The Maharashtra Authority for Advance Ruling ( AAR ) in an application filed by Behr-Hella Thermocontrol India Pvt. Ltd. ruled that testing services of providing Functional Tests, Electrical Tests, Mechanical Tests, Life-Cycle Tests, etc. to overseas entities are liable to tax under Integrated Goods and Services Tax Act (IGST Act) and are not ‘Zero-rated supply’ under the same.
The applicant is a private limited company and is a 100% subsidiary of Behr-Hella Thermocontrol GmBH, Germany. He entered into service agreements with BHTC Germany and its other overseas group entities for providing testing services in relation to the prototype goods supplied by the overseas group entities to determine that whether the products so tested function in accordance with the requisite standards based on parameters like temperature, environment, durability, etc. A testing report is sent across to the overseas group entities through e-mails the consideration of which is received in convertible foreign exchange.
The issue before the Authority was whether the Applicant is covered under the Integrated Goods and Services Tax Act for the testing services provided to its overseas group entities, being a zero-rated supply. The applicant seeks a ruling to confirm the Place of Supply of testing services provided by it where services are rendered by the applicant to its overseas entities.
The applicant submits that the services of testing of prototypes provided by the applicant to its group companies fall within the provisions of Section 13(2) of the (IGST Act) to mean that the place of supply would be the place of recipient of such services i.e. Germany in the present case. It is further submitted that the services qualify to be “export of services” under Section 2(6) of the IGST Act and hence qualify as export of service.
The Bench constituting of Shri. B.V. Borhade and Shri. Pankaj Kumar while examining the provisions of Section 16 concerning ‘zero rated supply’ which makes a reference to definition of ‘export of services’ under Section 2(6)(iii) which consequently refers to Section 13 to determine place of supply where location of supplier is outside India. It held that the present situation clearly fits within the provisions of Section 13(3)(a) i.e. the services are physically made available by the service receiver to the service provider and therefore liable to tax.
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