “only the activity of arranging or facilitating the supply of goods or services or both, or securities between two or more persons,” by a broker or an agent would be tantamountata intermediary services.
2.14 The said definition makes it clear that only a person being a broker or an agent or any person acting on behalf of the principal, arranging or facilitating the supply of goods or services or both between two or more persons would be construed to be
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ibutors so as to promote and market the CRS Software. The said Agreement does not create an obligation on the part of the Applicant to facilitate or arrange the supply of goods or services by Sabre APAC to the Subscribers. It only creates an obligation on the part of the Applicant to provide marketing services to Sabre APAC with respect to the CRS Software belonging to Sabre GLBL Inc. within the territory of India.
2.18 Herein, it is pertinent to note that, an agent typically facilitates supply of goods or services between two or more persons; therefore, acts under a tripartite arrangement i.e. such arrangement ought to have at least three parties – seller, buyer and the agent. Whereas, no clause of the Marketing Agreement between the Applicant and Sabre APAC, mentions the rendering of facilitation or arrangement of services by the Applicant between Sabre APAC and the Subscriber. The Agreement does not facilitate nor does it enable the facilitation of any supply of services between Sa
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ary can be referred in this context. The same are reproduced below for the purpose of discussion:
* Nature and Value: An intermediary cannot alter the nature or value of the service, the supply of which he facilitates on behalf of his principal, although the principal may authorize the intermediary to negotiate a different price. Also, the principal must know the exact value at which the service is supplied (or obtained) on his behalf, and any discounts that the intermediary obtains must be passed back to the principal.
* Separation of Value: The value of an intermediary's service is invariably identifiable from the main supply of service that he is arranging. It can be based on an agreed percentage of the Sale or purchase price. Generally, the amount charged by an agent from his principal is referred to as “commission”
* Identity and title: The service provided by the intermediary on behalf of the principal is clearly identifiable. Further the said Educational Guide at para 5.
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ssion' cannot alter the status of the Applicant to that of an agent when the basic agreement with Sabre APAC clearly states that there is no right of representation under Article 11. Further whether there are any registrations from the Subscriber viz travel agents in India or not even in that case the minimum establishment cost of the Applicant with the mark up as provided in para 5.1 of the Marketing Agreement will have to be paid by SABRE APAC to Sabre India. It is settled law that the person who is entitled to the receipt of service and who has the obligation to pay for the said service alone is the service receiver and no other person even if such other person were to indirectly benefit from the provision of the main service.
* Identity and title: The third principle indicates that the service provided on behalf' of the principal is clearly identifiable. The Applicant submits that as per Article 11 Of the Agreement, the relationship between the parties is Clearly restricts the pe
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d the customers of Sabre APAC and the customers or are in no way connected with the services supplied by the Applicant to Sabre APAC. Nor is Sabre India accountable in any way to the Subscribers for any deficiency in the service provided by the Sabre APAC directly to the Subscribers by way of on line data access and retrieval services. Hence, services supplied by the Applicant cannot be characterized as an intermediary services.
2.25 In summary, the services rendered by the Applicant in pursuance of the Marketing Agreement dated 31 October 2016, do not qualify as intermediary services for the following reasons:
i) Services provided by the Applicant only involve standalone activities such as market survey, advising Sabre APAC on marketing strategies, conducting promotional activities and responding to prospective queries that may arise out of the same
ii) in any case, the Applicant does not arrange or facilitate any supply of goods or services inter alia due to the following reasons:
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nsideration by Sabre APAC. The decision to allow or reject access solely rest With the Sabre APAC.
* The Applicant plays no role in enabling Sabre APAC and the subscriber to enter into contract for access of CRS Software except feeding the information via the system to enable Sabre APAC register the admitted and only supports in providing product related information and engages in discussion as required by Sabre APAC.
* Consideration for the service rendered is based on costs incurred by the Applicant in supplying services plus a pre-agreed mark-up which is independent of actual value / volumes of services, if any, ultimately provided by Sabre APAC. This evidences that the Applicant receives fee for provision of services to Sabre APAC and not any commission as in case of agency relationship and hence, does not arrange or facilitate any supply of services to Sabre APAC.
