Supply of support services by Indian subsidiary to an overseas holding entity qualify as intermediary– AAR Karnataka
by ReinHeads Team | Jul 20, 2021
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AAR Karnataka* – Supply of support services by Indian subsidiary to an overseas holding entity qualify as intermediary
| Facts |
- Airbus Group India Pvt. Ltd. (‘the Applicant’) is a subsidiary of Airbus Invest SAS, France (‘the Holding Company’) and its ultimate holding company is Airbus, SE Netherland
- The Applicant would primarily assist the Holding Company in carrying out the following support functions / activities in relation to its global procurement strategy inter alia
- Review of Indian supplier landscape
- Continuous update of supplier operations
- Conducting supplier onsite assessments
- Promote awareness of the Group ethics and compliance guidelines
- Report any unethical practices of suppliers (if any) or non-compliance of local laws and regulations by suppliers
- Providing market information, sharing information of product or services and its quality standards etc.
- The Applicant is not responsible for selecting the vendors, issuance of purchase order or in deciding the price quotation, payment terms with the vendor etc. Also, there is no contractual relationship between the Applicant and vendors in respect of the supply
- The Applicant would be remunerated with a service fees computed on cost plus markup basis (at such percentage as agreed between the parties)
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| Issue before the Authority for Advance Ruling, Karnataka (‘the AAR’) |
- Whether the activities carried out in India by the Applicant would constitute a supply of “Other support services” falling under HSN code 9985 or as “Intermediary service” classifiable under HSN code 9961/9962 or any other classification of services under GST law?
- Whether the services rendered by the Applicant qualify as ‘export of services’ in terms of Section 2(6) of the Integrated Goods and Services Tax Act 2017 (‘IGST Act, 2017’)?
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| Discussion and Findings of the AAR |
· The AAR held that the activities performed by the Applicant qualify as ‘Intermediary’ as per Section 2(13) of IGST Act, 2017 on account of key reasons:
- There can be a difference between an agent, broker and an intermediary. Whereas in the case of an agent or broker, activity is undertaken on another’s behalf which is not necessary in the case of an intermediary
- An intermediary will merely facilitate or arrange the supply of goods or services between two or more people but will not be providing such supplies on his own account. The word, ‘such’ in the definition of ‘intermediary’ is of paramount importance. In the present case the raw material is supplied by the vendors to the Holding Company which is not the supply made by the Applicant on its own account
- It is not necessary that a commission payment is always involved in an intermediary scenario. Cost plus mark-up can also be one of the ways for payment. The criterion of the nature of the payment is not part of the definition of intermediary
- Place of supply in case of intermediary transaction would be in India in terms of Section 13(8) of the IGST Act 2017 and hence GST should be charged @ 18% on service rendered by the Applicant
- Also, services rendered by the Applicant do not qualify as ‘export of services’ in terms of Section 6(2) of the IGST 2017
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*Advance Ruling Order No.KAR ADRG 31/ 2021 dated 01 July 2021 (The Authority for Advance Ruling, Karnataka) |
