Are back-end services classified as support services or intermediary services? Which qualifies for Zero Tax in GST?
GST as a whole having vast coverage, it sometimes gets really strenuous to figure out the classification of services provided, what rates will apply so as to there is certainty in tax liability. Are support services different from that of intermediary services. We will analyse this with the help on an interesting case of Fulcrum Info Services LLP- Authority for Advance Rulings Karnataka.
Background to bring forth the case under Authority for Advance Rulings
What difference would it make if one classifies an intermediary service as a support service or vice versa?
It is important to remember here that; assessee was providing services to a US client. As per Section 13 of IGST – 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 (in this case it is USA – outside the taxable territory). Hence, if it is a support service then it will not be taxable as recipient is outside India.
Now as per Section 13 of IGST – The place of supply of the Intermediary services shall be the location of the supplier of the service. Hence, if it is an intermediary service then it will be taxable as the supplier is located in India. Therefore, it was important in this case to understand if the service will be taxable or not under GST Law depending on the nature of service so provided.
Impact of back-end services provided to clients under GST? Are they in the nature of support services or intermediary services?
The Authority for Advance Rulings Karnataka, in case of Fulcrum Info Services LLP, In re has thrown light on this concept.
Facts of the Case
- The applicant is in the business of providing back-end support services.
- He has entered into a Trade Compliance Services Agreement with Juniper Networks Inc (USA).
- The Statement of Work (SOW) attached to the Agreement provides details of the various services to be provided by the applicant.
- As per the SOW, the applicant mainly provides the services of:-
a. Trade Compliance Operations Management (assistance and support for export compliance, import compliance, manual documentation preparation, etc)
b. Miscellaneous administrative support (responding to request for historic shipping documents, filing end user certificates, updating the compliance details, updating license details in Trade Sphere application, providing customized reports, etc).
5. The said agreement is accordingly for providing back office support to Juniper Inc. for various transactions undertaken by Juniper Inc.
Issues of the Case
There were two questions arising in this case:-
- Whether the back-end support services provided by the applicant to the Juniper Inc. under the agreement would be classified as ‘Support Services’ under the Tariff Heading 9985?
- Whether the services in question would be treated as Intermediary services or not?
Comprehensive Information of Services Provided
The services provided by the applicant to Juniper Inc. are summarized by as follows:
1. Export – Import Compliance Support:
i. To ensure compliance of day-to-day transactions of Juniper Inc. with Bureau of Industry and Security, Department of Commerce, US.
ii. It includes screening of order, shipping documents, user registration, etc. in Juniper Inc.’s SAP application.
iii. In case of Import, the applicant is also responsible to examine import entry files, report the findings and maintain the database of all the reviewed files.
2. Manual Documentation Support
To undertake various activities so as to provide support to Juniper Inc. in preparing the shipping and other documents in respect of their day-today transactions. This inter-alia includes assistance in preparation of:-
i. Shipping documents
ii. Documentation for declaration at Customs
iii. Documentation for movement from contract manufacturer
3. Other administrative support
i. Generation of reports from Oracle Application and sharing of information with Juniper Inc.
ii. To update the details of freight charges paid by Juniper Inc. on behalf of its customers in the Oracle application
Contention of the Applicant
- The services provided by the applicant were mainly in the nature of various back office support services in relation to compliance requirements to Juniper Inc.
- The applicant, in terms of the agreement, raised a monthly invoice for the various services provided to Juniper Inc. The entire consideration against the said invoice is received by the applicant in convertible foreign exchange.
- Annexure to Notification 11/2017 – Central Tax (Rate) dated 28.06.2017 provides for the classification of services under GST, where it is clearly mentioned that:-
i. Support Services falls under Heading 9985
ii. Other Support Services falls under Group 99859
4. The applicant also refers to Explanatory notes as released by Central Board of Indirect Taxes and Customs (CBIC) which indicates the scope and coverage of the Heading, Groups and Service Codes of the Scheme of Classification of Services
5. As per the Explanatory Notes:-
i 998594 – Combined Office Administrative Services
This service includes provision of a combination of day to day office administrative services (reception, financial planning, billing and record keeping, personnel and mail services etc. for others on contract basis
ii. 998595 – Specialised Office Support Services
Services such as duplication services, mailing services and document preparation services are included in the same
6. The applicant claims that the services provided to Juniper Inc. are similar to those covered under the explanatory notes released by the CBIC. Therefore, such services are in the nature of support services classifiable under Tariff Code 9985.
7. The applicant also refers to the definition of ‘Support Service’ as defined under Section 65B(49) of the Finance Act, 1994
8. The applicant states that according to the definition of ‘Support Service’ under Section 65B(49) of the Finance Act, 1994, it can be observed that `support services’ inter alia covers services in the nature of outsourcing.
9. Services provided by the applicant are also in the nature of outsourcing activities, i.e. back-end support function.
10. Therefore, it can be said that services provided by the applicant to Juniper Inc. under the agreement would be classified as ‘Support Services’ under Service Tariff 9985; and in particular under the Group 99859 covering ‘Other Support Services’.
11. The applicant also highlights that the said services provided under the agreement are not in the nature of an ‘intermediary’ as defined under Section 2(13) of IGST Act as:-
i. Services provided are on principal-to-principal basis
ii. The services in question are supplied by the applicant on its own account
iii. The applicant provides the services directly to Juniper Inc and not to any other person on behalf of the service recipient, say, the customers of Juniper Inc.
iv. Juniper Inc. would be dealing with customers directly and the applicant is not authorized to enter into any contract or arrangement on behalf of Juniper Inc
v. The applicant does not secure any order from the customers in India, but the orders are placed directly by the customer on the application owned and maintained by Juniper Inc.
12. The applicant states that he does not arrange or facilitate any services on behalf of Juniper Inc and hence there is no question of service qualifying as ‘Intermediary’ services’.
In the view of the information provided by the applicant, the AAR passed the following ruling:-
- The back-end support services provided by the applicant to the Juniper Inc under the agreement is classifiable as “Support Services” under the Notification 11/2017 – Central Tax (Rate) dated 28.06.2017 and more specifically under the Service Code 998599
- The services in question are not Intermediary Services
Similar cases wherein it was held that where services are provided on principal to principal basis, the said services would qualify as main service, not intermediary service are:-
- Global Transportation Services Pvt Ltd. [2016 (45) STR 574 (AAR)]
- GoDaddy India Web Services Pvt Ltd [2016 (46) STR 806 (AAR)]
- Universal Services India Pvt Ltd [91 VST 483 (AAR)]