2018 (7) TMI 1182 – AUTHORITY FOR ADVANCE RULING – MAHARASHTRA – 2018 (14) G. S. T. L. 443 (A. A. R. – GST) – Composite supply – Marine Consultancy Service (MCS) provided to foreign ship owners – principal supply of consultancy service – place of supply of services – Intermediary services.
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Whether MCS provided to foreign ship owners constitutes “composite supply” with the principal supply of consultancy service? – Held that:- Even if the applicant is called on to do all of the services, the same would still not amount to a composite supply as the foreign ship-owner’s natural course of business as understood from the agreement reveals that the services may or may not be assigned to the applicant or could be got done from outside, too. Thus when part of the services are performed by the applicant and the remaining by others, each has equal importance in terms of delivery thereof – The perception of the service receiver which is the foreign ship-owner in the instant case that the s
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in terms of the scheme of classification of services (Annexure to Notification 11/ 2017 Central Tax (Rate), dated 28th June, 2017? – Held that:- The business consultancy services of sr. no.299 are covered under the Group “Management consulting and management services” – A general understanding of the term ‘Management Consultancy’ is that it is the practice of keeping organizations to improve their performance, operating primarily through the analysis of existing organizational problems and the development of plans for improvement. As a result of their exposure to and relationships with numerous organizations, consulting firms are typically aware of Industry Best practices – In the present case, it is very apparent that the consultancy services being provided by the applicant are not in the nature of guiding the ship owning company in the management of the ship owning company but are only in the nature of consultancy in respect of opportunities of marine transportation business – The a
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pport service qualifies as “intermediary service” in terms of Section 2(13) of the IGST Act.
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Ruling:- MCS provided to foreign ship owners do not constitute “composite supply” with the principal supply of consultancy service.
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The consultancy service will not 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, 2017.
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The support service qualifies as “intermediary service” in terms of Section 2(13) of the IGST Act. – GST-ARA-18/2017-18/B-26 Dated:- 18-4-2018 – Shri B. V. Borhade (Member) 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 ] b
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ipient of service in terms of Section 13(2)(a) of the IGST Act? c. Whether support service qualifies as intermediary service in terms of Section 2(13) of the IGST Act? And, if ruled that the support service qualifies as an intermediary service, the place of supply of support service as intermediary service will be the location of supplier of service in terms of Section 13(8)(b) of the IGST Act? 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 provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the GST Act . 02. FACTS AND CONTENTION – AS PER THE APPLICANT The submissions, as reproduced ver
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ms of a Consultancy Agreement executed by and between the Applicant and the ship owners. Details of service provided by the Applicant in terms of such Consultancy Agreement are provided below: i. As Specialists in freight market movement, the consultant will analyse commodity, shipping and freight markets, track movement of ships and cargoes and disseminate such information to the company. ii. Track, collate, analyse and monitor port development and logistics data originating from reliable source and update future trends iii. Monitor world-wide economic development, bulk commodity trade pattern development iv. Identify and provide information on port costs, bunker (fuel), trend, cost estimation and analysis v. Monitor voyage execution for smooth and efficient operations so as to optimize performance for the ship owners. vi. Examine lay time calculations and arrange for accounts reconciliation for objective of eventual settlement. vii. Preliminary evaluation of cargo volume, trade patte
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prior to GST 5. The Applicant had obtained Service Tax registration as per the erstwhile indirect tax regime in the State of Maharashtra. MCS service provided by the Applicant to foreign ship owners 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 Applicant was treated as bundled service comprising of consultancy service and support service, wherein consultancy service was the principal service giving essential characteristics to MCS. These services did not qualify under specific rule of the Place of Provision of Service Rules, 2012 ( PPSR ) and therefore, Rule 3 of the PPSR which is the default rule under the PPSR was applicable. As per Rule 3 of PPSR, the place of provision of service was the place of recipient of service . Detailed analysis of tax treatment prior to GST is set out at para 27 to 33 of Annexure II). 6. The Applicant is providing MCS to both Indian and foreign
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disposal made or agreed to be made for a consideration by a person in the course or furtherance of business: (b) (c) : and (d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II; Relevant definition as set out in CGST Act and IGST Act 8. Section 2(30) of the CGST Act defines the term composite supply to mean 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; . 9. Section 2(74) of the CGST Act defines the term mixed supply to mean two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply . 10. In terms of Section 2(13) of the Integrated Goods and
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, which is the default rule for determining the place of supply of services where the location of supplier and recipient is in India, the place of supply of services, except the services specified In sub-sections (3)to (I4), made to a registered person shall be the location of such person. In other words, the place of supply of service shall be the location of recipient of service. 13. Default Rule: In terms of Section 13(2) of the IGST Act which is the default rule for determining the place of supply of services where the location of supplier or location of recipient 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. 14. Intermediary service: Section 13(8)(b) of the IGST Act provides the place of supply of intermediary service where the location of supplier or the location of recipient is outside India. As per Section 13(8) of the IGST Act, place of supply of intermediary servi
