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THE MAHARASHTRA GOODS AND SERVICES TAX ACT, 2017 Circulars and Advance Ruling
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Body Advance Ruling NO.GST-ARA-18/2017-18/B-26, Dated 18th April, 2018

MAHARASHTRA AUTHORITY FOR ADVANCE RULING

(constituted under section 96 of the Maharashtra Goods and Services Tax Act, 2017)

BEFORE THE BENCH OF

(1) Shri B. V. Borhade, Joint Commissioner of State Tax

(2) Shri Pankaj Kumar, Joint Commissioner of Central Tax

GSTIN Number, if any/ User-id 27AAAFF0535H1ZT
Legal Name of Applicant Five Star Shipping
Registered Address/Address provided while obtaining user id 610, Vindhya Commercial Complex, Sec-11, C.B.D. Belapur, Navi Mumbai- 400 614
Details of application GST-ARA, Application No. 20 Dated 19.01.2018
Concerned officer Belapur Commissionerate, Belapur Division Range II, Navi Mumbai
Nature of activity(s) (proposed / present) in respect of which advance ruling sought  
A Category Service Provision
B Description (in brief) Marine Consultancy Service. A brief description of the nature of activity in respect of which advance ruling is sought is inter alia mentioned in the document attached herewith and marked as Annexure-I.
Issue/s on which advance ruling required (i) Classification of goods and /or services or both
Question(s) on which advance ruling is required As reproduced in para 01 of the Proceedings below.

PROCEEDINGS

(under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

The present application has been filed under Section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as "the CGST Act and MGST Act"] by Five Star Shipping, the applicant, seeking an advance ruling in respect of the following question :

A. 1 Whether Marine Consultancy Service ("MCS") provided to foreign ship owners constitutes "composite supply" with the principal supply of consultancy service?

A. 2 Whether the place of supply of MCS (as a composite supply) will be determined in terms of Section 13(2)(a) of the Integrated Goods and Services Tax, 2017 ("IGST Act"), i.e. the 'location of recipient of service'?

B.1 In the alternate, where services are provided to foreign ship owners distinctively as supply of consultancy service and support service with separate and demarcated fees for their consultancy service and for support service:-

    a. Whether consultancy service will qualify as business consultancy service in terms of the scheme of classification of services [Annexure to Notification 11/ 2017 - Central Tax (Rate), dated 28th June, 2017]?

    b. Whether the supply of such consultancy service will be the 'location of recipient of service' in terms of section 13(2)(a) of the IGST Act?

    c. Whether support service qualifies as "intermediary service" in terms of Section 2(13) of the IGST Act? And, if ruled that the support service qualifies as an intermediary service, the place of supply of support service as intermediary services will be the 'location of supplier of service' in terms of Section 13(8)(b) of the IGST Act?

At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the "GST Act".

02. FACTS AND CONTENTION - AS PER THE APPLICANT

The submissions, as reproduced verbatim, could be seen thus-

ANNEXIRE I

Statement of the relevant facts having a bearing on the question raised

1 Five Star Shipping ("Applicant") is a partnership firm in terms of (Indian) Partnership Act, 1932. Its office is located in Mumbai (Stale of Maharashtra). Its partnership deed inter alia records that the partnership business shall be that of consultants.

2. The service provided by the Applicant includes collecting market intelligence and updates which is disbursed to the ship owners (i.e. consultancy service), as the principal service. Service provided by the Applicant also includes providing support service to Indian/ foreign ship owners to identify charterers outside India who are seeking to optimise revenue for their vessels and monitoring voyage execution, as the ancillary service. Consultancy service and the consequential support service provided by the Applicant is generically referred to as Marine Consultancy Service ("MCS").

3. MCS is provided by the Applicant in terms of a Consultancy Agreement executed by and between the Applicant and the ship owners. Details of service provided by the Applicant in terms of such Consultancy Agreement are provided below:-

    i. As Specialists in freight market movement, the consultant will analyse commodity, shipping and freight markets, track movement of ships and cargoes and disseminate such information to the company

    ii. Track, collate, analyse and monitor port development and logistics data originating from reliable source and update future trends

    iii. Monitor world-wide economic development, bulk commodity trade pattern development

    iv. Identify and provide information on port costs, bunker (fuel), trend, cost estimation and analysis

    v. Monitor voyage execution for smooth and efficient operations so as to optimize performance for the ship owners.

    vi. Examine lay time calculations and arrange for accounts reconciliation for objective of eventual settlement.

    vii. Preliminary evaluation of cargo volume, trade patterns, trend in commodity movement, port congestion, global and regional economic development and analysis

    viii. Techno commercial assessment of vehicle type utilization opportunities, infrastructure development in various regions, geographical impact on global trade in bulk commodities arising from weather, piracy, war, conflict, any other causes which have prospects to impact trade

4. Fees for the abovementioned services is fixed pre-hand, and typically is a percentage of the gross revenue earned and received by the foreign/ Indian ship owner as the case may be. A sample Consultancy Agreement dated 01 March, 2017 entered between the Applicant and foreign ship owner Singapore Shipping International Pte Ltd. ("the Agreement") is attached as Enclosure 1. The tax position, as applicable under the erstwhile (pre-GST) regime must be appreciated and understood in the context of these facts and commercial circumstances to enable a considered conclusion under GST regime and law.

