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AAR on applicability of GST On various support services to foreign parent company
Advance Ruling No: HAR/HAAR/R/2018-19/6
Facts of the case :
M/S Esprit India (‘the Company’) is a subsidiary of M/S Esprit De Corp (Far East) Ltd. Hong Kong (‘EDCFE’) which is fellow subsidiary of M/s Esprit Europe Service Gmbh, Germany (‘Esprit Germany’).
EDCFE acts as sourcing service provider (on worldwide basis) of goods which includes wearing apparels, shoe & accessories and fabric to Esprit Germany.
EDCFE has engaged the Company as a sub-contractor to provide sourcing service for the goods on a non-exclusive basis in India for Esprit Germany.
Sourcing services as provided by the Company to Esprit Germany inter-alia includes Market Research Services, Inspection and Quality Control Services, Logistics Services, Services related to contract conclusion, involvement of payment etc.
Questions for which the Company had opted to AAR ruling:
Whether the services provided by the Company are chargeable to tax under GST regime?
If the answer to the above is affirmative, then whether the same are covered under Export of services?
If it is an Export of services, whether it is eligible to get refund of GST of taxes paid on input services or goods or both?
Observations / Rulings made by the AAR:
In respect to the question raised for taxability under GST regime by the Company as stated in the facts, the AAR observed that as per Explanatory Notes to the Scheme of Classification of Services read with Notification No. 11/2017-Central tax ( Rate) dt 28/07/2017 (as amended), the services qualifies as taxable services, in the following manner and chargeable to GST under forward charge as below:
Market Research Services would be taxable under SAC 998599 @ 18% ( Sr. No.21 of notification 11/2017-Central Tax (Rate) dated 28.07.2017.
Services such as Purchase of Goods,Trade Mark Protection, Identification of suppliers and Negotiation with suppliers would be taxable as Other Support Service under SAC 998599 @ 18% ( Sr. No.23((i) & ii) of notification 11/2017-Central Tax (Rate) dated 28.07.2017.
Inspection and Quality Control and Logistic Services would be taxable under SAC 998311 @ 18% ( Sr. No.21(ii) of notification 11/2017-Central Tax (Rate) dated 28.07.2017.
Export of services and refund thereof:
Further, in regards to whether the above mentioned services are export of services or not, the AAR had gone through the definition of export of services which is provided hereunder:
"2(6) "export of services" means the supply of any services when
the supplier of services is located in India;
the recipient of services is located outside India;
the place of supply of service is outside India;
the payment for such services has been "received by the supplier of services in convertible foreign currency; and
the supplier of service and the recipient of services are not merely establishment of distinct persons in accordance with Explanation 1 to Explanation 8"
On perusal of above mentioned avertments, it is evident that for a services to be treated as 'Export of Services', the place of supply of services must be outside India. However, as per the Section 97(2) of the CGST Act, 2017, it is out of the scope of the AAR to decide on the issue of place of supply.
In view of the above, it was provided that the question above cannot be taken up by the Authority due to lack of jurisidiction. Consequentially, the question raised in regards to the refund of the same, is also out of the jurisdiction of the AAR Authority.
The information provided in this update is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This update is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial/ quasi judicial authorities may not take a position contrary to the views mentioned hereinrra quis.