AAR can decide upon the place of supply under CGST Act
AAR can decide upon the place of supply under Section 97 of the CGST Act,2017 : Kerala High Court
In Sutherland Mortgage Services INC Vs Principal Commissioner, Appeal Number : W.P.(C) No. 32634 of 2019 vide order dated 03/02/2020, the High Court of Kerala held that AAR can decide upon the place of supply under Section 97 of the CGST Act,2017
The petitioner was a branch office in India of its principal company was located in USA and was engaged in the business of providing information technology enabled services. The principal company made an intra-company agreement with petitioner to provide services to customers outside India.
The petitioner claimed that the supply of services was an export of service and sought an advance ruling from AAR on the same issue.
Whereas,the AAR held that ruling could not be granted as the issue of ‘determination of place of supply’ and it did not fall expressly within the ambit of the questions which can be determined by AAR as prescribed under the CGST Act, 2017.
It is pertinent to refer Section 97 of CGST Act,2017;
20. It would be pertinent in that regard to focus mainly on sub section (2) of Sec. 97 of the CGST Act, which reads as follows:
“Sec. 97: Application for advance ruling.– (1)
xxx xxx xxx
(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.”
The High Court held that the AAR had taken a technical view of Section 97(2) in giving the ruling which was legally wrong and faulty. The question applied for by the petitioner fell under the larger issue of clause (e) of Sec 97(2) which states ‘determination of liability to pay tax on any goods or services or both’.
Accordingly held that ;
23. In the instant case, it is true that 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 and therefore the matter requires interdiction in judicial review in the instant writ proceedings. In that view of the matter, it is ordered that the abovesaid view taken by the Advance Ruling Authority is legally wrong and faulty and is liable to be quashed and accordingly declared and ordered.
The High Court concluded as under;
24. Before parting with this case, it has to be borne in mind that India is at the cusp of great global changes and there cannot be any two opinions for anyone, who cherishes the best interests for this country, that with extreme hard work and industry, we have to progress economically, socially and in all spheres of our life. It has been in the consistent policies of the various Governments, both at the Union level and at the levels of the States concerned, that foreign investments, apart from domestic investments, are also highly needed for our economy, subject to the regulatory framework projected by laws. In cases like this, a foreign entity like the principal company in this case, would like to have precision and certainty about tax liability so that they can accordingly modulate their future outlook and it goes without saying that the executive authorities concerned including the taxation authorities will have to take the correct perspective and in accordance with the legislative policy framed as per the wisdom of the Parliament and the State Legislatures to ensure that there is certainty and precision in taxation liability, etc. so that the domestic investors as well as foreign investors, will get more incentive to continue and increase their level of activities, for the overall better development and growth of our economy.