Pre-Sales Marketing Services by Indian Subsidiary to Foreign Parent Company is Intermediary Services: AAAR [Read Order]

The Karnataka Appellant Authority for Advance Ruling (AAAR) ruled that Pre-sale and Marketing Services by Indian Subsidiary to Foreign Parent Company is Intermediary services.

The Appellant is a 100% Export Oriented Unit under the STP1 scheme and is a wholly-owned subsidiary of Infinera Corporation, The Appellant is predominantly engaged in software development services for the products developed by Infinera Corporation.

In addition, the Appellant also provides pre-sale and marketing services for the optical networking equipment developed by Infinera Corporation. The Appellant and Infinera USA have entered into a “Pre-sale and Marketing Services Agreement”.

The scope of work involves:

1. a) Assist Infinera USA through the coordination of sales promotion and advertising for its products in India;
2. b) Conduct market research and keep “Infinera USA advised and informed regarding all matters within India, which may be of reasonable business interest or concern to India; and
3. c) Provide informational, educational and service programs in India, as may be requested by Infinera USA from time to time.

The AAAR bench comprising of D.P Nagendra Kumar and Srikar pronounced the order based on an appeal filed by M/s Infinera India PVT Ltd.

Section 2(13) of the IGST Act elaborates intermediary as to mean a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods and/or services, between two or more persons but does not include a person who supplies main service or supplies the goods on his own account.

The bench observed that the demonstrating the products of Infinera US, obtaining the feedback of the customers and passing the same to Infinera US so that the necessary enhancements and notification can be made to suit the customer’s requirements. The pricing decisions and negotiations with the customers are done by Infinera US.

Thus the appellant act as a communication and coordination channel between their client and the customers in India. It clearly amounts to facilitating the supply between the two parties that is Infinera US and customers in India.

The bench further observed that the appellant is clearly facilitating the supply of the products of Infinera US directly to the client’s customers in the territory of India and is not supplying such goods on his own account and therefore appellant does not fall within the ambit of exclusion.

While upholding the decision of the AAAR, appellate bench observed that the pre-sale and marketing service provided by the Appellant of the products of the overseas client is in the nature of facilitating the supply of the products of the overseas client and is appropriately classified as an ‘intermediary service’ as defined under Section 2(13) of the IGST Act.