2.26 In light of the above detailed analysis and discussions, it is submitted that, the services SABEN provided b
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ds augmenting the business of Sabre APAC in India. Herein, the supply of services like consultancy, promotion, sponsorships and other related support services rendered by the Applicant are supplementary to the main supply of marketing and promotion services provided to Sabre APAC.
3.3 Considering the nature of the services offered by the Applicant and its operation under the Marketing Agreement, these are a bundle of services supplied by the Applicant to Sabre APAC and is a composite supply' as defined under Section 2(30) of the CGST Act. The said provision reads as follows:
“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”
3.4 Thus, for a supply to be treated as a composite supply, it has to meet the following conditi
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Indian entities to their overseas customers as a single package. Besides, for the provision of the said services, the Applicant issues a Single consolidated monthly invoices on a cost plus markup basis for the entire bundle of services, irrespective of the nature of actual supplies made during the said period. Consequently, the services of marketing, consultancy, promotion, sponsorships and other related support services provided under the Marketing Agreement are naturally bundled and supplied in conjunction with each and can be classified as a 'composite supply'.
SUMMARY OF INTERPRETATION OF LAW AND FACTS:
Under the provisions of the Section 2(6) of the IGST Act, to avail the benefit of export of taxable services, the services are to be delivered outside India and used outside India and payment for services exported should have been received by the service provider in convertible foreign exchange.
Admittedly, the services provided by the Applicant of identification of potential c
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e facts and legal provision the Applicant is of the view that as the services rendered by them to Sabre APAC, under the Marketing Agreement dated 31 October 2016, meets all the conditions prescribed under Section 2(6) of the IGST Act, it can be said that the said services are excluded from the Said Acts being in the nature of exports and qualify as zero-rated supplies under Section 16 of the IGST Act.
Finally, as all the services rendered under the said Marketing Agreement are naturally bundled and provided in conjunction with each other for which a single invoice is raised by the Applicant the service may be classifiable as a composite supply' as defined under Section (30) of the CGST Act and thus all such supplementary activities would also be excluded from the Said Acts.
Without prejudice to above submission, the Applicant respectfully requests Your Honor to grant an opportunity of personal hearing in this matter in order to explain the matter more lucidly. The Applicant reserves
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ountry distributors. Accordingly, Sabre APAC has appointed the Applicant as the National Marketing Company vide a Marketing Agreement dated 31 October 2016 pursuant to which the Applicant has been granted a non-exclusive right to market and distribute the CRS Software to various travel agents in India.
C. Under the said Marketing Agreement, the Applicant provides a range of services relating to marketing and sales promotion which includes advertising, consultancy, public relations, promotions, marketing support services, etc. These services are rendered by the Applicant to Sabre APAC for which consideration is payable by Sabre APAC in the form of convertible foreign exchange, calculated on a cost-plus markup basis. The cost-plus markup basis comprises of the monthly qualifying cost which is the sum of all costs incurred by the Applicant in the process of provision of service together with a profit margin of ten percent thereon and is the basis adopted for purpose of Transfer Pricing p
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sions made in the Application and without prejudice to the same, make the following submission which it requests be considered as part of the Application itself:
1. Submission with respect to the qualification of services rendered by the Applicant under Section 2(6) of the IGST Act
1.1. It is submitted that the Marketing Agreement dated 31 October 2016 creates an obligation on the Applicant to provide marketing, promotion and distribution services to Sabre APAC in relation to the CRS Software, within the territory of India. The Applicant identifies potential customers and once the said customer is accepted by Sabre APAC, it provides after-sales services as may be required. Further, all promotion and marketing support services provided by the Applicant is towards the objective of building the customer base of the CRS Software in India or in relation to the same. Hereto annexed and marked as “Annexure 1” is a scope of the services rendered by the Applicant under the said Marketing Agr
