In Re: M\/s. Toshniwal Brothers (SR) Private Limited
GST
2019 (2) TMI 126 – APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA – 2019 (21) G. S. T. L. 294 (App. A. A. R. – GST)
APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA – AAAR
Dated:- 9-1-2019
KAR\/AAAR\/06\/2018-19
GST
SHRI. A.K. JYOTISHI, AND SHRI. M.S. SRIKAR, MEMBER
\nRepresented by: Sri Badarinath, Chartered Accountant
\nPROCEEDINGS
\n(Under Section 101 of the CGST Act, 2017 and the KGST Act, 2017)
\nAt the outset We would like to make it clear that the provisions of CGST; Act 2017 and SGST, Act 2017 are in pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore unless a mention is particularly made to such dissimilar provisions, reference to the CGST Act Would also mean reference to the corresponding similar provisions in the KGST Act.
\nThe present appeal has been filed under section 100 of the Central Goods and Service Tax Act 2017 and <\/p>\n
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Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n st-sales support services. Consideration for these services would be received in convertible foreign exchange. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n products and demonstration of its satisfactory operation to such customers; = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n .1. Appellant submits that as envisaged under Rule of Place of Provision Rules, 2012, 'intermediary' means any person who arranges or facilitates the supply of goods or services or both, between two or more persons, but does not include a person who supplies such goods or services or both on his own account. Contrary to this, Appellant submits that he had provided the Services directly to the overseas entity (Service recipients) on principal-to-principal basis. Appellant will not enter into any agreement with the Indian customer for the supply of products of the overseas entity whereas overseas entity himself will directly deal With Indian customer regarding obtaining the purchase order, price negotiations and finally supply the goods. Appellant is involved only in the promotion and marketing of the goods of the overseas entity on his own account. Hence the activity undertaken by the Appellant, by way of promotion and marketing services are not intermediary services, In support of this<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n \nAppellant submits that after sale support services are provided by them along with promotion and marketing services under a composite contract, and it will be in the nature of composite supply because two taxable supplies are being made under a single service agreement for a single price and these two different elements of the services are not available separately. These services are naturally bundled and supplied in conjunction with each other in the ordinary course of business. Therefore, after sale support services are provided along with promotion and marketing services and being a composite supply, one should be the principal supply. Appellant submits that the principal supply will be promotion and marketing services. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ods, and hence would amount to “intermediary services” for the purposes of determination of place of supply of such services. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n t' on acceptance, rejection, non-performance or different performance of a contract and shall state decisive reasons underlying his decision, unless prejudicial to his own essential interests”, Appellant should take care of interests of principal by regularly visiting the customers and prospective customers in his territory. On all contracts for the sale of goods which the Principal enters into with customers residing in the Agent's territory the Agent shall receive a commission of 12% on the value of goods as far as sales contracts are concerned that have been negotiated by the Agent and a commission of 6% for all other sales contracts. This commission is calculated based on the clause VI of the agency contract. In view of this the LAAR is of view that since the agent is having the right to receive commission from principal tar the sales contracts negotiated, Appellant can be termed as playing the role of an agent to the overseas entity. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n sh skill set to render such services, suppose if the agent render service on its own account it require distinguish skill set to render the same since it will be an extension to the activities undertaken by the service recipients. In the instant case, Brabender GMBH & CO. KG is one of the Original Equipment Manufacturer (OEM) of scientific equipment and is engaged in the said services, which as a supply chain process, is nothing but an extension of the manufacturing activity, viz, promotion of goods, sale of goods and finally post-sale support for the goods so sold. It must be noted that Appellant is merely a provider or supplier ofsaid services and is not involved in buying and selling or supplying of such goods. Further, the fact that Appellant is not involved in negotiation of the contract and \/ or supply of goods clearly and unambiguously means that Appellant is not an 'intermediary'. The activities of Appellant are strictly limited to only promotion and marketing of such goods and<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ations, Installation and final commissioning and free services to customer during the warranty period. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n iated with the sample copies of Purchase orders. Further, majority of the customers of Appellant are research institutes or R&D centres. Under the Customs law, such customers are eligible for exemptions\/concessions with respect to customs duties on import of goods. Accordingly, they would always directly import the said goods and would not procure (such imported goods) from any supplier in India (who has imported the same earlier). Such a proposition would disentitle them from availing the customs duty exemptions\/concessions. Further, Appellant submits that merely and only for the reason that the consideration is termed a 'commission' in the agreement, the services provided by Appellant takes the colour and characteristics of an 'intermediary'. It is but essential that the actual scope of work and activities of Appellant should be analysed to classify the same. