In Re : Five Star Shipping
GST
2018 (7) TMI 1182 – AUTHORITY FOR ADVANCE RULING – MAHARASHTRA – 2018 (14) G. S. T. L. 443 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULING – MAHARASHTRA – AAR
Dated:- 18-4-2018
GST-ARA-18/2017-18/B-26
GST
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”] by Five Star Shipping, the applicant, seeking an advance ruling in respect of the following question :
A.1 Whether Marine Consultancy Service (“MCS”) provided to foreign ship owners constitutes “composite supply” with the principal supply of consultancy service?
A.2 Whether the place of supply of MCS (as a composite supply) will be
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ocation 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 verbatim, could be seen thus-
“ANNEXURE I
Statement of the relevant facts having a bearing on the question raised
1. Five Star Shipping (“Applicant”) is a partnership firm in terms of (Indian) Partnership Act, 1932. Its office is located in Mumbai (State of Maharashtra). Its partnership deed inter alia records that
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rack 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 patterns, trend in commodity movement, port congestion, global and regional economic development and analysis
viii. Techno commercial assessment of vehicle type utilization opportunities, infrastructure development in various regions, geographical impact on global trade in bulk commodities arising from wea
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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 ship owners. There is clarity regarding the GST implication on service provided to Indian ship owner as both provider and recipient of service are located in India however, there is inadequate clarity regarding the GST implication on services provided to foreign ship owners (located outside Indi
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ct
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 Services Tax Act, 2017 (“IGST Act”) defined '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 per
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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 service “shall be the location of the supplier of services”.
Scheme of classification
15. Scheme of classification of services is provided in Annexure to Notification 11/ 2017 – Central Tax (Rate), dated 28th June 2017. The Annexure classifies services into
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pplicant 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 owners for smooth and efficient operations to optimize performance of their ships, examines lay time calculations, and arranges for reconciliation of accounts with the objective of eventual settlement with the charterers. The support services pr
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tion 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 terms of this Agreement: that Consultant's role is to provided independent advice uninfluenced by commercial concerns; and that service as a Consultant does not require him to be an advocate for “the Company” or its products in any
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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 owner that the two services are offered together. In return, the Applicant charges a fee which is a fixed percentage of gross revenue of charter hire earned by the foreign ship owner which is pre-decided between the Applicant
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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 with each other in the ordinary course of business, one of which (i.e. consultancy service) is the principal supply.
11. As stated in Annexure I, the Applicant's activities of supply of MCS to foreign ship owners
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pplied 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 information received from the Applicant, the foreign ship owners contact the charterers to discuss the provision of their service and the terms on which the service will be supplied. Therefore, the consultancy serv
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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 Applicant to the foreign ship owner is seen as a principal supply, support service cannot be an intermediary service and therefore MCS in entirety cannot be an intermediary service.
17. Supply of support ser
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sultancy 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 '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 be the location of the Applicant in India
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l 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 between the foreign ship owner (located outside India) and the charterer (located outside India) is negotiated by electronic means and executed outside India. The Applicant is
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pplicant'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 value of supply is independently negotiated between the foreign ship owners and the charterer. The Applicant is not equipped/ empowered by the foreign ship owner to negotiate the te
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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 with the Applicant for provision of support service to the ship owners even though it may be opted as separate service offering by the Applicant.
25. It needs to be appreciated t
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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 processing of goods far, or on behalf of, the client:
vi. provision of senate on behalf the client: or
vii. a service incidental or auxiliary to any activity specified
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ision 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 no longer classified. MCS service of Applicant (which includes consultancy service and support service) was characterized as BAS. Given the nature of MCS p
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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
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ntermediary service, the entire revenue from MCS should not be offered to GST as intermediary service. If consultancy service is provided separately by the Applicant to foreign ship owner and a separate invoice is raised for this supply of service (split billing), 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 int
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t.