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handigarh wherein – as is the case with the Applicant – the Appellant, in the said order viz. M/s. Evaluserve.com directly interacted with the potential customers of its client and basis their research provided a report of the customers requirement to its client, subsequent to which the Client would provide its deliverables. Here, M/s. Evaluserve.com's plays a pivotal role in the building its client's customer base and subsequently its obligations would come to end once the said report is submitted. Thus, as in the present case, M/s. Evaluserve.com's client act basis the report provided wherein the actual supply is made by the client of M/S Evaluserve.com. It is pertinent to note that, although M/s. Evaluserve.com interacts with the Client's customers, the actual service recipient is the client and not the Client's end customers. Based on these facts, on the question of whether the services rendered by M/s. Evaluserve.com qualifies as 'intermediary services', the Hon'ble CESTAT at Chan
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of quality of third party customer care centre services and payment processing services under the category of 'Business Support Services' to GoDaddy.com LLC ('GoDaddy US') in lieu of a proposed Service Agreement. In the said ruling, it was held by the Hon'ble Authority for Advance Ruling that the GoDaddy India was providing services on their own account to GoDaddy US and not to the Indian customers of GoDaddy US. Hence, the place of provision of service would be outside India in terms of Rule 3 of the place of Provision of Services Rules, 2012 and these services would qualify as export under Rule 6A of the Service Tax Rules. The relevant extract of the said advance ruling reads as follows:
“14****
However, applicant is providing to GoDaddy US services viz.; direct marketing and promotion services, supervision of quality of third party customer care center services and payment processing services, as per draft Service Agreement between the applicant and GoDaddy US. There is no contr
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we rule as under; In the facts and circumstances of the case, the place of provision of business support service provided by the applicant, is outside India in terms of Rule 3 of the Place of Provision of Service Rules, 2012.
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17. In respect of Question 2 above, we held that the place of provision of service would be outside India. It is observed that in this case, provider of service i.e. the applicant, is located in India, which is the taxable territory; recipient i.e. GoDaddy US is located in USA; the service to be provided by the applicant i.e. business support services is not specified under Section 66 D i.e. Negative List Services; applicant would receive payment for said services in convertible foreign exchange and applicant and GoDaddy US are not merely establishments of a distinct person in accordance with item (b) of Explanation 3 of clause (44) of Section 65B of the Finance Act, 1994. As all the ingredients enlisted under Rule 6 A ibid are satisfied, said service will
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the CESTAT order in the case of Principal Commissioner of Central Excise -I v. Advinus Therapeutics Ltd reported in 2016-TIOL-3138-CESTAT-MUM = 2016 (12) TMI 34 – CESTAT MUMBAI wherein the Hon'ble Tribunal on the question of whether a transaction which enjoyed the benefit of export of service for the period prior to 2012 (before the Negative List) would have a different treatment under the new Rules answered as follows:
12. It is an admitted fact that the respondent had been rendering services that were, in the erstwhile pre-negative list regime, taxable but for the provider being a Export Oriented Unit under the entry in section 65(105)(za) of Finance Act, 1994. In the scheme of Export of Service Rules, 2005, the various taxable services had been categorized as object-based, performance-based and recipient-based for the purpose of exemption under section 93 of Finance Act, 1994. Though those Rules are no longer valid for the purposes of rule 5 of CENVAT Credit Rules, 1994, their gui
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rtible foreign exchange from a recipient of service located outside the country, that services are taxable at the destination, the scope of rule 4 must necessarily be scrutinized to ascertain if there was, indeed, legislative intent to deny acknowledgement as exporter to a certain category of service providers that were so privileged tell them. There is no dispute that the recipient of service is located outside India and that the consideration is received in foreign convertible currency. Yet, Revenue insists that performance of service is in India. A service is not necessarily a single, discrete, identifiable activity; on the contrary, it is a series of invisibles that cater to the needs of a recipient; it is upon the consumption of the service by the recipient that service is deemed to have become taxable. This has been so held by the Hon'ble Supreme Court in All India Federation of Tax Practitioners v. Union of India & others [ below:
'7. In the light of what is stated abo
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t of the activity is in India. Therefore, the inescapable conclusion is that the location of the actual performance of the service is outside India and, even with the special and specific provision of rule 4 of Place of Provision of Services, 2012, the performance of service being rendered outside India would render it to be an export.
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1.8. By this elaboration, we have amplified our earlier decision in (re Sai Life Sciences Ltd) that it is contrary to law to isolate an expression in a rule to deny the general principle built into all indirect tax statutes for exempting export of services from levy.”