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n es the other i.e. supply of equipment and at no point of time, the two services are supplied at the same time as explained in the Education Guide. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n nvariably be identifiable from the main supply of service. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n to the Indian customer', as indicated supra. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n fter-sale support qualifies the conditions mentioned in the definition of 'composite supply' as mentioned supra, based on the following grounds: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n post-sale situation. In other words, there would be a balance between the expectations of the end customers and the discussions during the sales promotion. This expectation may be viewed and understood from both, the perspective of the overseas manufacturer and the Indian customer. For the reasons indicated supra, specifically in a B2B transaction (unlike a B2C transaction) the expectation that the person who markets the product is the person who assists in the immediately post-sale activities is a normal phenomenon. It is a normal business practice to combine the pre-sale marketing and post-sale support under a single contract as a bundle. Keeping in line with this normal industry practice, even in Appellant's ease, the same are bundled as a single contract. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n on With each other and thus qualifies the condition of 'Composite supply' under GST. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n rdance with Explanation I in section 8 of IGST Act, 2017. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n come a zero-rated supply as provided in Section 16 of IGST Act, 2017. However, it is to be noted that the LAAR has not commented on the same since it is not in the purview of the jurisdiction of the said Authority as it amounts to determination of place of supply. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n India. The said services are provided to the foreign client in terms of an agreement and the services are provided to the foreign client in relation to products like scientific instruments used in research and development\/quality control primarily in fields of Nano Science, Material Sciences Bio Pharma and Polymer Sciences. Consideration for these services would be received by the Appellant in convertible foreign exchange. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n d that in terms of the Agency Contract, the Appellant has been accorded exclusive agency in the territory of lndia and Bangladesh with respect to all measuring and test instruments produced by Brabender GmbH & Co. KG for the food industry business. On going through the Agency contract, it is seen that the Appellant has been appointed as an agent to negotiate business transactions on behalf of the Principal (Brabender, Germany) with prospective customers in the assigned territory. It is the duty of the Appellant as an agent to visit the customers and prospective customers and inform the Principal when he learns of any demand. As part of negotiating business transactions on behalf of the Principal, the Appellant promotes and markets the products of the Principal in India which includes advertising the details of the goods, demonstration of the products to the prospective customers, communicating with the prospective customers about the goods, informing the Principal about the queries and<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n n account.” = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ld nor concentrate too much on one word and pay too little attention to other words. No provision in the Statute and no word in any section can be construed in isolation. Where the words are clear and there is no obscurity, and there is no ambiguity the intention of the legislature is clearly conveyed, there is no scope for the Court to take upon itself the task amending or alternating the statutory provision. Whatever the language is clear the intention the legislature is to be gathered from the language used. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n al understanding of the term 'arranging or 'facilitation' to the instant ease, we find that the Appellant does in fact 'arranges' or 'facilitates' the supply of goods by Brabender, Germany to the customers in India. It is contained in the Agency contract of Brabender, Germany, that the Appellant is assigned the job of promoting the business of the overseas entity in the assigned territory by visiting the customer or the prospective customer, providing them with technical information of the product, furnishing the quotation, negotiating the price of the product with the customer either personally or through correspondences. All these activities performed by the Appellant in the assigned territory are to be regularly informed to the Principal along with the documents. Based on this information, the overseas entity will either contact the customer and negotiate the contract with the customer or the Appellant himself can negotiate the Contract with the customer on behalf of the Principal; <\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n e customers, addressing the queries of the prospective customers with regard to the Principal's products, communicating with the Principal about the comments and queries of the prospective customers and reviewing the credit rating of the prospective customers are all part and parcel of facilitating the supply of products by Brabender, Germany to the customers in India. It is noted that the insistence in the contract is on calling the Appellant as the Agent of the Principal and that the Appellant is expected to perform activities of the nature of advertising, of gathering and conveying business information, of providing product implementation and technical support, of aligning and attuning marketing and other activities related to the products of the Principal located outside India-in its “liaison capacity”. A person acting in a liaison capacity is the person who has to act as the go between, is the emissary, the interceder, the intercessor, the intermediary, the medium, the representat<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n should not be levied to tax. However, when a similar activity by similarly placed entity (in India) acting to fulfill the same function for another Indian entity would normally be exigible to GST, the Appellant's contention goes against the grain of the expressed intention of the legislature. Upholding such a result, will not be tenable. This would happen only when we ignore the fundamental idea of GST being a destination based consumption tax and insist on applying the rule of Noseitur a sociis inappropriately to certain words\/ phrases used in Section 2(13) of the IGST Act. It is an accepted fact that GST is destination based tax in the sense that it is levied on commercial activities and it is not a charge on the business but on the consumer. