Business Services by ‘Airbus group India’ carried out in India to be classified as ‘Intermediary Service’- Karnataka AAR Ruling

GSTAirbus liable for 18% GST on services abroad

Airbus India’s technical advisory and procurement services for its France-based holding company are ‘intermediary services’ and liable to 18% Goods and Services Tax (GST), the Authority for Advance Ruling has said.


Facts of the case:  Airbus Group India Private Limited having registered office at  Bengaluru, Karnataka has filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 read with Rule 104 of CGST Rules 2017 and Section 97 of KGST Act, 2017 read with the KGST Rules 2017.

The applicant is operating as a subsidiary of Airbus Invest SAS, France (‘Holding Company’), and its ultimate holding company is Airbus SE, Netherland.

Airbus Group India Private Limited provides engineering design and other technical advisory services which include marketing support, customer support services, flight maintenance training, flight operations supports, flight pilot training, etc. They also provide maintenance, repairs, and overhaul services, agency services, renting of assets, and trading of spares and parts of Helicopter.

Observations: The applicant is of the opinion that the activities undertaken by them are classifiable under Heading 9983 with the description of Other professionals, technical, and business services. As per the explanatory notes to the scheme of classification of services, heading 998399 offers the same description. This heading includes specialty design services including interior design, design originals, scientific and technical consulting services, an original compilation of facts/information services, translation services, trademark services, and drafting services. It is clearly evident from para 7 above and from the contract agreement that the applicant does not deal with the activities mentioned in the HSN 998399.

Further, the applicant submitted an agreement wrt agreed contractual terms between Airbus India and Airbus SAS. 

The provisions of the aforesaid agreement entered between the parties, the support services as enunciated above are rendered on principal to principal basis between Airbus India and Airbus SAS. For the said services rendered. Airbus India would be remunerated with a service fee computed on cost-plus markup (at such percentage as agreed between the parties) basis.

Intermediary Services: The intermediary is defined, under Section 2 (13) of IGST Act, 2017, as 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.

In this regard, the applicant has emphasized not being an agent or a broker. There can be differences between agent, broker, and 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. Therefore, the reliance on the principal-to-principal relationship or calling oneself an independent contractor is not relevant for purpose of determining an intermediary as per the definition. 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 of her.

Here, the word, ‘such’ is of paramount importance.

Such ‘goods’ in the present case are the raw materials supplied by the vendors to Airbus Invest SAS, France.

Export of Service: 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 for in Indian rupees wherever 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.

The services of the applicant are covered under intermediary services, as concluded at para 17 above and hence the place of supply is India in terms of Section 13 (8) of the IGST Act 2017.

Thus the activities of the applicant are demandable to GST at the rate of 18% in terms of clause (iii) of entry no. 23 of Notification No. 11/2017-Central Tax (R) dated 06.28.2017.

Ruling:
1. The activities carried out in India by the Applicant would constitute a supply as “Intermediary services” classifiable under SAC 998599.

2. The services rendered by the Applicant do not qualify as ‘Export of Services’ in terms of sub-section 2 of Section 6 of the IGST 2017 and consequently, are required to GST at the rate of 18% in terms of clause (iii) of entry no. 23 of Notification No. 11/2017-Central Tax (R) dated 06.28.2017.

Our Views:
Today, major of the SMEs and Startups that are engaged in the services sector have a parent company or investors residing outside India. In such conditions, the recent rulings whether in the case of  Dharmendra M. Jani Vs. Union of India and others as pronounced by Bombay High Court or other recent rulings, it seems there will be more challenges ahead if the tax-effective business model is not formed at the initiation of the business.

If you are one of them having a global presence and sourcing strategy and agreement with foreign collaborators, should reach us on the vetting of your business module for ease of compliance and advisory.

 

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