Tax treatment prior to GST

5. The Applicant had obtained Service Tax registration as per the erstwhile indirect tax regime in the State of Maharashtra. MCS service provided by the Applicant to foreign ship owners and Indian ship owners qualifies as Business Auxiliary service ("BAS") in terms of Chapter V of the Finance Act, 1994 ("the Act"). Hitherto, MCS provided by the Applicant was treated as bundled service comprising of consultancy service and support service, wherein consultancy service was the principal service giving essential characteristics to MCS. These services did not qualify under specific rule of the Place of Provision of Service Rules, 2012 ("PPSR") and therefore, Rule 3 of the PPSR which is the default rule under the PPSR was applicable. As per Rule 3 of PPSR, the place of provision of service was the place of recipient of service'. Detailed analysis of tax treatment prior to GST is set out at para 27 to 33 of Annexure II).

6. The Applicant is providing MCS to both Indian and foreign ship owners. There is clarity regarding the GST implication on service provided to Indian ship owner as both provider and recipient of service are located in India however, there is inadequate clarity regarding the GST implication on services provided to foreign ship owners (located outside India). Therefore, the Applicant has approached the Authority re MCS provided by the Applicant to foreign ship owners. Consequently, the following discussions are solely in respect of Applicant 's MCS supplied to foreign ship owners,

Relevant legal provisions of the Goods and Services Tax

Levy, collection and scope of 'supply'

7. Per Section 9 of the Central Goods and Services Tax ("CGST Act"), a tax called the Central Goods and Services Tax ("CGST") is to be levied on the intra-State 'supplies' of goods and services. The term 'supply' is defined in Section 7 of the CGST Act to include:

(a) "all forms of supply of goods or services or both such us sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business:

(b)

(c) ; and

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II. "

Relevant definition as set out in CGST Act and IGST Act

8. Section 2(30) of the CGST Act defines the term 'composite supply' to mean "a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply ".

9 Section 2(74) of the CGST Act defines the term 'mixed supply' to mean " two or more individual supplies at goods or services, or any combination thereof made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply".

10 In terms of Section 2(13) of the Integrated Goods and Services Tax Act, 2017 ("IGST Act") defined 'intermediary' to mean "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 "

11. In terms of Section 2(6) of the IGST Act, 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: 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 "

Place of supply of service as set out in Chapter V of the IGST Act

12. In terms of Section 12(2)(a) of the IGST Act, which is the default rule for determining the place of supply of services where the location of supplier and recipient is in India, "the place of supply of services, except the services specified in suh-sections (3) to (14), made to a registered person shall be the location of such person. " In other words, the place of supply of service shall be the location of recipient of service.

13 Default Rule: In terms of Section 13(2) of the IGST Act which is the default rule for determining the place of supply of services where the location of supplier or location of recipient is outside India, "the place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services. "

14 Intermediary service: Section 13(8)(b) of the IGST Act provides the place of supply of intermediary service where the location of supplier or the location of recipient is outside India. As per Section 13(8) of the IGST Act, place of supply of intermediary service "shall be the location of the supplier of services .

Scheme of classification

15. Scheme of classification of services is provided in Annexure to Notification 11/ 2017 - Central Tax (Rate), dated 28th June, 2017. The Annexure classifies services into Chapter, Section, Heading and Groups and provides a unique 6 digit Service Code to each service. The Annexure also provides description of service and supports in determining the nature of service and rate of GST payable qua a service"

ANNEXURE II

Statement containing the applicant's interpretation of law and/or facts, as the case may be, in respect of the question

A. Interpretation of law and facts

1 MCS provided by the Applicant constitutes of consultancy service and support service. Consultancy service provided by the Applicant includes analysing commodity, shipping and freight market, finding potential charterers for the foreign ship owners. Such supply of consultancy service to the foreign ship owners constitutes a substantial portion of the Applicant's business. For this the Applicant has trained professional research analysts stationed at its office who keep them abreast with market trends and help the foreign ship owners with valuable information re their business. The Applicant has appointed research analysts on the payroll to undertake market research, track, collate, analyse and monitor port development and logistics data to update future trends to ship owners and also customise this information as per the customer's needs e g. the type of vessel, cargo carrying capacity, free space available on the board of the vessels.

