Financial Assistance by Foreign Holding Company constitutes consideration for Supply of Services – AAR Maharashtra
by ReinHeads Team | Jan 13, 2021
AAR Maharashtra* – Financial Assistance by Foreign Holding Company constitutes consideration for Supply of Services
| Facts |
- Prettl Automotive India Pvt. Ltd (‘the Applicant’) is engaged in supply of electronic products and installation & commissioning services
- The Applicant’s holding company i.e., PrettI Kabelkonfektion GmbH, Germany (‘Prettl GmbH’), proposes to enter into a service agreement with the Applicant
- Under the said agreement, Prettl GmbH would provide financial assistance to the Applicant for carrying out activities under the ‘develoPPP.de programme’ run by the German Federal Ministry for Economic Cooperation and Development
- Under the said programme, the Applicant shall carry out activities to implement the project of human resource development and skill enhancement in India
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| Issues before the AAR |
- Whether the financial assistance received by the Applicant qualifies as a consideration for supply and covered under the ambit of supply of services in terms of Section 7 of the Central Goods and Service Tax Act, 2017 (‘CGST Act’)?
- If yes, whether the same is classifiable under SAC 9997 as ‘other services nowhere else classified’ under Sr. no. 35 of the Notification-11/2017- Central Tax (Rate) dated 28th June 2017?
- Whether the said activity is to be considered as ‘exempted supply’ or ‘non-taxable supply’ and accordingly whether Input Tax Credit (ITC) is to be reversed in accordance with Section 17 of CGST Act read with Rule 42 of Central Goods and Services Tax Rules, 2017?
- Where the said activity if considered as supply of service, whether the same qualifies as “Zero Rated Supply” (export of services) under the provisions of Integrated Goods and Services Tax Act, 2017 (IGST Act)?
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| Discussion and Findings of the AAR |
The AAR held that the financial assistance to be received by the Applicant qualifies as a consideration for supply and covered under the ambit of supply of services in terms of Section 7 of the CGST Act on account of the following:
- Activities undertaken by the Applicant and the amount received/ to be received are in pursuance of a service agreement with Prettl GmbH
- Clause 5 of Schedule II of the CGST Act provides that ‘an agreement to do an act’ is considered as supply of services. The Applicant has consented/ agreed to do some acts for which it is receiving consideration in the form of financial assistance
- Amount of financial assistance must be treated as consideration since such amount is given to the Applicant in lieu of supply of services (on the directions of Prettl GmbH). Hence, Prettl GmbH is to be treated as a service recipient and the Applicant as a service provider
- Further, the AAR held that:
- Such supply of services is to be classified under SAC Heading 999792, i.e., ‘agreeing to do an act’
- Transaction cannot be considered as an export of services as entire gamut of supply as per the service agreement between the Applicant and Prettl GmbH, will be performed in India and accordingly the place of supply is in India.
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*Advance Ruling No. GST-ARA-20/2019-20/B-59 dated 15 December 2020 (The Authority for Advance Ruling, Maharashtra)