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on of the Applicant s business. For this the Applicant has trained professional research analysts stationed at its office who keep them abreast with market trends and help the foreign ship owners with valuable information re their business. The Applicant has appointed research analysts on the payroll to undertake market research, track, collate, analyse and monitor port development and logistics data to update future trends to ship owners and also customise this information as per the customer s needs e.g. the type of vessel, cargo carrying capacity, free space available on the board of the vessels. 2. MCS supplied by the Applicant also includes support service provided to the foreign ship owners which largely consists of optimising global trade and revenue therein for the foreign ship owner. For this, the Applicant relies on the database of information maintained by the Applicant. Further, the support service supplied by the Applicant includes monitoring voyage execution for the ship
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he supply of providing market intelligence leading to potential business and monitoring the supply of service by the ship owner to the charterer to ensure smooth and efficient operations of the ship owner s ships, and also arranging reconciliation of the accounts of the foreign ship owners which helps in eventual settlement with the charterers. Reference in this regard may be made to para I of the Agreement which provides that the implantation of such value-based and market driven advisory service is expected lead to increased cargo volumes, and the support from the Consultants will provide the Company (foreign ship owner) with long term sustainable revenue. – 5. The MCS is provided independently by the Applicant at the request of and in satisfaction of the customer s requirements. Reference in this regard may me made para 1 of the Agreement extracted below: Ii is expressly understood that the consultant has fiduciary obligation to the Company (foreign ship owner) based on contractual
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vices supplied by the Applicant. Each service listed therein may be provided by the Applicant in isolation and there is no requirement to avail all the services supplied by the Applicant and it is the ship owner s prerogative to avail all or some of the services offered by the Applicant. It is on the request of the foreign ship owners that the services arc supplied in a cohesive manner, as a single offering. Typically, the Applicant is equipped to supply consultancy service and support service distinctly and occasionally does provides the services separately. However, it is practical for the foreign ship owner to avail both services offered by the Applicant as a bundle to increase effectiveness and for cost economies. Provision of consultancy service by the Applicant helps the foreign ship owner to zero in on a suitable charterer, which in turn leads to provision of service like tracking of voyage and assistance in billing by the Applicant. It is only on the request of the foreign ship
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or more services made in conjunction with each other by a taxable person for single price where such supply does not constitute a composite supply. Supply of MCS is a composite supply 9. The concept of composite supply is similar to the concept of naturally bundled service under the erstwhile negative list regime. 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; 10. Supply of MCS by the Applicant consisting of consultancy service and support service will be construed as a supply of composite service made by the Applicant as these services (i.e. consultancy service and support service) are naturally bundled and supplied in conjunction
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y does not qualify as a composite supply, such supply is classified as a mixed supply. From the discussion in the foregoing para of this application, it is evident that consultancy service and support service supplied by the Applicant is naturally bundled and are supplied in conjunction in the ordinary course of business. Consequently, given that Applicant s service qualifies as a composite supply of service, the service does not qualify as a mixed supply in terms of CGST Act. Consultancy service is the principal supply in the composite supply 13. The Applicant is providing composite service comprising of consultancy service and support service. As a part of consultancy service, the Applicant collects market intelligence for which it hires trained professionals abreast with market, etc. Such market intelligence helps the Applicant in identifying possible charterers for their clients who are foreign ship owners who are seeking to optimise revenue for their vessel. Relying upon the infor
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hen provided to foreign ship owner shall be the location of the recipient of service in terms of Section 13(2)(a) of the IGST Act (i.e. the default rule), as supply of MCS does not qualify in the specific place of supply rules prescribed under Section 13 of the IGST Act. Therefore, when MCS as composite supply (consisting of consultancy service and support service) is supplied by the Applicant from India to a foreign ship owner, the place of supply of service will be the location of the foreign ship owner located outside India. Resultantly, no GST is payable on this transaction and the transaction will qualify as export of service subject to fulfilment of criterion prescribed in this regard under Section 2(6) of the IGST Act. As the Applicant is able to satisfy the above mentioned criterion, supply of MCS by the Applicant to the foreign ship owner is an export of service. MCS does not qualify as an intermediary service 16. In mode of assumption, if support service provided by the Appli
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voyage. Resultantly, it may be argued that essence of the supply of MCS is to arrange and facilitate supply of service between the charterer and foreign ship owner; this is because If supply of consultancy service is successfully completed but the Applicant is not able to find a charterer for the foreign ship owner, no fees will accrue to or paid to the Applicant. In view of the above, support service provided by the Applicant to the foreign ship owners may be construed as intermediary service in terms of Section 2(13) of the IGST Act. 19. Intermediary service provided by the Applicant along with consultancy service may qualify as naturally bundled service supplied in conjunction and together the service may be deemed as a composite supply in terms of Section 2(30) of the CGST Act. In this case, intermediary service may well be considered as the principal supply and the place of supply of service will be determined in terms of Section I3(8)(b) of the IGST Act which provides the locatio