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n person who supplies such goods or services or both or securities on his own account. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n y 'arranges' any supply of goods or service (or both), between two or more persons. and does not supply such goods or service (or both) on his own account, he would be regarded as an 'intermediary'. At the risk of being repetitive, the Appellant is clearly facilitating the supply of the products of the overseas client directly to the client's customers in the territory of India and is not supplying such goods on his own account. Therefore, the Appellant does not fill within the ambit of the exclusion. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n of services naturally bundled in the ordinary course of business and accordingly is a single service being Business Support Service; that the business support service is the main service provided to GoDaddy US on their own account and hence is not an intermediary service. We find that the facts of the case before the Service Tax Authority for Advance Ruling, which are also briefly brought out above, are patently different from the facts in the case before us, As such the ruling given in the case of GoDaddy India does not buttress the ease of the Appellant before us. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n re taxable supplies of goods or services or both, or any combination thereof = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n s, demonstrate the use of the products, address the queries of the prospective customers and communicate with the overseas client regarding the comments of the prospective customers. Based on the inputs supplied by the Appellant, the Principal will decided whether to conclude a contract with the customer in India. The decision of the Principal regarding the conclusion of the contract with a customer or its rejection will be informed to the Appellant. In case the Principal agrees to a contract with a customer, the Appellant get a commission which is agreed upon as 12% of the value of the goods sold. While the Agency contract states that the commission is for all the services provided by the Appellant which includes pre-sales, marketing, installation and warranty period services, it has been stated therein that 25% of the commission is attributable to the installation and warranty period services. By the Appellants own admission, the after-sales support installation service are not requi<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n e is not a composite supply. The price for the after sale support service is clearly identifiable and has been so stated in the contract itself. We accordingly uphold the AAR ruling on this question. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n Admissibility of input tax credit of tax paid or deemed to have been paid; = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n","protected":false},"excerpt":{"rendered":" In Re: M\/s. Toshniwal Brothers (SR) Private LimitedGST2019 (2) TMI 126 – APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA – 2019 (21) G. S. T. L. 294 (App. A. A. R. – GST)APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA – AAARDated:- 9-1-2019KAR\/AAAR\/06\/2018-19 GSTSHRI. A.K. JYOTISHI, AND SHRI. M.S. SRIKAR, MEMBER Represented by: Sri Badarinath, Chartered Accountant PROCEEDINGS … Continue reading “In Re: M\/s. Toshniwal Brothers (SR) Private Limited”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-16494","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/16494","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=16494"}],"version-history":[{"count":0,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/16494\/revisions"}],"wp:attachment":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=16494"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=16494"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=16494"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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\n3. The services are provided respect of scientific instruments used in research and development \/ quality control primarily in fields of Nano Science, Material Science, Bio Pharma and Polymer Sciences.
\n4. The details of the service provided by them are as follows:
\na. Promotion and marketing of the products of the Service Recipients in India: The applicant solicits orders for the goods of the overseas customer in India by marketing and promoting the goods in India. The orders for the products are placed directly by the prospective customers on the overseas entity. The applicant is not engaged in trading of such goods, either on his own account or on the account of the overseas client. The promotion and marketing of the products involves the following activities:
\n i. Applicant advertises the details of the goods to the prospective customers;
\n ii. Provides demonstration of<\/p>\n
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\n ii. For product lines, provide complete installation services to the customers of the overseas entity along with necessary advisory and assistance to the customers of the overseas entity in initial start up of the products and demonstration of its satisfactory operation to such customers;
\n iii. Assistance in operation adjustments, on-site services and general customer assistance including warranty services;
\ne. Submission of Reports:
\nThe Applicant shall prepare and submit regular reports within agreed time on its activities to promote and solicit orders for the products in India, to the overseas entity.