1.8. In any event, as it has been held in a number of precedents, the nature of transaction and the scope of the contract depends on the intention of the parties which is to be determined on a construction of the contract. The Marketing Agreement between the Applicant and Sabre APAC clearly does not intend to create any agency, partnership or joint-venture between them.
1.9. It is
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ead as a whole and not piecemeal. In this respect, the Applicant relies on the Supreme Court in the case of Super Poly Fabriks v. CCE, Punjab reported in 2008 (10) STR 545 S.C = 2008 (4) TMI 31 – SUPREME COURT wherein the Supreme Court held as follows:
“8. There cannot be any doubt whatsoever that a document has be read as a whole. The purport and object with which the parties thereto entered into a contract ought to be ascertained only from the terms and conditions thereof.”
1.12. Also, the Applicant also refers to para 5.9.6 of the Education Guide issued by the Central Board of Excise and Customs (hereinafter referred to as 'CBEC') in the year 2012 which states that it is expected the intermediary or agent would have documentary evidence authorizing him to act on behalf of the provider of the main service.'
1.13. In the present case, the Marketing Agreement does not entrust such authority on the Applicant, nor is there any other authorising document establishing agency between the
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s on his own account.”
2.3. NATURE OF THE SERVICE PROVIDER
2.3.1 Based on the above, it clear that an intermediary should 'mean', a broker or an agent or any other person, by whatever name called. Here, it is pertinent to note the use of the word 'means' in the said definition. It is trite law that the use of the word 'means' in a definition governs the words following it and has a restrictive meaning. Thus, in the present case, an intermediary can mean only a broker, an agent or any other person, by whatever name called.
2.32. In this respect, the first two words in the means clause are 'broker' or 'an agent'. The words 'broker' and 'agent' have been defined in the Black's Law Dictionary as follows:
“An a agent employed to make bargains and contracts between other persons, in matters of trade, commerce, or navigation, for a compensation commonly called “brokerage”
Broker: “One who represents and acts for another under the contract or relation of agency, 9. v. Classification. A
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/ Character distinct from that of a broker or an agent or will it continue to have the same nature and character as that of a broker or an agent.
2.3.4. The Golden Rule of Interpretation enunciated and espoused by various judicial pronouncements States that the words of a statute must be given their plain grammatical meaning. The intention of the legislature has to be gathered and deciphered in its proper spirit having due regard to the language uses therein. But, when the words are unclear or ambiguous, aid of other rules of interpretations must be used.
2.3.5. The most appropriate rule of interpretation which is to be used while interpreting the phrase 'by whatever name called' is the principle of 'ejusdem generis'. The application of this Rule is necessitated because of the use of a general phrase preceded by specific words. The words 'ejusdem generis' mean 'of the same kind or nature'. 'Ejusdem generis' is a rule of interpretation whereby when a class of things is followed by gen
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y any other name' and 'by whatever name called' have a proximate purpose in a statute and hence the principle laid down by the P&H High Court supra will apply on all squares. In this respect, the Hon'ble Supreme Court in the case of Commissioner of Income Tax, Udaipur v. Mcdowell & Co. Ltd. in civil Appeal 2939/2009 decided on 8 May 2009 = 2009 (5) TMI 27 – SUPREME COURT held as follows:
“10. It would be pertinent to note that the expression now used in Section 43B (i)(a) is “Tax, Duty, Cess or fee or by whatever name called”. It denotes that items enumerated constitute species of the same genus and the expression 'by whatever name called' which follows preceding words 'Tax', 'Duty', 'Cess' or 'fee' has been used ejusdem generis to confine the application of the provisions not on the basis of mere nomenclatures, but notwithstanding name, they must fall within the genus 'taxation' to which expression 'Tax', 'Duty', 'Ce
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r financial services' appearing under section 65(12)(a)(ix) is a residuary entry and includes; those services which are normally rendered by banks or financial institutions”
(emphasis supplied)
2.3.10. Thus, applying the principle laid down by the Hon'ble Supreme Court, supra, and the interpretative rule of 'ejusdem generis', the phrase 'by whatever name called' will include a person in the same genus as that of a broker or an agent. In other words, the phrase 'by whatever name called', Will mean a person Who is also appointed in a representative capacity.
