GST applicable on Supply by Indian Branch of Sutherland to Customers located outside India till July 2018: AAR [Read Order]

The Kerala Authority of Advance Ruling (AAR) ruled that the GST applicable on Supply by Indian Branch of Sutherland to customers located outside India till July 2018.

The applicant, Sutherland Mortgage Services Inc. is primarily engaged in the business of providing information technology enabled services such as mortgage orientation and related services. The applicant was established as a branch of SMSI, USA as the mortgage laws of the United States of America prevented its Head Office from outsourcing its work to any other third party.

The applicant is set up as a branch in accordance with Reserve Bank of India general permission under Master Circular dated 01.07.2013 of foreign companies in SEZ to undertake service activities. The applicant has entered into an Inter-Company Agreement with their Head Office SMSI, USA for providing services to the customers located outside India. SMSI, USA requires the following services performed on behalf of its customers who are located outside India; (i) Mortgage Orientation; (ii) Primary Servicing; (iii) Special Servicing; (iv) Cash Management and (v) Analytics and Reporting.

The applicant is providing such services covered by the Agreement dated 22.06.2012. The Agreement is entered only for the purpose of transfer pricing regulation as the branch has no separate legal entity. SMSI, USA has also entered into agreement with customers outside India for providing the services from USA and India branch. SMSI, USA is reimbursing the applicant for the costs incurred to perform the services. The valuation is done as mark cost plus 10% up to comply with the Transfer Pricing Regulation. The applies issues commercial to SMSI, USA their Head Office and therefore services would qualify as export of services, which is considered as Zero-rated supply in terms of section i.e IGST Act, 2017.

The applicant has sought the advance ruling on the issue whether supply of services by India Branch at M/s. Sutherland Mortgage Services Inc. USA to the customers located outside India shall be liable to GST in the light of the Inter Company Agreement with M/s Sutherland Mortgage Services Inc. USA.

The coram of Joint Commissioner of Central Tax, Shiva Prasad and Additional Commissioner of State Tax, Senil A.K.Rajan concluded that the recipient of servce5 of the applicant is SMSI, USA the Head office of the applicant and hence a distinct person in accordance with Explanation I in Section 8 of the IGST Act, 2017. Hence the condition at sub-clause (v) of clause (6) of Section 2 of the IGST Act, 2017 defining export of service that the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8 is not satisfied and accordingly the service provided by the applicant do not constitute export of service as defined in Section 2 (6) of the IGST Act, 2017 and consequently the applicant is liable to pay IGST.

The AAR ruled that the supply of services by the applicant as per the Inter-Company Agreement with M/s Sutherland Mortgage Services mc, USA is liable to GST for the period from July 1, 2017 to July 26, 2018 and thereafter is exempted from GST as per entry at Sl No. 1OF of Notification No. 09/2017 – Integrated Tax (Rate) dated June 28, 20 17 as inserted by Notification No. 15/2018 – Integrated Tax (Rate) dated July 26, 2018.

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