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ign ship owner in the settlement of fee between the foreign ship owner and the charterer. 21. Therefore, the Applicant is only introducing the foreign ship owner and the potential charterers which may be one or more than one in number. The foreign ship owner is at liberty to choose from the recommended charterers, negotiate the terms of supply of service. The foreign ship owners may decide not to provide service to any of the charterers recommended by the Applicant. The Applicant is neither arranging nor facilitating the supply of service between the foreign ship owner and the charterer. The role ends at the time of introduction of two parties (i.e. foreign ship owner and the charterer) and resumes once an agreement is signed between them, to ensure smooth voyage and settlement of payment. The supply of service by the Applicant is on its own account and directly to the foreign ship owner. Applicant has neither the wherewithal, nor the intent to deal with the charterer. 22. The contract
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n the principal and the third party: and ii) the supply of his own service (agency service) to his principal, for which a fee or commission is usually charged. In Applicant s case: · Applicant supplies MCS to the foreign ship owner which includes consultancy service and suggesting of suitable charterers. · Subsequently, the foreign ship owner (upon independent negotiation) into an agreement for supply of service of transportation of goods by sea the charterer. · Then the Applicant resumes its service to support the foreign ship owner ensuring successful execution of voyage. Therefore, one supply of service precedes the other and at no occasion two services are supplied at one time The facilitation of supply should be between two or more persons An intermediary cannot on his own account alter the nature or value of the supply which he facilitates on behalf of his principal, although the intermediary may be authorized to negotiate a different price The nature and val
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s based on an agreed percentage of the supply of service between the foreign ship owner and the charterer however, this cannot be the sole reason to characterize an Applicant s service as an intermediary service. True nature of an agreement is to be determined, to understand the underlying transaction Hindustan Shipyard Ltd vs. State of Andhra Pradesh /2000/ 119 STC 533. 24. The support service provided by the Applicant does not meet the criterion discussed above. These criteria must be satisfied to classify a service as an intermediary service, in absence of which the support service provided by the Applicant to the foreign ship owner will not qualify as an intermediary service. By reference to the scheme of the GST law, the supply of service by the Applicant would be MCS constituted of consultancy service and support service (and not intermediary service), whereby consultancy service is the principal supply. In absence of consultancy service, the foreign ship owners do not engage wit
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by way of commission, fees, or any other similar payment was permissible. Similar service providers were eligible for and have claimed deduction in respect of MCS provided to foreign enterprises in terms of Section 80-O of the IT Act which was duly allowed by the income tax department. On this basis, it is submitted that MCS service provided by the Applicant was duly recognized as technical and professional service provided to its overseas clients. Position under the erstwhile law 27. Up to 30th June, 2012 (pre-negative list regime), provision of MCS by the Applicant was classified as BAS in terms of Section 65(19) of the Act which means any service in relation to: i. Promotion or marketing or sale of goods produced or provided by or belonging to the client or ii. promotion or marketing of service provided by the client: or iii. any customer care service provided on behalf of the client: or iv. procurement of goods or .services, which are inputs for the client: or v. production or proc
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s any commercial establishment or any office relating thereto in India, the taxable service shall be treated as export of services only if the order for provision of such service is made by the recipient of such service from any of his commercial establishment or office located outside India. 29. The Applicant was providing MCS to a foreign ship owner located outside India and the payment for provision of service was received by the Applicant in convertible foreign exchange. Therefore, MCS provided by the Applicant to foreign ship owner qualified as export of service in terms of the Export Rules and no service tax was applicable on this transaction between the Applicant and the foreign ship owner. Where MCS was provided by the Applicant to the Indian ship owner, the Applicant collected service tax on the transaction and deposited it in the Government treasury. 30. From 01st July 2012 up to 30th June, 2017 (negative list regime), with the introduction of negative list the services were
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as payable on this transaction. MCS provided by the Applicant to overseas ship owner was treated as export of service in terms of Rule 6A of the Service Tax Rules, 1994 ( ST Rules ) extracted below: 6A. (1) The provision of any service provided or agreed to be provided shall be treated as export of service when,- (a) the provider of service is located in the taxable territory , (b) the recipient of service is located outside India, (c) the service is not a service specified in the section 66D of the Act, (d) the place of provision of the service is outside India, (e) the payment for such service has been received by the provider of service in convertible foreign exchange, and (f) the provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of Explanation 3 of clause (44) of section 65B of the Act 33. Therefore, the position adopted by the Applicant in terms of the extant GST law is in line with the position of the Appli
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lling), we assume that the Applicant will be allowed to independently determine the GST incidence on consultancy service provided to foreign ship owner. Place of supply of consultancy service provided by the Applicant to foreign ship owner will be determined in terms of Section 13(2) of the IGST Act, which provides place of supply as the place of recipient . As recipient of service in this case is the foreign ship owner located outside India, the supply of consultancy service will not be exigible to GST and subject to the conditions prescribed in Section 2(6) of the IGST Act, the supply will qualify as export of service. 36. It is implicit that only the value attributed by the Applicant to support service (which if construed as intermediary service) will be exigible to GST in terms of the scheme of GST law. Therefore, the Applicant will rightfully split the bill and allocate appropriate values to consultancy service and support service supplied by the Applicant. Conclusions 37. On the
