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20 Aug 2018

Scope of Intermediary Services

Recently, in the case of Global Reach Education Services Private Limited, In re 2018-TIOL-02-AAAR-GST, Authority for Advance Rulings, Kolkata held that promoting courses of the foreign university and finding suitable prospective students to undertake the courses, where commission is paid based on performance in recruiting students, as a percentage of the tuition fee collected from the students enrolled through the taxpayer falls under ‘intermediary services’ and is not export of services under Section 13 of IGST Act.

In the given case, the appellant is primarily engaged in promoting the courses of Foreign Universities in India among prospective students. The appellant is facilitating recruitment / enrolment of students to foreign Universities. The Applicant is paid consideration in the form of Commission, based on performance in recruiting students, as a percentage of the tuition fee collected from the students enrolled through the Applicant.

The appellant filed an application for advance ruling for deciding the determination of liability to pay GST on their output services. It was decided by the ARA vide order 2018-TIOL-06-AAR-GST that this is an ‘intermediary service’. Being an intermediary service provider, the place of the supply shall be determined under section 13(8)(b) of the IGST Act and not under section 13(2) of the IGST Act i.e.  the place of supply is the territory of India. As the condition under section 2(6)(iii) of the IGST Act is not satisfied, the Applicant's service to the foreign universities does not qualify as "Export of Services", and is, therefore, taxable under the GST Act. The appellant therefore filed an appeal against the said order.

The appellant quoted the judgment in case of GoDaddy India Web Services Ltd. 2016-TIOL-08-ARA-ST, wherein it was held that the definition of 'intermediary' as envisaged under rule 2(f) of the POPS Rules, 2012 does not include a person who provides the main service on his own account and the applicant GoDaddy India was providing "business support services" to GoDaddy US. They also referred to decision in Sunrise Immigration Consultants Pvt. Ltd. - 2018-TIOL-1849-CESTAT-CHD in support.

The Hon’ble AAR distinguished the case law quoted by the appellant and observed that the appellant in the instant case was free to refer students to Australian Catholic University (ACU) or any other University of its choice. Further, the fee paid to the appellant was not tied to the promotional activities or expenses incurred to promote Courses of ACU but as a percentage of fees paid by the students who got admitted to ACU. In other words, no consideration was paid in spite of incurring expenses by the appellants for promoting activities of ACU, if no student joined ACU.

Thus, concurring with the decision of the Authority for Advance Ruling that the services of the Appellant are not 'Export of Services' under the GST Act and are exigible to tax, the appeal was dismissed by AAR.