39. Alternatively, where supply is distinctively provided (i.e. as consultancy service and support service for two fee terms associated with each) and support service by the Applicant is construed as intermediary service, the Applicant should offer (only) the revenue 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
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e provision of MCS (which is always comprehensively rendered), FSS has employed resources which inter alia include management professionals, master mariners and chartered accountants. These professionals analyze market data available to them through the internet and other 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.
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em in finding potential charterers. Thus, the Consultancy service provided by FSO in tune helps the FSO to augment its business and expand its client base and all these services are provided as one service.
3.2 Support services provided by FSS to FSO (client) is usually at the end of 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/ a
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and the total time devoted by FSS in this process is lesser than 20% or less). Reference in this regard may be made to paragraph 1(b) of the sample Agreement which provides that the service of Applicant does not require him to be an advocate for the FSO or its products in any forum, public 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
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e FSO and the Charterer. This arrangement is premised on concept of value added service i. E. 'no contract' will result in 'no fee ' . From another perspective, contingent fee is evolving globally as a payment structure/ terms like for consultancy and cost reduction assignments and factors in risk 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,
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ness qualifies as supply which is liable to GST in terms of Section 7(1)(a) of the CGST Act unless exported or exempted. Where two or more services are provided by a supplier in conjunction, GST law has continued the concept of composite supply and mixed supply as was given in Service tax law. A composite supply means 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 c
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usiness is provided in combination with Support service, this is indicated by the industry practice.
11 . One of the service provided by the Applicant amidst the gamut of service is the principal supply or the main/ primary supply. In case of the Applicant, the principal or the primary supply by the Applicant is the Consultancy 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
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r business and it is convenient to pay singular consideration which is a percentage of the value of freight received by the FSO.
* Majority of similar service provider in the industry provide similar bundle of service. Service provided by Applicant to FSO has an evolving nature. Previously, depending upon the market scenario the requirement was 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 ancill
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y paid by the FSO. This is another important indicator of the perception in Service recipient's minds that fee is payable for a consolidated offering.
* Elements are normally advertised as a package. Applicant in all cases enters into an agreement with FSO to provide MCS consisting of Consultancy service and Support service. Applicant is not a conduit between 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 g
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pplicant's consideration for MCS is paid by the FSO only when the advice of Applicant helps the FSO to find a Charterer and independently conclude contract with such Charterer. Applicant and the FSO are in a fiduciary relationship in terms of which the Applicant is obligated to act for the benefit and interest of FSO.
15. In view of the aforesaid facts, MCS service provided 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 servic
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vertible 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;”
19. Applicant providing MCS to the FSO qualifies the conditions (i), (ii), (iv) and (v) prescribed above as the supplier of service i.e. the Applicant is located in India, the recipient of service i.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 'loc
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extracted below:
“13(3) The place of supply of the following services shall be the location where the services are actually performed, namely:-
(a) services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to Provide the services”
ii. MCS 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.
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here the supply of goods by the receiver is not material to the rendering of the service e.g. where a consultancy report commissioned by a person is given on a pen drive belonging to the customer. Similarly, provision of a market research service to a manufacturing firm for a consumer product (say, a new detergent) will not fall in this category, even if the market research firm is given say, 1000 nos. 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 st
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who arranges or facilitates the supply of woods or services or both, or securities, between two sir more persons. but does not include a person who supplies such goods or services or both or securities on his own account.”
ii. When the Applicant is providing MCS, it is a composite supply of service wherein Consultancy service is the principal supply. MCS is supplied on P2P basis to and for the FSO and would not 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
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ould be determined in terms of Section 13(2) of the IGST Act and the place of supply of service should be the place of the recipient of service.
22. In view of the foregoing discussion pertaining to facts of the Applicant's case, supply of MCS would qualify all the conditions under Section 2(6) of the IGST Act and would qualify as export of service which is zero rated.
III MCS service provided by Applicant to FSO qualifies 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 99
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assified as support services in transport, other than GTA.
25. In the invoice raised by Applicant on FSO which categorizes the supply of service by FSS to FSO as MCS, a copy of which invoice is enclosed as Annexure 1 supports the commercial understanding. Consequently, in the financials of FSS for the year 2017-18 in the Profit and Loss accounts income from MCS has been reflected as revenue.