2.4. NATURE OF THE SERVICE
2.4.1. It is submitted that the said portion defines the nature of transactions which if provided by a broker or an agent or by any person (by whatever name called) would be covered under the services provided by an 'intermediary'. As per the definition the broker, agent of any other person will arrange for the provision of service or facilitates the provision of a service (or supply of goods) betwee
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endered on principal-to-principal basis would not be covered under the subject definition.
2.4.4. Based on the above, an intermediary is a person who arranges or facilitates the supply of goods or services, or both. For that reason, he would be involved with the provision of two supplies simultaneously, viz.:
– The supply between the principal and the third party; and
– The supply of his own service (agency service) to his principal, for which a fee or commission is usually charged.
2.4.5. In the present case, all the activities carried out by the Applicant constitutes as a single supply which is the only supply to Sabre APAC. There are no two supplies made by the Applicant in this respect. Further, the supply made by the Applicant does not consist of any activity in the nature of 'arrangement' or 'facilitation' as explained above.
2.46. The Applicant would also like to refer to qualifying conditions for 'intermediary services' described in para 5.96 of the CBEC Education Guide.
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Education Guide and Cannot be treated as an intermediary as per the inclusionary part of the definition under Section 2(13) of the IGST Act. The Applicant draws support from the Statement at the end of para 5.9.6 of the CBEC Education Guide which, in the context of 'Intermediary Service' gives the following example:
“Similarly, persons such as call centres, who provide services to their clients by dealing with the customers of the Client on the client's behalf, but actually provided these services on their own account, will not be categorized as intermediaries.”
2.4.8. The Applicant would also like to refer to judgments under the UK VAT law, where the question of activities carried Out by an 'intermediary' had been analysed. The relevant extract of the said judgements reads as follows:
2.4.9. In 'M/s. Bookit Ltd v Customs and Excise reported in (2004) 11K V18626 (28 May 2004), it has been held that an intermediary Ought to play an active role in the capacity of an agent of the insu
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nother party or negotiating, in the name of or on behalf of a client, the detail of the payments to be made by either side. The purpose of negotiation is therefore to do all that is necessary in order for two parties to enter into a contract, without the negotiator having any interest of his own in the terms of the contract.”
90. In our judgment the services of the employees of Bookit in obtaining card information and transmitting the same to Girobank do not involve any act of mediation on behalf of the customer. The only matters mentioned in paragraph 39 of CDC which could be relevant are “making contact with another party” here Girobank. However, it does not seem to us that the mere transmission of card information suffices for “negotiation” or it follows does such transmission come within “intermediary services” in item 5.”
(emphasis supplied)
2.4.10. Similarly in Leadx v. Revenue & Customs reported in (2008) UKVAT V20904 (19 December 2008) it has been held that introducing cust
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riggered when the requirements for a chargeable lead were met.
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41.
***The Appellant's contact with potential consumers was for the purpose of enhancing the marketability of the lead not to secure a financial product for the consumer or to match him with the most appropriate broker. I find that the Appellant's supplies were about selling leads, not about the making and negotiation of credit.
***The appellant's priority was to sell leads to the highest bidder. The Appellant's interest Ceased once the information was passed onto the buying broker. The Appellant's dealings with potential consumers whether electronically or in person were performed to obtain information for improving the marketability of the leads. The dealings were not entered into with a view to securing a contract for a loan. I find that the Appellant's supplies had no direct link with the process for negotiating credit arrangements between brokers and potential consumers.
***
59.1, therefore, hold that the
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on emerges:
* Mere introduction of buyer with the seller is not sufficient for a service provider to qualify to be an intermediary. Activity of gathering information / sorting the same does not necessarily mean that it is an act of facilitating provision of the main service.
* The 'intermediary' plays a proactive part in putting in place the arrangements under which the supply of the main service is made. The 'intermediary' typically undertakes the arrangement or facilitation of a main service by way of active introduction, support in order processing, support in negotiation of contractual terms, support in collection of price etc.
* Negotiation is a pre-requisite for qualifying to be an intermediary. Negotiation means carrying out all the necessary activities end to end which would entail two parties to enter into a contract, without the negotiator having any interest of his own in the terms of the contract.