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evenue from the support services to GST since the place of supply of intermediary service is the location of supplier of service in terms of Rule 13(8)(b) of the IGST Act, whereas consultancy service will continue to be outside the ambit of GST, in view of the applicable place of supply rule i.e. Section 13(2)(a) of the IGST Act, which is outside India. Prayer 40. In view of the factual matrix in the Applicant s case and the extant legal provisions, the Applicant seeks an Advance Ruling from this Hon ble Authority in respect of the composite supplies of MCS by the Applicant to foreign ship owners. Submission dt.02.04.2018 The Applicant makes the following submissions, which are being made without prejudice to, and is to be read along with the submissions made in the ARA, and at with submissions made during the hearings. FACTS AND BACKGROUND 1. The Applicant is engaged in the supply of comprehensive Marine Consultancy Service ( MCS ,) consisting of two elements i.e., Consultancy Service
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reliable trade sources or by projections. Such data is then converted into meaningful reports which help Foreign Ship Owner ( FSO ) employment of its vessels. 3. Nature of MCS provided by FSS to FSO 3.1. MCS consists of consultancy services and support services (may include services for or completing employment) which are inherently tied up (bundled) and integrally enjoined, filed along with ARA as a commercial offering. Consultancy service rendered by FSS to FSO consists of the following services: i. As Specialists in Freight market movement, the consultant will analysis commodity, shipping and freight markers, track movement of ships and cargoes and disseminate such information to the company. ii. Track collate. analyse and monitor port development and logistics data originating from reliable source and update Wore trends iii. Monitor world-wide economic development, bulk commodity trade pattern development iv. identify and provide information on part costs, bunker (fuel), trend, ant
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f the employment of vessel and involves FSS monitoring voyage execution, examining the lay time calculations and arranging for reconciliation of accounts to crystalize receivables of FSO. Occasionally, support may involve postal or ministerial acts of transmitting messages between FSO and charterer. 3.3. Both Consultancy service and Support service are together provided, and Applicant does not offer these independently or separately and so has a comprehensive agreement and fee. 4. Manner of supply of MCS 4.1. While supplying the abovementioned services, Applicant and FSO converse, appreciate data, evolve best consumer strategy for employment of vessel. Typically, the Applicant is continuously studying/ analyzing the freight market and trade development across the world, On the basis of this analysis, the Applicant reaches out to FSO who have idle vessels and are looking out for charterers to provide such FSO with information which helps FSO to position their vessel and acquire chartere
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c or private. ii. Therefore, FSO provides service to charterer as per the terms and conditions agreed between them and freight charges is earned, and GST on freight/charter hire is also paid by charterer if applicable, into government treasury. 4.3. Agreements between Applicant and FSO are identical and are standard form of agreement which are entered with each FSO to whom services are provided by the Applicant. Reference in this regard may be made to the sample Agreement as all agreements concluded by the Applicant are in similar fashion. 4.4. Service of Applicant to FSO is value based and market driven 2 and requires devoting time and attentions wherein FSS is not acting as an advocate to the FSO 4. Applicant has a fiduciary relationship with the FSO and Applicant carries risks under the Agreement, which may be that – inputs of Applicant may not be proper or meet the requirements of FSO or the market conditions may deteriorate, in which case no fees is payable to Applicant, since no
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for Applicant (Service Provider).Such payment timing, i.e. upon full completion of agreed activities is the basic law of commission. ISSUES TO BE CONTEMPLATED UNDER ADVANCE RULING APPLICATION 7. Given the above background and in context of question posed, the following notable features of the contractual arrangement of the Applicant with the FSO are: i. The MCS supplied by FSS is a composite supply (similar to bundled service in the erstwhile regime) with consultancy service as the principal supply [Section 2(30) of the Central Goods and Services Act, 2017 ( CGST Act )] and not a mixed supply ? ii. MCS deserves to be classified as per SAC 9967 i.e. support services in transportation, other than GTA and not as (SAC 9983) other professional, technical and business services (excluding advertisement service), which is a residuary head, in terms of the following entry of Notification No. 11/ 2017 – IGST (Rate), even while GST rate notified is 18% for both. iii. The MCS qualifies as an expor
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eans 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 . A mixed supply is the supply of two or more services made in conjunction with each other by a taxable person for single price where such supply does not constitute a composite supply. 9. 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 10. The concept of composite supply is similar to the concept of naturally bundled service under the erstwhile negative list regime. Applicant is supplying various services to the FSO (refer paragraph 3 above). These services
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service which helps the FSO to initiate business by finding business and the Support service is ancillary service which is provided at the time of closure of service when the Applicant is called upon to calculate lay time, etc. and help FSO to close its service provided to the charterer. Both Consultancy service and Support service is provided to and for FSO on P2P basis and the Applicant has no wherewithal with the Charterer or paid by the Charterer- 12. Supply of MCS by the applicant consisting of consultancy service and support service will be construed as a supply of composite service made by the applicant as these services (i.e. consultancy service and support service) are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which (i.e. consultancy service) is the principal supply. 13. The term naturally bundled and supplied in conjunction with each other in the ordinary course of business is not defined in CGST Act or IGST Act.