26. MCS will not be classified under Heading 9983(ii) at Serial No. 21 as “other professional, technical and business services other than (i) above”. Relevant entry under Heading 9983 is SAC 998399 at Serial No. 364 of the Annexure {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
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ms of Section 13(2) of the IGST Act, which is the default rule and provides that the place of supply be the place of the recipient of service, which in the facts in hand is the place of the FSO which is located outside India.
iii. MCS would be classified under SAC 996759 at Serial No. 148 of the Annexure to the Notification (i.e. “other supporting services for water transport nowhere else classified”) as this is the specific entry which 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.
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ervices which help in better enjoyment of a main service.
* Other illustrative indicators, not determinative but indicative of bundling of services in ordinary course of business are –
a. There is a single price or the customer pays the Same amount, no matter how much of the package they actually receive or use
b. The elements are normally advertised as a package.
c. The different elements are not available separately
d. The different elements are integral 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 de
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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?
Section 2 (13) of IGST Act “intermediary” means a broker, an agent or any other person, by whatever name called, who arrange 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;
04. HEARING
The case 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. Abh
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oods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.
There being no specific question in respect of place of supply covered under Section 97 of the GST Act, the applicant conceded that his queries with respect to place of supply may not be considered for decision by the Advance Ruling Authority. The questions for decision, therefore, are thus –
Q.1 Whether Marine Consultancy Service (“MCS”) provided to foreign ship owners constitutes “composite supply” with the principal 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), da
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nditions of this Agreement;
1. Consultine Services
(a) 'The Company' hereby appoints Consultant as a consultant and technical advisor to perform the consulting services specifically set out in Exhibit A attached to this Agreement and made a part hereof (hereafter referred to as the “Services”), as said Exhibit may be amended in writing from time to time, and Consultant agrees, subject to the terms and conditions of this Agreement, render such Services during the term of this Agreement. Such services shall be limited to the area of expertise described in Exhibit 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 Comp
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stainable revenue.
2. Qualification
Consultant for a wide range of professional, engineering and other technical services in support of the Company's activity. The consultant will be used to augment 'The Company' resources, and will provide qualified technical and professional personnel to perform the duties and responsibilities assigned under this agreement. The Consultant is obliged to provide technically & professionally qualified staff in every way proficient, individually or collectively as a team to render to 'The Company' the required standard of Advisory Service.
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 provi
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ise and assist `The Company' as required in accordance with their Technical & Professional ability with respect to all aspects in the performance of such duties the Consultant shall comply with all reasonable requests and directions of `The Company' or its customer or nominee including subsidiaries & affiliate entities. Complying with all local or internal policies and regulations operated by or affecting 'The Company' or its customer or nominee as the case may be provided the Consultant has been appraised of them.
5. Independent contractor stratus
'The Company' shall request Consultant services 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 th
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re-existing and on-going obligations to independent research, collaborative agreements within the scope of certain policies. These obligations include a duty on the part of Consultant to disclose and assign to 'The Company' any proprietary rights arising during the course of such engagement and any overlapping consulting arrangements
(b) However, the parties agree that it is mutually beneficial that Consultant be able to participate fully in providing Services, as stated herein, without being obligated to constrain her or his comments or contributions based upon the complexities of applying these conflicting 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 informati
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of 1 year commencing on the date first written above, unless sooner terminated as hereinafter provided, or unless extended by agreement of the parties.
(b) This Agreement may be terminated by either party, with or without cause, upon thirty (30) days prior written notice to the other; provided that the Consultant shall, in accordance with the terms and conditions hereof, nevertheless wind up in an orderly fashion assignments for 'The Company' which Consultant began prior to the date of notice of termination hereunder.
(c) Upon termination of this Agreement for any reason, Consultant shall be entitled to receive such compensation 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 per
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fy of 'The Company' including its leadership, corporate culture, staff and reputation, is material to Consultant's choice to enter into this Agreement. Therefore the parties expressly agree that no party may assign this Agreement without the written consent of the other.