2.4.12. The above-mentioned principles can be applied into the pres
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irrespective of the number of booking made on the said CRS Software. Thus, even in the unlikely event of no business being generated from the territory, the Applicant will receive compensation as per the valuation enumerated in paragraph C of the background hereinabove. This itself should establish that there is no other supply except the supply to Sabre APAC and therefore the said Marketing Agreement does not create any agency between the Applicant and Sabre APAC, the services rendered by the Applicant cannot be categorized as intermediary services.
2.4.14. In fact, Article 11 of the Marketing Agreement dated 31 October 2016 specifically establishes that the Applicant does not act as the agent of Sabre APAC nor does the Applicant does not have the authority to act in the name or on behalf of or otherwise bind' Sabre APAC in any manner in relation to the services rendered by them under the said Agreement.
4.5. EXCLUSIONARY PART – 'SUPPLY ON HIS OWN ACCOUNT
2.5.1. The exclusionary p
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ght transport as a principal), and charges a consolidated amount to the exporter. This is a service of transportation of goods for which the place of supply is the destination of goods. Since the destination of goods is outside taxable territory, this service will not attract service tax. Here, it is presumed that ancillary freight services (i.e. services ancillary to transportation- loading, unloading, handling etc) are “bundled” with the principal service owing to a single contract or a single price (consideration).***”
2.5.3. Thus, even persons who provide services to their clients by dealing with the customers of their client on the client's behalf, but actually provided these services on their own account, will not be categorized as intermediaries under the said definition. Accordingly, in the present case, even if it is assumed that the Applicant arranges' or 'facilitates' the supply between Sabre APAC and its customers, since all the services are rendered by the Applicant to Sa
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rce a number of services for use in business or commerce. These services include transaction processing, routine administration or accountancy, customer relationship management and tele-marketing. There are also business entities which provide infrastructural support such as providing instant along with secretarial assistance known as 'Business Centre Services'. It is proposed to tax all such outsourced services. If these services are provided on behalf of a person, they are already taxed under Business Auxiliary Service.***”
2.5.6. Accordingly, the services rendered by the Applicant being outsourced services of Sabre APAC would have been clearly classifiable as 'business support services' under the erstwhile regime. In the GST regime, the said services head is includable under the HSN code 9985' relating to 'other support services.' However, it is pertinent to note, that the said services are not provided by the Applicant on behalf of Sabre APAC, but on its own account on a principal
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idian Logistics (I) Pvt. Ltd. v. CST, Mumbai [2016 (43) STR 216 (Tri. – Bom.)] = 2016 (4) TMI 547 – CESTAT MUMBAI
(ii) Phoenix International Freight Services Pvt. Ltd. v. CST, Mumbai – II (2017 (47) STR 129 (Tri. – Mum.)] = 2016 (9) TMI 585 – CESTAT MUMBAI
2.5.9. Therefore, the services rendered by the Applicant are not classifiable as under Section 2(13) of the IGST Act, the same being rendered by the Applicant's on its own account.
2.6. In view of the facts and the legal provisions, the Applicant respectfully submits that the services rendered by them to Sabre APAC would would be treated as an export of services under Section 2(6) of the IGST Act and hence not be non-taxable for the purpose Of payment of GST under the provisions of GST Law.
Details of the Marketing Agreement dated 31 October 2016
1. Backgound:
1.1. The Applicant, viz. Sabre Travel Network India Pvt Ltd, has obtained a non-exclusive, royalty-free right and license from its parent company i.e., Sabre APAC
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up basis as per the terms of the said Marketing Agreement. Further, the amount so received is in accordance to the domestic arm's length requirements under the local transfer pricing laws.
1.3. A detailed explanation of the services rendered and duties of the parties under the said Marketing Agreement is explained hereunder:
2. Marketing Agreement and its Operation:
2.1. In view of the above, the Applicant undertakes the following activities in relation to the marketing and promotion services provided by them under the Marketing Agreement dated 31 October 2016:
– While marketing access to the CRS Software, the sales team of the Applicant approaches potential subscribers in India to whom they explain the features of the CRS Software and the flexibility of same to integrate with the potential subscriber's system for smooth functioning;
-Thereafter, in the event of a positive response, the Applicant scans the credentials and the business potential of the subscriber to whom it propo
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tional and workflow analysis is complete, the Applicant undertakes reporting of the results in the Subscriber Communication Management System owned by Sabre APAC. Consequently, the scouting of potential subscribers and the said organizational and workflow analysis of such potential subscribers are the deliverables by the Applicant which is submitted in the Subscriber Communication Management System in the form of a non-binding request.