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to find charterers, however, post global financial crisis about a decade ago, there is an increase in competition and service expectation by the FSO thus, Consultancy service is being provided with other value- added services. The FSO engages Applicant for Consultancy services and subsequent Support service usually provided in tandem. FSS is engaged in cross border supply of service using latest technology and methods. More than domestic industry, Applicant has to compete on global platform to international standards to meet FSO requirements. One service is the main service and other services provided in the bundle are incidental or ancillary to the main service. As discussed above, Consultancy service provided by Applicant to FSO expands its business viability and profitability. FSO s advice on vessel positioning, bunker trends, commodity market, 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
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een the FSO and the Charterer. Generally, as discussed above, change in industry dynamics post globalization and increased competition both domestic and overseas, has made it necessary for FSS to provide the entire gamut of service as a package. Different elements not available separately. Neither FSO approach applicant to provide only consultancy service or only Support service, nor is the Applicant able to or actually engaged to provide each of the elements of service separately. In fact, the Applicant has in the past not provided these two services separately and always provided these conjointly. The FSOs (industry) require generally the provision of services (MCS) as a bundle of service and owing to this expect Consultancy service and Support service together and as a result it is commercially inexpedient for Applicant to so offer it. Different elements are integral to one overall supply. Service recipient s end objective is employment of vessel. FSS provides Consultancy service to
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rovided by FSS to FSO consisting of consultancy service and Support service for which a unified consideration is charged, qualifies as naturally bundled service supplied in conjunction with each other, one of which (i.e. Consultancy service) is the principal supply. Thus, MCS supplied by FSS to FCO would qualify as composite service. 16. The Applicant in this regard would like to bring to your attention the submission made by State Tax officer ( the officer ) before the Hon ble Authority on March 13, 2018 ( Revenue Submission ). In this Revenue Submission, the Officer has submitted that MCS is a composite supply of service in terms of Section 2(30) of the CGST Act. 17. Contrary to the above contentions, a mixed supply is the supply of two or more services made in conjunction with each other by a taxable person for single price where such supply does not constitute a composite supply in terms of Section 2(30) of the CGST Act. As MCS provided by FSS qualifies as composite supply given th
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e. the FSO is located outside India, payment for supply of MCS service is received from outside India in convertible foreign exchange and supplier of service and recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in Section 8 of the IGST Act. 20. Applicant also satisfies condition (iii) above as the place of supply of MCS is outside India in terms of the discussion below: 20.1. MCS will qualify under Section 13(2)(a)of the IGST Act i. The place of supply of MCS (with consultancy service as the principal supply) when provided to FSO shall be the location of the recipient of service, in terms of Section 13(2)(a) of the IGST Act (i.e. the default rule), as supply of MCS does not qualify in the specific place of supply rules prescribed under Section 13 of the IGST Act. Therefore, when MCs as composite supply (consisting of consultancy service and support service) is supplied by the Applicant from India to FSO located outside India, the
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S is provided to FSS is in-turn utilized by the FSO to find a charterer looking for transportation of Goods and this also involves lay time calculation, arranging reconciliation of account and voyage monitoring. Both Consultancy service and Support service are intellectual services provided by Applicant from its office with its own resources thereat, who never have to or have in the past to deal with vessel of FSO or cargo of Charterer. In no case, the vessel or the cargo transported by the FSO is physically made available by the recipient of service (i.e. FSO) to the provider of service (i.e. FSS), therefore, Section 13(3)(a) of IGST Act would not at all apply to MCS. iii. Since there is no definitive guidance, reference in this regard may be made to Taxation of Services: An Education Guide (June 20, 2012) which is the predecessor rule in Service tax (negative list), the relevant paragraph of which is extracted below: The essential characteristic of a service to be covered under this
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os. of 1 kilogram packets of the product by the manufacturer, to carry for door-to-door surveys.. iv. It is reiterated that in order to qualify under this rule, the goods temporarily come in the physical possession or control of the service provider, which is not the case of Applicant. Neither the vessel or the cargo is ever transferred to Applicant for provision of its service to FSO. The activity performed under MCS by the Applicant is not in the nature of stevedore who is a handler of goods on the maritime movement of commodities and helps in loading and unloading of vessels. Unlike stevedore, the Applicant is providing abstract MCS which does not involve the Applicant to touch the cargo of charterer or vessel of the FSO. The example above covers Consultancy service which is delivered to the customer on pen drive to the customer. In such case, the rule on performance-based service will not apply has been specifically classified. Similarly, FSS provides MCs service which is delivered
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ot qualify as intermediary service in terms of Section 2(13) of the IGST Act. Given this, place of supply of MCS will not be determined in terms of Section 13(8) (b) of the IGST Act which provides the location of supplier of service as the place of supply. Resultantly, the place of supply of MCS (comprising of support service and intermediary service) will not be the location of the Applicant in India. iii. In arguendo, if the Applicant is characterized as a supplier of intermediary service, it must not be lost sight of that the service provided by FSS in this case would be in relation to a employment of a vessel {i.e. service provided) by the FSO located outside India – so the destination of Applicant s service is outside India, to the Charterer located outside India, and contract for plying of vessel between FSO and the Charterer is signed outside India and executed outside India. Therefore, as the service of Applicant is provided in relation to a services which is an intangible in n
