GST UPDATE ON HC DECISION ON INTERMEDIARY SERVICES PART-2 119/2020-21

We had discussed the decision pronounced by the Hon’ble Gujarat High Court in the case of MATERIAL RECYCLING ASSOCIATION OF INDIA VERSUS UNION OF INDIA upholding the validity of section 13(8)(b) of IGST Act, 2017 and confirming that the service provided by intermediary in India will be subject to CGST and SGST in our earlier update. The present update seeks to discuss the controversy as regards levy of IGST or CGST/SGST on this transaction vis a vis various rulings pronounced by Authority for Advance Ruling (AAR) and Appellate Authority for Advance Rulings (AAAR) in GST.

The Hon’ble High Court has ruled that since in case of services provided by intermediary located in India, place of supply is determined to be location of service provider as per provision contained in section 13(8) of the IGST Act, 2017, CGST and SGST is leviable because the place of supply and the location of supplier are in the same State. However, while confirming this point, the decisions pronounced by various AAR confirming levy of IGST on such transaction were not considered as the same were not pleaded before the Hon’ble High Court.

In the case of VISHAKHAR PRASHANT BHAVE [2019 (20) G.S.T.L.494 (A.A.R.-GST)] and SABRE TRAVEL NETWORK INDIA PVT. LTD. [2019 (21) G.S.T.L. 87 (A.A.R.-GST)] , it was held by Maharashtra AAR that intermediary services provided by person located in India to recipient located outside India is not to be considered as ‘export of service’ as place of supply falls in India and so the transaction is to be considered as inter-state transaction under section 7(5)(c) of the IGST Act, 2017 attracting 18% tax payable on the transaction. It is pertinent to mention that as per section 7(5)(c) of the IGST Act, 2017, supply of goods or services or both in the taxable territory, not being an intra-state supply and not covered elsewhere in this section, shall be treated to be supply of goods or services or both in the course of inter-state trade or commerce. The logic of not considering this transaction as intra-state supply is that the recipient of service is located outside India. The above decisions and the analogy adopted thereon was not placed before the High Court and was not considered while concluding that CGST and SGST is leviable.

It is also worth mentioning that there are also rulings pronounced by AAAR in the case of MICRO INSTRUMENTS [2019 (31) G.S.T.L. 526 (AAAR-GST)] and SABRE TRAVEL NETWORK INDIA PVT. LTD. [2019 (27) G.S.T.L. 754 (AAAR-GST)] wherein it has been held that the authority for advance rulings have no jurisdiction to determine place of supply for a transaction and consequently, they cannot answer questions such as whether the activities are to be considered as export of services or intra-state supplies. Hence, amidst the rulings confirming levy of IGST on intermediaries located in India and providing services to recipient located outside India, there are decisions of AAAR quashing the orders of AAR determining place of supply. The story does not ends here and the Maharashtra AAR in the case of CLIANTHA RESEARCH LIMITED [2019 (26) G.S.T.L. 417 (AAR-GST)] has held that in case where product is supplied to the applicant for performing tests and give results by recipient located outside India, the applicant is required to pay CGST/SGST as these are performance based services wherein place of supply is the location of goods. It is worth noting that this decision is going contrary to the advance rulings mentioned above but surprisingly has been rendered by Maharashtra AAR itself.

In view of the above discussion, it is clear that the issue regarding nature of tax leviable on such transaction is ambiguous and doubtful in the context of applicability of section 7(5)(c) of IGST Act, 2017. Moreover, the AAAR have also repeatedly held that they do not have jurisdiction to comment on determination of place of supply which entails that the scope of advance ruling should be expanded. In this context, reference may also be made to decision given by Hon’ble Kerala High Court in the case of SUTHERLAND MORTGAGE SERVICES INC VERSUS PRINCIPAL COMMISSIONER wherein it was concluded that AAR can decide question on place of supply as it is part and parcel of the larger question of “determination of liability to pay tax on any goods or services or both” as envisaged in section 97(2)(e) of the CGST Act, 2017.

It is hoped that the government clarifies issue on the nature of tax applicable on this transaction at the earliest possible so that unwarranted litigation is avoided.

This is solely for educational purpose.

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GST UPDATE ON HC DECISION ON INTERMEDIARY SERVICES PART-2 119/2020-21

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