2.3. Herein, the responsibility of the Applicant, stands completed on the identification of the potential subscribers to Sabre APAC. Subsequently, their responsibility of providing marketing support services (e.g. installation of interfaces to the CRS Software, consultancy, assistance, provision of information services, etc.) relating to the CRS System arises only once Sabre APAC decides to accept the potential customer based on the analysis provided by the Applicant.
2.4. Thus, based on the analysis of the subscriber's business provided by the Applica
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the subscribers trust in the brand 'Sabre' so as to augment Sabre APAC's business in India.
03. CONTENTION – AS PER THE CONCERNEP OFFICER
The submission, as reproduced verbatim, could be seen thus-
M/s. Sabre Network (India) Pvt. Ltd. have filed an application with Advance Ruling Authority (ARA), GST Bhavan, Mazgaon, Mumbai – 400 010 on 13.04.2018. In the application, they asked the question as to :-
“Whether the marketing, promotion and distribution services provided by M/s. Sabre India to Sabre APAC would be subject to tax under IGST Act 2017 and Maharashtra GST Act 2017 or would remain excluded under the said acts, as the said activities qualify as export of service in accordance to Section 2(6) of the IGST Act 2017 read with the said Tax Acts.?.”
In support of their above question, during the course of personal hearing held on 17.07.2018, in the office of Authority of Advance Ruling, GST Bhavan, Mazgaon, Mumbai – 400 010, they submitted the following facts to the noti
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ber 2016. pursuant to which the Applicant has been granted a non-exclusive right to market and distribute the CRS Software to various travel agents in India.
Under the said Marketing Agreement, the Applicant provides a range of services relating to marketing and sales promotion which includes advertising, consultancy, public relations, promotions, marketing support services, etc. These services are rendered by the Applicant to Sabre APAC for which consideration is payable by Sabre APAC in the form of convertible foreign exchange, calculated on a cost-plus markup basis. The cost-plus markup basis comprises of the monthly qualifying cost which is the sum of all costs incurred by the Applicant in the process of provision of service together with a profit margin of ten percent thereon and is the basis adopted for purpose of Transfer Pricing provision under the Income tax Act. Herein, transfer pricing study and documentation is one of the procedures to be followed under the Income Tax laws
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ons.
* At lastly, Sabre APAC has appointed M/S. Sabre Network (India) Pvt. Ltd the National Marketing Company vide a Marketing Agreement dated granting a non-exclusive right to market and distribute the CRS Software to various travel agents in India.
Section 2(13) of the IGST Act, defines an intermediary to mean “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 on his own account.”
In their submission dated 17.07.2018, before Adjudicating authority, the applicant submitted their Marketing Agreement dated 31.10.2016, wherein it clearly stated that:
1.1. It is submitted that the Marketing Agreement dated 31 October 2016 creates an obligation on the Applicant to provide marketing, promotion and distribution services to Sabre APAC in relation to the CRS Software, within the territory of India.
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contentions made in ARA. The jurisdictional officer, Sh. Rajiv Kant Nirala, Inspector appeared and stated that they were not making any submissions today and would be making submission in due course.
The application was admitted and final hearing was held on 17.07.2018, Sh. S. Thirumalai Advocate along With Sh. Irshad Ahmed, Advocate and Sh. Rajeev Pallath Advocate appeared and made additional written submissions . They orally made contentions as per their ARA application. The jurisdictional officer, Sh. Nijay Lande, Supdt., appeared and stated that they would be making submissions in due course.
05. OBSERVATIONS
We have perused the records on file and gone through the facts of the case and the submissions made by the applicant and the department.