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lifies as Support service in relation to transport, other than Goods transport Agency ( GIA ) 23. Notification No. 1/ 2017 – Central Tax (Rate) dated June 28, 2017 ( the Notification ) provides for the GST rate for service based on the classification of services read with Annexure to the Notification. Heading 9967 at Serial No. 11(ii)of this Notification deals with support services in transport, other than GTA . Given that MCS service provided by Applicant to FSO is in relation to transportation of goods by vessel only, in our submission, Heading 9967 under which SAC 996759 at Serial No. 148 of the Annexure to the Notification ( other supporting services for water transport nowhere else classified ) is the specific entry which provides the appropriate description of activities provided by Applicant and therefore, MCS will be classified therein and leviable to GST at the rate of 18%. General Agreement on Trade in Services 24. To substantiate the submission, reference is made to classifi
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der 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 {i.e. 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 which is generic in nature. Reference in this regard may be made to the basic principal of classification in terms of which a specific entry will prevail over a generic entry. As this is a generic entry, the specific entry of SAC 995759 would prevail. CONCLUSION 27. In light of the above and the ARA filed by the Applicant on January 19, 2018, the Applicant prays that the questions referred to this Hon ble Authority be decided by holding the following: i. The MCS consists of Consultancy service along with subsequent Support service which constitutes naturally bundled offerings in conj
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ich provides the appropriate description of activities provided by Applicant and therefore, MCS will be classified therein. 03. CONTENTION – AS PER THE CONCERNED OFFICER The submission, as reproduced verbatim, could be seen thus- Submission of NIL date Qs No Question raised by the applicant Submission as per ACT & RULE A.1 Whether Marine Consultancy Service ( MCS ) provided to foreign ship owners constitutes composite supply with the principal supply of consultancy service? The definition of Composite supply uses the words naturally bundled. This is not defined in GST ACT but was used in Finance Act, 1994 (relating to service tax). Hence, clarifications given under those provisions are relevant. Whether services are bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators of which are list
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to one overall supply – if one or morg is removed, the nature of supply would be affected A.2 Whether the place of supply of MCS (as a composite supply) will be determined in terms of Section 13(2)(a) of the Integrated Goods and Services Tax, 2017 ( IGST Act ), i.e. the location of recipient of service ? Section 13 of the IGST Act has been reproduced. B.1 In the alternate, where services are provided to foreign ship owners 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, 2017? Heading 9983 -residual entry (ii) (b) Whether the place of supply of such consultancy service will be the location of recipient of service in terms of Section 13(2)(a) of the IGST Act? Section 13(2) of the
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se was taken up for preliminary hearing on dt.14.02.2018. Sh. Ranjeet Mahtani and Sh. Abhinay Kapoor, both Advocates, duly authorised, alongwith Sh. Jatin Mehta, Accountant appeared and reiterated the contention as made in the written submission. Sh. Ranjeet Mahtani, Advocate orally agreed and requested that his queries with respect to place of supply may not be considered for decision by the Authority. The final hearing was held on dt.13.03.2018. Sh. Ranjeet Mahtani and Sh. Abhinay Kapoor, both Advocates, appeared and made oral and written contentions as per detailed submission made in their application and documents submitted at the time of hearings. Ms. R. S. Iyer, jurisdictional State Tax Officer appeared on both the hearings and has made a written submission. 05. OBSERVATIONS We have gone through the facts of the case. Sub-section (2) of section 97 of the GST Act says that the question on which the advance ruling can be sought shall be in respect of,- (a) classification of any goo
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ncipal supply of consultancy service? Q.2 In the alternate, where services are provided to foreign ship owners 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 qualifies as business consultancy service in terms of the scheme of classification of services (Annexure to Notification 11/ 2017 – Central Tax (Rate), dated 28th June, 2017? (b) Whether support service qualifies as intermediary service in terms of Section 2(13) of the IGST Act? We shall now discuss each of the questions. Question 1 Whether Marine Consultancy Service ( MCS ) provided to foreign ship owners constitutes composite supply with the principal supply of consultancy service? The applicant has tendered a sample Consultancy Agreement dated 01 March, 2017 entered between the applicant ( The Consultant )and foreign ship owner Singapore Shipping International Pte. Ltd. ( The Company
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ibit A, as amended in writing form time to time. Consultant shall render services hereunder at such times and places as shall be mutually agreed by The Company and Consultant. (b) It is understood that the purpose of the Consulting is to provide periodic review and advice relevant to Shipping and Maritime matters related to the MV AM OCEAN PRIDE/MARUBENI CEMENT CHARATER PARTY CONTRACT DATED 3RD MARCH,2017. To that end. The Company shall provide Consultant, in advance of meetings, with accurate, unbiased and sufficient information for him to review the subject matter thereof, and shall promptly provide further information that Consultant reasonably deems relevant to forming any pertinent conclusions relevant to the matter for discussion. It is expressly understood that Consultant has fiduciary obligation to The Company based on contractual terms of this Agreement; that Consultant s role is to provide independent advice uninfluenced by commercial concerns; and that service as a Consultan
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The Consultant shall ensure that competent technical & professionally qualified team of Chartered Accountants, Master Marine and/or Professional Marine Engineer with support associates having at least qualified at Narotham Morarjee Institute of Shipping or equivalent overseas qualification shall attend to render advisory service. 3. Compensation and reimbursement. In consideration of the services to be provided by Consultant to The Company hereunder, The Company shall pay unless otherwise agreed in each particular charterparty contract to Consultant a Fee of 1.25% of Gross Revenue ( Gross Revenue meaning the freight, dead freight and demurrage received under contracts fixed through the Consultant). The Company shall not reimburse Consultant for any travel or other out of pocket expenses Consultant incurs in connection with performing the Services. The Company shall endeavor to pay to Consultant invoiced amounts within thirty (30) days after the date of invoice or successful execut