\nThese business reports would normally include:
\n i. Short and medium term forecasts detailing prospective customer's name, order value, anticipated placement and expected delivery dates and long term project and prospect lists;
\n ii. Results of regular observation of marketing conditions, informatio<\/p>\n
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\n6.3. Appellant further submits that the services i.e., promotion and marketing services and after sale services as a whole, would be the export of services as provided in clause 6 of section 2 of IGST Act, 2017 because,
\ni. The supplier of services, i.e. Appellan<\/p>\n
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\n7.2. The after-sale services provided are not in the nature of a composite contract and they are independent from the services of promotion and marketing and hence there is no question of determination of what will the principal supply.
\n7.3. The third question cannot be answered as it is not in the purview of jurisdiction of the Authority as it amounts to determination of the place of supply.
\n8. Aggrieved by the said Ruling of the Authority (herein after referred to as 'impugned order'), the appellant has filed an appeal under section 100 of the CGST Act, 2017 and KGST Act, 2017 on the following grounds.
\n8.1. The Advance Ruling Authority has erred in holding that the services provided is of the nature of facilitating the supply of goods, and Would amount to “intermediary services” for the purposes of determination of place of supply of such services. Further<\/p>\n
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\n8.3. Appellant submits that, the usage of the <\/p>\n
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\n8.6. Hence, in the instant case, Appellant acts does not qualify as an 'agent' as defined under CGST Act, 2017. The aforesaid services are provided on a Principal to Principal basis by the Appellant to the overseas entities. Further, there does not exist any Principal-Agent relationship during the course of rendering the aforesaid services based on the submissions made above.
\n8.7. Section 2(13) of the IGST Act, 2017: Definition of 'Intermediary';
\n“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 or more persons, but does not include a person who supplies such goods or services or both or securities on his account.
\nOn examination of the aforesaid definition of 'Intermediary' to the instant ease Appellant submits that is not engaged in arranging or facili<\/p>\n
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\n8.8. Further, appellant drew the attention of this authority to the judgement pronounced by Authority for Advance Ruling- Mah<\/p>\n
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\n8.9. Appellant has also drawn the attention of this authority to the Advance ruling pronounced by the Authority of Advance rulings under Service Tax provisions in the case of GoDaddy India Web Services Ltd. Ruling No. AAR\/ST\/08\/2016, Application No. AAR\/44\/ST\/15\/2014) = 2016 (3) TMI 355 – AUTHORITY FOR ADVANCE RULINGS wherein the Authority has clearly demarcated the meaning of intermediary services and ruled that pure marketing and promotion services would not be intermediary services.
\n8.10. The Appellant stated that the LAAR has completely failed to consider the above judgement and submits that the facts and circumstances of the said ease and Appellant's business are same and wholly comparable and thus, the ratio of the said Ruling should be squarely applied to Appellant 's case.
\n8.11. Appellant further submits that the words used in th<\/p>\n
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\n * Services provided by intermediary on behalf of principal are clearly identifiable.
\n8.13. Insofar as it relates to activities of Appellant, Appellant submits that it does not result in 'arranging or facilitating supply of goods' on account of the following reasons:
\n * the Appellant merely provides marketing and sales promotion activities which may or may not result in a concluded sales for the overseas suppliers;
\n * The Indian customer directly places an order on the overseas suppliers (recipients of Appellant's services) and the opening of LC and exchange of other documents directly takes place between the overseas supplier and the Indian customer;
\n * Appellant is not engaged in preparation of any such documentation and\/or movement of goods;
\nThus, they submitted that the services provided by them cannot be said to be intermediary services, by any stretch of imagination,
\n8.14. Appellant further submits that not all mar<\/p>\n
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\n8.15. The appellant submits that the analogy adopted in the definition of 'business support services' under Service tax law will be akin to the instant case that the services rendered by him under the ambit of 'Business Support Services” under the HSN Code: 9983 based on the analogy adopted in the case of Advance ruling of GoDaddy India Web Services Ltd. Ruling No. AAR\/ST\/08\/2016, Application No. AAR\/44\/ST\/15\/2014) = 2016 (3) TMI 355 – AUTHORITY FOR ADVANCE RULINGS and the definition of “Support Services of Business or Commerce”.
