The West Bengal Authority of Advance Ruling (AAR) in its recent ruling in the case of Teretex Trading Private Limited has ruled that the arranging sales of goods should not be considered as ‘export of service’.
Facts of the case:
- Teretex Trading Private Limited (hereinafter referred to as, the applicant) is going to be
engaged in supplying services by way of arranging sales of goods for various overseas
manufacturers/ traders.
- The modus operandi of the business activities to be undertaken by him may be briefly summarised as under:
(i) To locate prospective overseas/Indian buyers and know their requirement of goods;
(ii) To arrange sales of the said goods from the foreign manufacturers/ traders to the
prospective buyers;
(iii) Goods are delivered to the buyers directly by the suppliers located outside the country;
(iv) No prior agreement is made by the applicant with the overseas manufacturers/ traders
for arranging such sales;
(v) The applicant receives consideration in the form of commission in convertible foreign
exchange from the overseas suppliers.
Issue on which Ruling is sought:
Whether the services of the applicant by way of arranging sales of goods shall be considered as
‘export of service’ as defined under clause (6) of section 2 of the IGST Act, 2017?
The applicant is of the view that both the supplies 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
Order of West Bengal AAR: Deliberation and Ruling
- According to the modus operandi of the business as submitted by the applicant, we find that the supplier of service i.e., the applicant is located in India and the recipient of the service i.e., the overseas supplier of goods to whom the applicant provides services is located outside India. However, the nature of activities going to be undertaken by the applicant towards arranging or facilitating supply of goods envisages the services closely akin to the services provided by an ‘intermediary’ as defined in clause (13) of section 2 of the IGST Act, 2017.
- 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.
- It 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.-
- The applicant being an ‘intermediary’ the place of supply shall be determined under subsection (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. As a result, the supply shall be treated as an intra-State supply in terms of sub-section (2) of section 8 of the IGST Act, 2017 and tax will be levied accordingly. 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.
In view of the above deliberations, West Bengal AAR held that 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.
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CA. Mohammad Salim is an ICAI award winning Chartered Accountant having rich experience of more than 20 years in the field of indirect taxes. He is the Member, Indirect Taxes Committee of PHD Chamber of Commerce and Industry. He is author of four successful books on GST published by Taxmann Publication and is also GST expert on taxmann portal.