(g) The Consultant shall conduct all activity in the sole best interest of 'The Company'.
Exhibit A – Description of Consulting Activities Nature of Services:
1) 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'.
2) Track, collate, 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 e
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e a composite supply as defined under section 2(30) of the GST Act as under :
(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;
Illustration.- Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply;
As can be seen that a composite supply consists of –
* two or more 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
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t 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 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 Ser
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r Port Development & Logistics data or iginating from reliable source and update future trends
3) Monitor worldwide Economic Development. Bulk Commodity Trade pattern development
4) Identify and provide information on Port Costs, Bunker (fuel) trend, Cost Estimation & Analysis.
5) Preliminary evaluation of cargo volume, trade patterns, trend in commodity movement, port congestion, Global as well as Regional economic development and analysis
6) 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.
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
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is.
4. There is no guarantee that any or all of the services described in this Agreement will be assigned during the term of this Agreement.
5. It is expressly provided that the foreign ship-owner, at its option, may elect to have any of the services, as set forth in Exhibit A, performed by other consultants or the foreign ship-owner's staff.
6. The applicant can be called on to do any or all of the services or may not be called to do any of the services. The flyer on 'composite supply and mixed supply' as available on the website of the Central Board of Indirect Taxes and Customs says that – 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. In the present case, the fact that the foreign ship-owner has categorically made it clear in the agreement that some of th
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edients of a 'composite supply' are –
* the taxable supplies are naturally bundled;
* one of these taxable supplies is a principal supply
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. By the specific design of the agreement in terms of the convenience of the foreign ship-owner, there cannot be identified any service which could be said 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.
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nt, we find no difficulty in concluding that the provision of services under the impugned agreement would not be a composite supply under the GST Act.
8. The arguments in favour of the impugned supply being a composite supply fail to make out a case.
Question 2(a)
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?
To answer the question, we refer to the Annexure about Scheme of 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
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wn proprietary methodologies or frameworks, to guide the identification of problems and to save as the basis for more effective or efficient ways of performing work tasks.
Thus, 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, which is one of the support services in respect of marine transport and would therefore required to be classified under support services in transport or in case they are providing other professional, technical and business services or other support services nowhere classified, then they would have to classify their 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 fol
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Heading 9967
Supporting services in transport
154
Group 99679
Other supporting transport services
157
996793
Other goods transport services
158
996799
Other supporting transport services nowhere else classified
296
Heading 9983
Other professional, technical and business services
345
Group 99837
Market research and public opinion polling services
346
998371
Market research services
296
Heading 9983
Other professional, technical and business services
356
Group 99839
Other professional, technical and business services
359
998393
Scientific and technical consulting services
364
998399
Other professional, technical and business services nowhere else classified
400
Heading 9985
Support services
444
Group 99859
Other support services
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ction 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 such goods or services or both or securities on his own account;
As can be seen, an intermediary is to arrange or facilitate supply of services between two or more persons. We are not going by the applicant's contention but by the agreement copy placed before us. At the cost of third repetition, we reproduce the Exhibit A as under –
Exhibit A – Description of Consulting Activities Nature of Services:
1. 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
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t 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 detailed submissions made before us by the applicant, we find that they have specifically mentioned that they are providing various services which are broadly covered under two headings i.e. Consultancy services and Support services which can be seen as under :-
Consultancy Services
1) 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'.
2) Track, collate, analyze and monitor Port Development & Logistics data originating from reliable sourc
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icant 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 objectives of eventual settlement, are such services which cannot be performed until and unless the applicant interacts and works in coordination with the ship charterers on behalf of the ship owners.
Thus from the very nature of support services that are being provided by the applicant, as visible from the terms of agreements as referred above and submitted to this authority, it is clear that the support services being provided by them would be 'intermediary services' and the applicant would be covered in the definition of an intermediary in terms of Section 2(13) of the IGS
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