The Appellate Authority of Advance Ruling (AAAR), Karnataka, while upholding the ruling of the Authority of Advance Ruling (AAR) ruled that services for facilitating the supply of products without a supply on own account are intermediary services.
The Appellant, Rajendran Santhosh is an individual stated to be an employee of an overseas company engaged in the business of manufacturing and selling various categories of distribution transformer components and accessories. The Appellant states that he is employed as the Regional Sales Manager for the Middle East and Indian markets by H-J Family of Companies having its office in the United States.
The Appellant is required to report the status of the sales development (with customers in the Middle East and Indian Markets) to the Sales Manager based in the European Office on a weekly basis. The customers approached by the Appellant place their orders for the products with the Company and make payments to the Company’s account. The Appellant does not raise any invoice for the products ordered by the said customers.
The Appellant is paid a lump-sum compensation monthly for the aforementioned services. The Appellant does not raise any invoice to the Company for the said services. In addition to the aforementioned compensation, the Company provides a credit card (that has been issued in the name of the company) for the purpose of reimbursing reasonable travel expenses, office needs, and other business expenses incurred by the applicant in performing the said services.
The Karnataka Authority for Advance Ruling ruled that the services provided by the applicant to M/s H-J Family of Companies would result in the supply of services within the meaning of that term; the services provided would be classifiable under HSN 9983.11 under the description “Other professional, technical and business services”; the applicant is required to be registered under the Central Goods and Services Tax Act, 2017 and the rates of tax applicable for the service provided are, in case of intra-State Supply under CGST at 9%; Under KGST at 9% and in case of inter-State supply at 18% under the IGST Act.
The Appellant submitted that with the introduction of the CGST Act, 2017, services are classified as per the United Nations Central Product Classification. Therefore, the classification of “Business Auxiliary Services” (which included the term “Commission Agent”) under the erstwhile service tax regime has been discontinued.
“If a person either ‘facilitates’ or alternately ‘arranges’ any supply of goods or service (or both), between two or more persons, and does not supply such goods or service (or both) on his own account, he would be regarded as an ‘intermediary’. At the risk of being repetitive, the Appellant is clearly facilitating the supply of the products of H-J Family of Companies directly to the latter’s customers and is not supplying such goods on his own account. Therefore, the Appellant does not fall within the ambit of the exclusion,” the AAAR said.
Therefore, the AAAR while rejecting the contention of the applicant held that the service of sales presentations of the products of H-J Family of Companies is classifiable as “Other professional, technical and business services” under Service Code 9983.11 and the same is being rendered as an ‘intermediary service’ as defined under Section 2(13) of the IGST Act.
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