Briefly stated the Applicant has stated that they have obtained a non-exclusive, royalty-free right and license from its parent company i.e., Sabre APAC, to distribute the CRS Software in India vide a Marketing Agreement dated 31 October
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nctioning are explained. In the event of a positive response from the subscriber, the Applicant scans the credentials and the business potential of the subscriber to whom it proposes to market the CRS Software and based on an organizational and workflow analysis of the subscriber and following a background check of their prior activities, the Applicant logs on a request into the system through the website maintained by Sabre APAC called Subscriber Communication Management System. This is an automated process wherein a request is placed by the Applicant to create a Pseudo City Code, Simultaneously, provided a subscriber agrees to use the CRS Software, the applicant collects order forms from the subscriber to begin the process for activation of the CRS Software following the creation of the Pseudo City Code. If the subscriber meets all the criterion Set forth by Sabre APAC for subscription, it is registered successfully and a Pseudo City Code is allotted in its favor. Once the Code is al
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o strengthen the subscribers trust in the brand 'Sabre' so as to augment Sabre APACs business in India.
Whilst making their submissions the applicant has claimed that the services being provided by them is only to Sabre APAC and since Sabre APAC is situated outside the taxable territory of India, and the same would qualify as export of services as defined under Section 2(6) of the Integrated Goods and Service Tax Act, 2017 (hereinafter referred to as 'IGST Act') read with Central Goods & Services Tax Act 2017 and the Maharashtra Goods & Services Tax Act 2017 (hereinafter referred to as “Said Tax Acts”). They have also submitted that since they provide the services to Sabre APAC on principal to principal basis with the only intention of promoting and marketing of CRS Software in India, such services shall not qualify as Services under the GST Laws.
In view of the submissions made by the applicant we find that the issue before us is whether or not the applicant is providing Intermediar
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e definition of an intermediary as per GST laws. The term
'Intermediary' is defined in Section 2(13) of IGST Act, 2017 as:- '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”
From the above definition we find that an intermediary can be a broker, an agent or any other person and either facilitates the supply of goods and/or services between two or more persons and who cannot change the nature of supply as provided by the principal.
From the facts before us we find that the applicant is covered by the said definition of an intermediary because they are definitely acting as a broker/ agent, etc and facilitating the process for sale of CRS Software belonging to their foreign parent company, to the Indian subscribers because they ident
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Once the Code is allotted and the setup is activated, the Applicant's engineers install user interfaces to access the CRS Software in the subscriber's computer systems.
Thus from the above we find that first and foremost it is the job of the applicant to scout for subscribers in India. It is nowhere mentioned that the subscribers come on their own to the applicant. Thus the applicant explains and educates the subscriber about the software. Hence it is clear that the subscriber becomes aware of the software only after the applicant approaches them. It is also mentioned that the software does not belong to the applicant. Thus we find that the applicant actually acts as an Intermediary between the potential subscriber and Sabre APAC. The applicant is not providing services on their own.
The software belongs to the parent company. The applicant educates the subscriber about the software which they would not have known if the applicant was not present as an intermediary between them and t
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the crucial condition as contained under sub-clause (iii) requires that the place of supply of service should be outside India. In the subject case, the place of supply shall be location of the supplier of services and therefore such 'intermediary services' cannot be classified as 'export of services'.
We now discuss Inter-state provisions as well as Intra State provisions under the GST laws as follows:-
Inter State provisions are contained under section 7 of the Integrated Goods and Service Tax Act, 2017 and since none of the specific provisions are applicable, residuary provision contained under section 7 (5) (c) shall be made applicable in the case of intermediary service, which states that inter-state supply of goods or services or both in the taxable territory shall be treated to be a supply of goods or services or both in the course of inter-state trade or Commerce, however, the same should not be an intrastate supply and should not be covered elsewhere in section 7 of the IGST
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supply and not covered elsewhere in this section, shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.
As per intra-state provisions contained in Section 8(2), the said provisions are subject to the provisions of section 12 of the IGST Act. As per section 12, the provisions of section 12 would be applicable only for determining the place of supply of service where the location of supplier of services and the location of recipient of the services is in India. When recipient is located outside India the said provisions of section 12 cannot be made applicable and since provisions of section 8(2) are inter-linked with provisions of section 12, the same cannot be made applicable in case the recipient of service is located outside India.
Thus we find that in case the intermediary services are provided to the recipient located outside India, the inter-state provisions as contained under section 7(5) (c) shall be applicable and hence IG
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