Brief Introduction
1. The issue is, can place of supply be determined by AAR? Till the judgment of the Kerala High Court (being discussed below) there was a view that it was not the cup of tea of AAR. But the said Court held Advance Ruling Authorities responsible for not deciding on “Place of supply” matters. In this article we have tried to convey the impact of this judgement.
2. Crux : Applicant sought the question “Whether supply of services by India Branch of Sutherland Mortgage Services Inc., USA to the customers located outside India shall be liable to GST in the light of the intra-company agreement entered into by the said branch with the principal company incorporated in USA?”
To answer this query firstly it should be examined whether it is an export of service and for examining this, issue “place of supply of service” should be determined. AAR says (May 24, 2019) that the determination of same is not within its ambit but the Hon’ble Kerala HC (Feb 03, 2020) has stated that section 97(2)(e) of the CGST Act (determination of the liability to pay tax on any goods or services or both) is having wider coverage and determination of place of supply is covered under the same. As per the court AAR is bound to pronounce the ruling on place of supply.
2.1 Future steps : Now again the matter would be in the lap of AAR and it will take time to provide the ruling on it. of course, it is the instance of “Justice delayed is justice denied”. It is not a good sign for the financial health of the nation, which follows a principle of “one nation, one tax”. Despite this an investor can-not get the clarity on such issues. Lawmakers should create such an eco-system where one can get more certainty from tax authorities. Earlier also a number of business houses have applied before AAR on determination of place of supply. All of such applications remained unanswered by stating that it is out of the scope of AAR. Hope the order of the Hon’ble HC of Kerala will make the business tax decision more convenient.
2.2 Parties to the case : Sutherland Mortgage Services INC. v. Principal Commissioner [2020] taxmann.com 82.
2.3 Judgment provided by : The HIGH COURT OF KERALA
3. Issue : The point on which advanced ruling has been sought by the petitioner is on the following aspect:
“Whether supply of services by Indian Branch of Sutherland Mortgage Services Inc. USA to the customers located outside India shall be liable to GST in the light of the intra-company agreement entered into by the said branch with the principal company incorporated in USA.”
3.1 AAR’s Views :
Advance Ruling Authority has proceeded to hold that as per the submissions of the petitioner, it is evident that the question raised is whether the supply made by the petitioner would qualify as “export of service” as defined in Sec. 2(6) of the IGST, 2017 and that, therefore, the question would essentially and substantially involve the determination of place of supply, etc.
Thereafter, the Advance Ruling Authority has proceeded to hold that, the issue which is to be determined is one relating to the place of supply of service and then such an aspect may not be subject matter of an Advance Ruling as envisaged in Sec. 97, for the simple reason that the issue relating to the “determination of place of supply of service” as in the instant case, is not covered by any of the provisions contained in Sec. 97(2) of the CGST Act.
Thus, the Advance Ruling Authority after having determined that in this case the supplier of service is located in India and the recipient of services is located outside India, took a view that the other issue to be determined, viz., the “place of supply of service” cannot be the subject matter of advance ruling and expressed its inability to proceed further. Authority stated that the issue of place of supply is not expressly enumerated in Sec. 97(2) for an advance ruling authority to comment upon.
Advance Ruling to be provided on following matters: (For Ready Reference)
“Sec.97: Application for advance ruling.–
(2) The question on which the advance ruling is sought under this Act, shall be in respect of,–
- (a) classification of any goods or services or both;
- (b) applicability of a notification issued under the provisions of this Act;
- (c) determination of time and value of supply of goods or services or both;
- (d) admissibility of input tax credit of tax paid or deemed to have been paid;
- (e) determination of the liability to pay tax on any goods or services or both;
- (f) whether applicant is required to be registered?
- (g) whether any particular thing done by the applicant with respect to any goods or services
or both amounts to or results in a supply of goods or services or both, within the meaning of that term.
Kerela HC Held :
3.2 That, though the issue relating to determination of place supply as aforestated is not expressly enumerated in any of the clauses as per clauses (a) to (g) of Sec. 97(2) of the CGST Act, but there cannot be any two arguments that the said issue relating to determination of place of supply, which is one of the crucial issues to be determined as to whether or not it fulfills the definition of place of service, would also come within the ambit of the larger of issue of “determination of liability to pay tax on any goods or services or both” as envisaged in clause (e) of Sec. 97(2) of the CGST Act.
The Advance Ruling Authority has proceeded on a tangent and has missed the said crucial aspect of the matter and has taken a very hyper technical view that it does not have jurisdiction for the simple reason that the said issue is not expressly enumerated in Sec. 97(2) of the Act. This Court has no hesitation to hold that the said view taken by the Advance Ruling Authority is legally wrong and faulty.
Comments :
4. The Parliament in its wisdom has decided to mandate such a provision as in Sec. 97(2)(e), whereby the applicant is empowered to seek advance ruling even on the said larger issues of determination of liability to pay tax on goods or services or both. In view of above scenario, the Advance Ruling Authority is obliged to entertain such plea and consider it on merits and then render its opinion/answer and its advance ruling on those aspects in accordance with the provisions contained in the aforesaid Acts.
We hope that after such constructive decision of the Hon’ble Kerala High Court, Advance Ruling Authorities will understand solemnity of the issue and entertain the other applications/plea lying unanswered for determination place of supply, with a view to facilitate the tax decision of business.