AUTHORITY FOR ADVANCE RULINGS, WEST BENGAL in case of Teretex Trading (P.) Ltd. vide ORDER NO. 03/WBAAR/2021-22 dated JUNE 28, 2021 decided the same issue.
• Submission of Applicant:-
As stated by the applicant, the modus operandi of the business activities to be undertaken by him may be briefly summarised as under:
To locate prospective overseas/Indian buyers and know their requirement of goods;
To arrange sales of the said goods from the foreign manufacturers/ traders to the prospective buyers;
Goods are delivered to the buyers directly by the suppliers located outside the country;
No prior agreement is made by the applicant with the overseas manufacturers/traders for arranging such sales;
The applicant receives consideration in the form of commission in convertible foreign exchange from the overseas suppliers.
The applicant submits that being an independent service provider, he is going to undertake supply of services at his own risk and cost without being appointed as an agent by the supplier or by the recipient of goods.
The applicant also submits that he doesn’t represent the party for whom he is procuring the order for supply of goods nor has any authority to negotiate at the time of procuring order for them. He doesn’t assume any obligation either on behalf of the supplier or on behalf of the recipient of the goods.
The applicant has categorically denied his role of an agent or representative but has admitted that he arranges or facilitates supply of goods for the party for whom he procures order to supply goods.
It has also been submitted by the applicant that he doesn’t maintain any establishment outside India and receives payment as commission directly from the overseas seller to his bank account in India
The applicant further portrays following nature of supply of services to be undertaken by him:
a. Services is provided where both the supplier and the recipient of the goods are located outside the taxable territory of India;
b. Services is provided where the supplier of goods is located outside the taxable territory of India and the recipient of the goods is located within the taxable territory of the country.
The applicant is of the view that both the supplies as enumerated in the preceding paragraph fulfil all the conditions stipulated under clause (6) of sub-section (2) of the IGST Act, 2017 so as to qualify as ‘export of services’ and the applicant, therefore, doesn’t have any liability to pay tax on such supply of services.
• Submission of the Revenue:-
The concerned officer from the revenue has not expressed any view on the issue raised by the applicant.
• Observations & Findings of the Authority:-
The issue is to decide whether the services provided by the applicant shall be treated as export of services or not.
export of services:-
Clause (6) of section 2 of the IGST Act, 2017 defines ‘export of services’ as under:
“export of services” means the supply of any service when —
i. the supplier of service is located in India;
ii. the recipient of service is located outside India;
iii. the place of supply of service is outside India;
iv. the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees whether permitted by the Reserve Bank of India; 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;
According to the modus operandi of the business as submitted by the applicant, we find that the supplier of service. However, the nature of activities going to be undertaken by the applicant closely akin to the services provided by an ‘intermediary’ as defined in clause (13) of section 2 of the IGST Act, 2017.
The term ‘intermediary’ has been defined in clause (13) of section 2 of the IGST as under:
“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, but does not include a person who supplies such goods or services or both or securities on his own account.
It appears that the crux of the definition is lying with the phrase ‘arranges or facilitates the supply of goods or services or both’ between two or more persons. Another condition which requires to be fulfilled is that the person shall not supply such goods or services on his own account.
So, according to clause (13) of section 2 of the IGST, an intermediary is:
i. a broker, an agent or any other person;
ii. who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons; and
iii. who doesn’t supply such goods or services or both or securities on his own account.
Question may arise that whether mere identification of customers and to connect them with the supplier would result in a supplier of service being classified as an intermediary?
It has been admitted by the applicant that the value of supply of services in the form of commission. It clearly establishes the fact that the supply of services as provided by the applicant is inextricably linked with the supply of goods made by the overseas supplier.
It therefore appears that the applicant being supplier of services by way of arranging or facilitating sales of goods for various overseas suppliers and admittedly the same is not being done on his own account, satisfies all the conditions to be an intermediary as defined in clause (13) of section 2 of the IGST Act, 2017.
Place of Supply:-
We have already discussed that the applicant is found to be an ‘intermediary’
Place of Supply shall be determined under sub-section (8) of section 13 of IGST Act, 2017 which shall be the location of the supplier of services i.e., in West Bengal for the present case.
Shall be treated as an intra-State supply in terms of sub-section (2) of section 8 of the IGST Act, 2017
• Point to be decided:-
This transaction will, therefore, not be covered within the definition of export of services as provided in Section 2(6) of IGST Act, 2017 as it is not satisfying one of the conditions of place of supply being outside India, as enumerated in Section 2(6)(iii) of the IGST Act, 2017 and consequently shall not be treated as zero-rated supply as provided in section 16 of the IGST Act, 2017.
The services of the applicant by way of arranging sales of goods shall not be considered as ‘export of service’ as defined under clause (6) of section 2 of the IGST Act, 2017.
- This Ruling is valid subject to the provisions under Section 103 until and unless declared void under section 104(1) of the GST Act.
For queries and discussion, Author can be reached at firstname.lastname@example.org