\n9. In respect of the question No. 2 the appellant submits that the LAAR has completely failed to consider the submissions made by Appellant. In contrary to the above, the LAAR has considered the copy of the agency contract entered into by Appellant with Brabender GMBH & Co. KG which was part of the advance ruling application wherein clause IV of the agency contract mentioned about Agent's Right to a Commission in <\/p>\n
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\n9.1. The two taxable services are naturally bundled:
\nAppellant submits that in accordance with the E-FIyer published by the CBEC on 15.03.2018 with respect to composite supplies and mixed supplies submits, enlists the indicators based on business practices to ascertain whether the two or more supplies of goods\/services are naturally bundled or not. The relevant extract is as follows:
\n“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, some of which are listed below:
\n * The perception of the consumer or the service receiver. If large number of service receivers such bundle of services reasonably expects such services to<\/p>\n
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\n9.2. Supply of services are in conjunction with each other:
\ni. In this regard, the Appellant submits that one should not interpret the meaning of 'conjunction' used in the definition of composite supply under GST, as mentioned s<\/p>\n
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\n9.4. The promotion and marketing services can be termed as 'Principal supply'. The Appellant submits that the principal supply Will be promotion and marketing services because of the following reasons:
\n * Marketing activities is the first step in the complete process;
\n * After sale support services can be given only once product is sold;
\n * Customer will place order to the service recipients on the -basis of promotion and marketing services provided by Appellant- it is only after the products are sold that after sale services arises;
\n * The supply of the product by the overseas entity to the customer in India embeds within itself, the provision of after sales support;
\n * Marketing determines the very sale of the product and as a complete offering, post-sales support is ancillary and incidental to the sale,”
\n * The essential characteristic of the services provided by the Appellant are marketing, <\/p>\n
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\nclause 93 of section 2 of CGST Act, 20179 reads as under:
\n“Recipient” of supply of goods or services or both, means-
\n i. Where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;
\n ii. Where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and
\n iii. Where no consideration is payable for the supply of a services, the person to whom the service is rendered,
\nAnd any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services of both supplied.
\n10.1. In the Appellant case, consideration is payable for the supply of services and the overseas entity is liable to p<\/p>\n
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\nPERSONAL HEARING
\n11. The appellants were called for a personal hearing on 15\/11\/2018 and they were represented by Sri. Badrinath, Chartered Accountant, who reiterated the arguments in the grounds of appeal. The appellant argued that Appellant's acts do not qualify as an 'agent' as defined under CGST Act, 2017. The services of marketing, sales promotion and post sale support services are provided on a Principal to Principal basis by the Appellant to the overseas entities, Further, there does not exist any Principal-Agent relationship during the course of rendering the aforesaid services.
\n12. The Appellant further argued that the sales promotion and marketing services and after sale Support services are being provided on a <\/p>\n
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\n14. In this factual background, the Appellant had sought a ruling before the Authority for Advance Ruling. Karnataka as to whether:
\n(i) the 'promotion and marketing services' will be termed as 'intermediary service' and;
\n(ii) whether the 'after-sale support service' which is provided under a composite contract will be termed as a composite supply. If so, what will be the principal supply?
\n15. The Authority for Advance Ruling in their Order dated 19th Sept 2018, held that the 'promotion and marketing services' provided is in the nature of facilitating the supply<\/p>\n
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\n18.1. From the above, it is evident that ill order to be called an 'intermediary” as defined under See 2(13) of the IGST Act, a person must satisfy the following conditions.
\n(i) He must be a 'broker' or an 'agent' or 'any other person by whatever name called', who arranges or facilitates the supply of goods or Services or both or securities'.
\n(ii) The supply arranged or facilitated must be between two or more persons.
\n(iii) He is not the person who supplies such goods or services or securities on his own account.