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ervices on an as-needed basis. There is no guarantee that any or all of the services described in this Agreement will be assigned during the term of this Agreement. Further, the Consultant will provide these services on a non-exclusive basis. The Company , at its option, may elect to have any of the services set forth herein performed by other consultants or The Company staff. The parties agree that this Agreement creates an independent contractor relationship, not an employment relationship. The parties acknowledge that neither party has, or shall be deemed to have, the authority to bind the other party. 6. Indemnification The Consultant shall attend to the affairs of The Company in a prudent and business-like manner in good faith, with prior disclosure of any conflict of interest. 7. Intellectual Property (a) Consultant will be providing timely access to proprietary and valuable information that The Company might otherwise not receive within time. Timing being the essence of efficien
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obligations to intellectual property ownership. The Agreement that result directly from Confidential Information provided by Consultant pursuant to this Agreement shall reside with The Company . 8. Confidential Information (a) The parties acknowledge that in connection with Consultant s Services, the Consultant may disclose to The Company time sensitive confidential information and trade reports of the Consultant which the Consultant may within the scope and in the course of performing the Services Such information may take the form of, for example: data concerning risk assessment, discoveries made by the Consultant; the Consultant s know-how; marketing strategies and processes. (b) Consultant hereby agrees that during the term of this Agreement: (i) Consultant shall not publicly divulge, disseminate, publish or otherwise disclose any The Company Confidential information without The Company s prior written consent (ii) Consultant shall not use any such The Company Confidential informat
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and reimbursement, if any, accrued under the terms of this Agreement, but unpaid, as of the date Consultant ceases work under this Agreement. In addition, Consultant shall be reimbursed for any no cancellable obligations, any cancellation penalties, and unless Consultant terminates the agreement without cause, any expenditures reasonably made in order to perform the Services that were to occur had cancellation not occurred. d) The Consultant shall not use any facilities, funds or equipment owned or administered by The Company in the performance of the Services, except with the prior written consent of The Company and in accordance with all applicable polices of The Company . (e) The parties hereby agree that this Agreement and the provisions hereof shall be construed in accordance with the laws of England. Arbitration in Singapore, as per English law, conducted in accordance with rules of London Court of Arbitration in Singapore, as per English Law, conducted in accordance with rules o
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analyze and monitor Port Development & Logistics data originating from reliable source and update future trends 3) Monitor worldwide Economic Development, Bulk Commodity Trade pattern development 4) Indentify and provide information on Port Costs, Bunker (fuel) trend, Cost Estimation & Analysis. 5) Monitor Voyage Execution for smooth and efficient operations, 6) so as to optimize performance for The company . 7) Examine lay time calculations and arrange for accounts reconciliation for objectives of eventual settlement. 8) Preliminary evaluation of cargo volume, trade patterns, trend in commodity movement, port congestion, Global as well as Regional economic development and analysis 9) Techno-Commercial assessment of vehicle type utilization opportunities, infrastructure development in various regions, Geographical impact on global trade in bulk commodities arising from weather, piracy, war, conflict or any other causes which have prospects to impact trade. 10) Consultancy Fee i
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re taxable supplies of goods or services or both, or any combination thereof these taxable supplies are naturally bundled; these taxable supplies are supplied in conjunction with each other in the ordinary course of business; one of these taxable supplies is a principal supply; The aforesaid parameters of a composite supply need to be applied to the facts at hand. If we look at the agreement, it says that the foreign ship owner appoints the applicant as a consultant and technical advisor to perform the consulting services specifically set out in Exhibit A attached to the Agreement. Thus, the supply of services rendered by the applicant would be governed by this Exhibit A. At the cost of repetition, let us reproduce the Exhibit A hereunder to understand the scope of supply – Exhibit A – Description of Consulting Activities Nature of Services: 1) As Specialists in freight market movement, the consultant will analyse commodity, stripping and freight markets track movement of ships and car
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other causes which have prospects to impact trade. 10) Consultancy Fee is deemed earned upon actual voyage being performed and reconciliation of voyage specific amount and in accordance with clause 3 of the Consultancy Agreement. In the submission, the applicant has stated thus – MCS (Marine Consultancy Service) provided by the Applicant constitutes of consultancy service and support service. Consultancy service provided by the Applicant includes analysing commodity, shipping and freight market, finding potential charterers for the foreign ship owners. MCS supplied by the Applicant also includes support service provided to the foreign ship owners which largely consists of optimising global trade and revenue therein for the foreign ship owner. The support services provided by the Applicant are provided to the foreign ship owner and are not meant to facilitate two parties In the further submission, we find that the applicant has identified the following services as Consultancy and Suppor
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o impact trade. Support Services 1) Monitor Voyage Execution for smooth and efficient operations. 2) so as to optimize performance for The company . 3) Examine lay time calculations and arrange for accounts reconciliation for objectives of eventual settlement. The above services, as can be seen, are falling in Exhibit A which defines the services to be performed by the applicant. The applicant has contended that supply of Marine Consultancy Services (MCS) consisting of consultancy service and support service is a composite supply as these services (i.e. consultancy service and support service) are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which (i.e. consultancy service) is the principal supply. Having a look at the scope of work as set out in Exhibit A and the agreement clauses, we infer thus – 1. The Agreement dt.01.03.2017 is in respect of a particular contract (MV AM OCEAN PRIDE / MARUBENI CEMENT CHARTER PARTY CONTRACT
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e area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators. In the present case, the fact that the foreign ship-owner has categorically made it clear in the agreement that some of the services may also be availed from other Consultants should leave no doubt that the services are not needed to have been bundled together. It becomes clear from the agreement that the foreign ship-owner doesn t desire to avail all of the services from the applicant as he is at liberty to get the same performed by other consultants or his staff. Even the applicant admits that- each service may be provided by the applicant in isolation applicant is equipped to supply consultancy service and support service distinctly and occasionally does provides the services separately. Thus, if each service, as per the applicant s own admission, can be provided in isolation then one of the indicators of a composite supply as per the flye
