Subsidiary company entered into agreement with its holding company for providing procurement operations will constitute as ‘intermediary services’ as per Section 2(13) of the IGST Act, 2017, and liable to 18  per cent GST.

Facts: The applicant Airbus Group India Pvt Ltd is a subsidiary of Airbus Invest SAS, France (holding company) and its ultimate holding company is Airbus, SE Netherlands. Airbus India was established as a regional entity for performing services that include procuring raw materials, assessing quality and risk evaluation, receiving a quotation from suppliers and sharing it with the holding company.

Issue: Whether the services rendered by it to its holding company Airbus Invest SAS, France, would qualify as ‘export of service’ under GST law and hence be treated as a ‘zero rated supply’.

Held: The Karnataka AAR held as under –

• observed that the activities performed by the assessee involve identification of local capabilities in India to supply raw materials, assessment of quality of production, risk evaluation in respect of supplier, provide guidance to vendors regarding product expectation of holding company Airbus Invest SAS, France, etc.
• Further, the assessee play important part in identifying vendors, explaining product requirement, advising and guiding vendors not merely on technical aspect of product but also ethical aspect in relation to such activities, without such services, foreign holding company will not be able to procure goods from vendors. Thus, activity nothing but facilitating supplies to holding company from India.
• However, by doing all this, assessee merely facilitating supplies to holding company as all activities directed at vendors – Also, commission payment may not be always involved in intermediary scenario. Cost plus markup can also be one of ways for payment criterion of nature of payment not part of definition of intermediary. Therefore, activities performed by assessee fulfilling parameters mentioned in definition of ‘intermediary’ as per Section 2(13) of Integrated Goods and Services Tax Act, 2017.
• Facilitation of supplies for holding company located abroad, the Place of supply to be India in terms of Section 13(8) of IGST Act, 2017 – Thus, services not qualify as ‘export of services’ in terms of  Section 6(2) of IGST Act, 2017. Therefore, the activities will be chargeable GST at rate of 18% in terms of clause (iii) of Entry No. 23 of Notification No. 11/2017-C.T. (R) – Section 6(2) of IGST Act, 2017.

To read the complete judgment 2021 Taxo.online 1420