\nThough the term 'broker' and 'agent' are fundamentally different, a broker being a middleman whose job is only to facilitate Whereas an agent acts on behalf of the Principal, yet, these terms have been put under one umbrella in the definition of intermediary. However, an intermediary would not only be a person who is a broker or an agent but also 'any other person, by whatever name called'. The use of the expression 'or any other person, by whatever name ca<\/p>\n
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\n18.3. An intermediary, thus can be a broker or agent or any other person and is only a facilitator for the supply of goods or services or both. The act of arranging or facilitation gives rise to two supplies:
\n(1) Supply between the Principal and the third party
\n(2) Supply by the intermediary to the Principal for a commission\/fee. In other words, an intermediary is a person between the supplier and the recipient who arranges or facilitates the supply for a commission. The term<\/p>\n
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\n18.7. The definition of 'intermediary' as given in Section 2(13) of the IGST Act excludes a person who supplies such goods or services or both on his own account, It is the contention of the Appellant that the services of promotion and marketin<\/p>\n
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\n18.8. From the above definitions, in essence, there does not seem to be any difference between the meaning of the term “intermediary” under the GST regime and pre-GST regime. In the pre-GST regime, an intermediary referred to a person who facilitates the provision of a main service between two or more person but did not include a person who provided the main service on his account. Similarly, in the GST regime, an intermediary refers to a person who facilitates the supply of goods or services or both between two or more persons but excludes a person who supplies such goods or services or both on his own account. The phrase 'such goods or services' used in the definition of 'intermediary' implies that the person should not be supplying on his risk and reward entirely, the very goods or services whose supply he is arranging or facilitating. In the instant ease, the Appellant is facilitating the supply <\/p>\n
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\n18.10. The Appellant in his grounds of Appeal has relied heavily on the ruling given by the Authority of Advance Rulings under the Service Tax provisions in the case of GoDaddy India Web Services (P) Ltd Ruling No. AAR\/ST\/08\/2016 = 2016 (3) TMI 355 – AUTHORITY FOR ADVANCE RULINGS wherein the Authority has ruled that pure marketing and promotion services would not be intermediary services. We have gone through the said ruling. The facts in the said case are that GoDaddy India provides a g<\/p>\n
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\n18.11. In view of the foregoing discussions, we uphold the decision of the AAR that the service of promotion and marketing of the products of the overseas client is in the nature of facilitating the supply of the products of the overseas client and is appropriately classified as an 'intermediary service' as defined under Section 2(13) of the IGST Act. Having concluded that the service supplied by the Appellant is classifie<\/p>\n
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\n * these taxable supplies are naturally bundled
\n * these taxable supplies are supplied in conjunction with each other in the ordinary course of business
\n * one of these taxable supplies is a principal supply
\n19.2. In the instant case there is no dispute that the Agency contract in question involves two taxable supplies of services i.e promotion and marketing service and after-sales support service. However in order for the supply to be termed as a 'composite supply', what is required is that the supply of the said services should at least be bundled, more specifically be 'naturally bundled', and supplied in conjugation with each other. The term 'naturally bundled' has not been defined in the GST Act. We note that the concept of composite supply under the GST law is similar to the concept of naturally bundled services that prevailed under the service tax regime, and the same was understood to refer to those<\/p>\n
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\n20. We now come to the third question i.e whether the above contracts would qualify as exports in terms of Section 2(6) of the IGST Act and Will be a zero-rated supply as provided under Section 16 of the said Act. The definition of '*export of services” as per Section 2(6) of IGST Act, 2017 is as follows:-
\n“export of services” means the supply of any service when,
\n (i) the supplier of service is located in India;
\n (ii) the recipient of service is located outside India:
\n (iii) the place of supply of service is outside India:
\n (iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; and
\n (v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation i<\/p>\n
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\n(v) Determination of the liability to pay tax on any goods or services or both;
\n(vi) Whether the applicant is required to be registered;
\n(vii) Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of the term 'supply',
\nIt is. evident from the above that determination of place of supply is not a question on which an advance ruling can be sought. The Authority for Advance Ruling has been constituted in exercise of the powers conferred by section 96 of the Karnataka Goods and Services Tax Act, 2017, which Act extends to the whole of the state of Karnataka. The AAR is a creature of statute and has to function within the legal boundary mandated by the Acts. As the 'place of supply' is not covered by Section 97(2) of the Acts, the AAR was right in refraining from answering this question<\/p>\n
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