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to be a principal supply. The perception of the service receiver which is the foreign ship-owner in the instant case that the services need not be bundled and could be got performed from different service providers or from his own staff, too. We see that the flyer on composite supply and mixed supply has made a very clear observation that the illustrative indicators are not determinative but indicative of bundling of services in ordinary course of business. Hence, when the foreign ship-owner himself perceives the situation as being so, we need not even look at how the other players in the field, view the services to be. The requirement of principal supply would, therefore, not be met in the facts of the instant case. It has been argued that the provision of consultancy service precedes the provision of support service. We feel that this certainly would not tantamount to making the consultancy services as being the principal supply. To the foreign ship-owner both the services are import
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Classification of Services as appended to the Notification no.11/2017 – Central / State Tax (Rate) [as amended from time to time] as under- S. No. Chapter, Section, Heading, Group Service Code (Tariff) Service Description 297 Group 99831 Management consulting and management services; information technology services 299 998312 Business consulting services including public relations services As can be seen, the business consultancy services of sr. no.299 are covered under the Group Management consulting and management services . A general understanding of the term Management Consultancy is that it is the practice of keeping organizations to improve their performance, operating primarily through the analysis of existing organizational problems and the development of plans for improvement. As a result of their exposure to and relationships with numerous organizations, consulting firms are typically aware of Industry Best practices. The consultancies may also provide organizational change m
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eir services in one of the below categories after taking into consideration the exact nature of service or services that they provide in a specific case. If we look at the Annexure, we find the following categories of services – 125 Heading 9967 Supporting services in transport 126 Group 99671 Cargo handling services 127 996711 Container handling services 128 996712 Customs house agent services 129 996713 Clearing and forwarding services 130 996719 Other cargo and baggage handling services 125 Heading 9967 Supporting services in transport 144 Group 99675 Supporting services for water transport (coastal, transoceanic and inland waterways) 145 996751 Port and waterway operation services (excluding cargo handling) such as operation services of ports, docks, light houses, light ships and the like 146 996752 Pilotage and berthing services 147 996753 Vessel salvage and refloating services 148 996759 Other supporting services for water transport nowhere else classified 125 Heading 9967 Suppor
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e classified The applicant would have to identify the category as per the services delivered in terms of Annexure about Scheme of Classification of Services. Thus the classification of their service will depend on the exact nature of service/services they would provide in specific case. Question 2(b) In the alternate, where services are provided to foreign ship owners distinctively as supply of consultancy service and support service with separate and demarcated fees for their consultancy service and for support service: (b) Whether support service qualifies as intermediary service in terms of Section 2(13) of the IGST Act? The definition of intermediary as found in section 2(13) of the Integrated Goods and Services Tax Act, 2017 is as under : (13) intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, hut does not include a person who supplies s
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o optimize::e performance for The company . 7. Examine lay time calculations and arrange for accounts reconciliation for objectives of eventual settlement. 8. Preliminary evaluation of cargo volume, trade patterns, trend in commodity movement, port congestion, Global as well as Regional economic development and analysis 9. Techno-Commercial assessment of vehicle type utilization opportunities infrastructure development in various regions, Geographical impact on global trade in bulk commodities arising from weather, piracy, war, conflict or any other causes which have prospects to impact trade. 10. Consultancy Fee is deemed earned upon actual voyage being performed and reconciliation of voyage specific amount and in accordance with clause 3 of the Consultancy Agreement. We find that in the submissions made before us the applicant has contended that they are providing services only to the ship owners and not to the ship charterers. However on going to the copies of the agreements and det
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nt of vehicle type utilization opportunities infrastructure development in various regions Geographical impact on global trade in bulk commodities arising from weather, piracy, war, conflict or any other causes which have prospects to impact trade. Support Services 7. Monitor Voyage Execution for smooth and efficient operations. 8. so as to optimize performance for The company . Examine lay time calculations and arrange for accounts reconciliation for objectives of eventual settlement. On verification and examination of the nature of services as above being provided by the applicant it is very apparent that the claim made by them that they are providing services only to the ship owners and have no interaction with the ship charterers while providing these services would not be maintainable because the nature of Support services, being Monitoring of Voyage Execution for smooth and efficient operations and Examination of lay time calculations and arranging for accounts reconciliation for
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swered thus – Q.1 Whether Marine Consultancy Service ( MCS ) provided to foreign ship owners constitutes composite supply with the principal supply of consultancy service? A.1 The question is answered in the negative. Q.2 In the alternate, where services are provided to foreign ship owners distinctively as supply of consultancy service and support service with separate and demarcated fees for their consultancy service and for support service: Q.2a 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, 2017]? A.2a The question is answered in the negative. Q.2b Whether support service qualifies as intermediary service in terms of Section 2(13) of the IGST Act? A.2b The question is answered in the affirmative. An appeal against this order will lie with the Appellate Authority, Advance Ruling Maharashtra, 15th floor, Air India Building, Madame Cam
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