GST Charcha: Consultancy and support services aren't composite supply in GST


Facts of the case: M/s Five Star Shipping (“the Applicant” or “FSS”) is a partnership firm providing Marine Consultancy Services (“MCS”) to Indian/ Foreign ship owners. MCS provided by the applicant includes following types of services:

• Consultancy services viz. analyzing commodity, shipping & freight market (i.e. collecting marketing intelligence and updates) which is disbursed to the ship owners along with finding potential charters for the foreign ship owners.

•  Support services viz. monitoring voyage execution for smooth & efficient operations, optimizing global trade & revenue for ship owners, examine lay time calculations, arranges for reconciliation of accounts for eventual settlement with the charters.

The Applicant was paid fee as a percentage of gross revenue in each charter party contract, which was payable within 30 days of invoice or successful completion of assigned contract whichever is later.

Issue involved: The Applicant sought clarification as to whether MCS qualify as composite supply in GST and if not, whether supply of support services will fall under ambit of intermediary services.

Applicant’s interpretation of law: It was contented that MCS supplied by the Applicant is naturally bundled with supply of consultancy services being the principal supply and major portion in the contract, based upon which foreign ship owners contact the charterers to discuss provision of their services. It was further put forth that if support services is seen as principal supply then the same should not be considered as intermediary services as the Applicant is providing services on its own account.

Held: The Authority for Advance Ruling, Maharashtra vide Order No. GST-ARA-18/2017-18/B-26, Mumbai dated April 18, 2018, perused the Agreement for supplying MCS services and ruled as under:

• Provision of MCS does not constitute composite supply in GST on account of following:

  • Both services have been specifically set out in the Agreement and there is no guarantee that any or all the services will be assigned to the Applicant;
  • Foreign ship owner is at liberty to appoint other consultant(s) for part of the activities;
  • By specific design of the contract, any service which could not be identified and said to be the principal supply;
  • To foreign ship owner, both the services are important, and none could be identified as principal supply.

• Supply of consultancy services, when supplied distinctively with separate fee shall not fall under category of ‘Management consultancy’ as consultancy services provided by the Applicant are not in nature of guiding ship owning company in the management of their company but are only in the nature of consultancy in respect of opportunities of marine transportation business, which is one of the support services in transport.

• Support services provided by the Applicant are intermediary services under Section 2(13) of the IGST Act, 2017.

Our comments:

Maritime consultancy is one of the phenomenon of the trade where these consultants play a very vital role in channelizing today’s shipping industry concerns. These consultants provide an extensive range of business solutions, advice and support for clients of all kinds engaged with maritime related projects for costing and feasibility with various aspect and option to put the clear picture in front of client for the project to maximize the profit with the best use of resources available.

Apparently, the MCS services supplied in present case should have been regarded as composite supply if so understood in normal trade parlance. Needless to mention that it is always upon the recipient to choose the services he wants. Fact that foreign ship owner is at liberty to appoint other consultant(s) for part of the activities, may not be taken as the deciding factor. If so happens then the illustration provided in Section 2(30) of the CGST Act, 2017, which states that “where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply”, would also become futile. Here also, the party is at liberty to choose or not to choose any or all of the services with supply of goods.

Reference may further be drawn from ruling of Hon’ble AAR, West Bengal in the application filed by M/s Global Reach Education Services Pvt Ltd, where the applicant was engaged in overseas education advisory, promoting various courses of foreign Universities in India among prospective students, making the prospective students aware about the course fee and other associated costs, market intelligence about the latest educational trend in the territory and ensuring payment of the requisite fees to the Universities if the prospective students decide upon pursuing any course promoted by the applicant. The applicant received consideration in the form of commission from the foreign University for these services rendered to prospective students. It was ruled that the main service provided by the applicant is facilitating recruitment of students and the consideration is paid as commission on the basis of course fee and recruitment through the applicant. Promotion of the courses is incidental to the above principal supply. However, here also, applicant was considered as intermediary service provider.

In nutshell, there is no clarity as to whether such bundle of supply or any other should be considered as composite supply or mixed supply in GST. There can be number of factors which can influence the practice of identifying principal supply amongst the bundle of supplies. In the absence of any clear norms for identification in the law itself, the contractual terms and obligations will play an important role. However, even that does not settle the debilitating test of predominance as the same can also be influenced by various parameters/ factors, such a purpose of transaction, individual value of various supplies involved, quantum of various supplies involved, description of goods or services mentioned in the invoice, views taken by other players of the Industry etc. Some clear norms in this regard is utmost required to check arbitrary interpretation by taxpayers as well as tax collectors and also the delinquent splitting of contracts.

DISCLAIMER: The views expressed are strictly of the author and A2Z Taxcorp LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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Bimal Jain 
on 11 July 2018
Published in GST
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