2. MCS supplied by the Applicant also includes support service provided to the foreign ship owners which largely consists of optimising global trade and revenue therein for the foreign ship owner. For this, the Applicant relies on the database of information maintained by the Applicant. Further, the support service supplied by the Applicant includes monitoring voyage execution for the ship owners for smooth and efficient operations to optimize performance of their ships, examines lay time calculations, and arranges for reconciliation of accounts with the objective of eventual settlement with the charterers. The support services provided by the Applicant are provided to the foreign ship owner and are not meant to facilitate two parties C

3. The Applicant's engagement with the foreign ship owners is not limited to finding potential charterers for their vessel but is initiated way earlier by way of continuously providing essential market intelligence which adds value for the foreign ship owners in their business and is continued with the Applicant monitoring the supply of service by foreign ship owner to ensure efficiency of provision of service. Thus, supply of both consultancy service and support service are bundled together in the form of MCS.

4 The Applicant is not a conduit between the ship owners and the charterers. The Applicant originates, orchestrates and manages the supply of providing market intelligence leading to potential business and monitoring the supply of service by the ship owner to the charterer to ensure smooth and efficient operations of the ship owner's ships, and also arranging reconciliation of the accounts of the foreign ship owners which helps in eventual settlement with the charterers. Reference in this regard may be made to para 1 of the Agreement which provides that "the implantation of such value-based and market driven advisory service is expected lead to increased cargo volumes, and the support from the consultants will provide the Company (foreign ship owner) with long term sustainable revenue."

5 The MCS is provided independently by the Applicant at the request of and in satisfaction of the customer's requirements. Reference in this regard may me made para I of the Agreement extracted below:

"It is expressly understood that the consultant has fiduciary obligation to "the Company" (foreign ship owner) based on contractual terms of this Agreement. that Consultant's role is to provided independent advice uninfluenced by commercial concerns; and that service as a Consultant does not require him to be in advocate for "the Company " or its products in any forum, public or private.

6. Therefore, it is evident from the terms of the Agreement that supply of MCS by the Applicant is on its own account and the Applicant or chest rates the entire service directly to the foreign ship owners. The foreign ship owners approach only the Applicant in case there are any issues that need to be addressed or ironed out and the Applicant remains answerable to the ship owners from the point of entering into the contact for supply of MCS. Consequently, a significant as also certain degree of service is provided by the Applicant directly to and quite clearly directed at the foreign ship owner.

7. The services supplied by the Applicant are described in para 3 of Annexure I and may be refereed to understand that the entire gamut of services supplied by the Applicant. Each service listed therein may be provided by the Applicant in isolation and there is no requirement to avail all the services supplied by the Applicant and it is the ship owner's prerogative to avail all or some of the services offered by the Applicant. It is on the request of the foreign ship owners that the services are supplied in a cohesive manner, as a single offering. Typically, the Applicant is equipped to supply consultancy service and support service distinctly and occasionally does provides the services separately However, it is practical for the foreign ship owner to avail both services offered by the Applicant as a bundle to increase effectiveness and for cost economies. Provision of consultancy service by the Applicant helps the foreign ship owner to zero in on a suitable charterer, which in turn leads to provision of service like tracking of voyage and assistance in billing by the Applicant It is only on the request of the foreign ship owner that the two services are offered together. In return, the Applicant charges a fee which is a fixed percentage of gross revenue of charter hire earned by the foreign ship owner which is pre-decided between the Applicant and the foreign ship owner.

1. MCS supplied by the Applicant will qualify as a composite supply with consultancy service as the principal supply

8. From 01st July, 2017 (GST regime), all forms of supply of service made for a consideration by a person in the course of furtherance of business qualifies as supply which is liable to GST in terms of Section 7(1)(a) of the CGST Act. Further, where two or more services are provided by a supplied in conjunction, GST law has introduced the concepts of composite supply and mixed supply A composite supply means a supply of two or more services which are 'naturally bundled' and supplied in conjunction with each other in the ordinary course of business, one of which is the principal supply'. A mixed supply is the supply of two or more services made in conjunction with each other by a taxable person for single price where such supply does not constitute a composite supply

Supply of MCS is a composite supply

9. The concept of composite supply is similar to the concept of naturally bundled service under the erstwhile negative list regime. A composite supply is defined in Section 2(30) of the CGST Act as below:

"Section 2(30) - ''composite supply " means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of