The Advance Ruling is not in our favour and the outcome of appeal too has upheld the ruling. This will have an impact on all those delivering service to overseas entities, not just in our industry.
Global Reach believes in leading through setting standards and taking up causes that benefits the industry. While the industry debated whether GST will be applicable and while industry peak body (AAERI) lobbied with the Government of India for exemption under “education services” category (under guidance of Deloitte Haskins and Sells LLP) , Global Reach went ahead with filing for an advance ruling on this matter.
Copies of our agreement with foreign Universities were examined by the department. Global Reach arguments were well drafted by the PricewaterhouseCoopers Private Limited and there could not have been a more formed presentation before the authorities. The line taken by Global Reach was that the services delivered by Global Reach should be deemed as “export of services” and thus at zero GST. The clients/recipients are overseas and the earning in India is in forex.
However, the arguments and judgments are being shared here. The outcome is before us and GST is applicable at 18%. If the clients don’t pay, as they are overseas entities, Global Reach will have to absorb the GST. Whilst we can clearly see the unfairness, this is how things are.
I am aware that the application for advance ruling, the judgment and also the subsequent judgment is already in public domain and several commentators have put out their opinion, I am sharing them here too. This ruling will impact all those who are into “exporting their service” and are likely to be treated as “intermediaries”.
- Global Reach Advance ruling application: Advance Ruling Application
- Judgment received on the Advance ruling: Advance_Ruling_Global_Reach (PwC March 2018)
- Global Reach Appeal filed: APPEAL
- Judgement received from the appellate bench: 2018-TIOL-02-AAAR-GST- Global reach AAR
Conclusion: The services rendered to foreign clients by Global Reach will attract the GST and thus it will be added to the invoice raised on the Universities overseas. It can also be concluded the same for all those delivering service to foreign entities.
The one good aspect of the judgment is the distinction made between the definition of “intermediary” in the pre-GST period and now. This will help settle any pending “service tax” cases of the pre-GST era.
Definition of “intermediary” under Section 2(13) of IGST Act, is not the same as that under Rule 2(f) of the POPS Rules,2012, in as much as under GST an “Intermediary” is an entity who arranges/facilitates for the supply of services of another entity, which may include ancilliary services, whereas under POPS Rules, 2012, the intermediary arranges/facilitates for provisions of services of the main service provider.
This has been detailed in several online articles such as the one on thislink.
What can still help the “education agencies” working for “foreign universities”?
AAERI (www.aaeri.in) filed plea seeking applicability of exemption on “education services” to “recognised Universities” to be extended to “Universities/Institutions overseas”. The current exemption is being interpreted by the department as limited to services to Indian Universities even when the regulations doesn’t specify specifically that it may be such. (AAERI plea: Ackn_Shri Arun Jaitley_MOF )
It seems that Ministry of Finance would need clarification from Ministry of HRD if the foreign Universities be deemed similarly to the treatment of Indian universities. (AAERI request to Ministry of HRD: Ackn_Shri Prakash Javadekar_HRDM )
However the reply directed AAERI to approach Ministry of Finance. This is bizarre since AAERI has already been to Ministry of Finance. It is clear that the matter has to be decided between Ministry of Finance and Ministry of HRD and requires only a compassionate hearing. AAERI efforts are on and we remain hopeful. (Reply from Ministry of HRD: Scanned doc )
Note:
- The above shared attachments are already in public domain and the judgments can be downloaded also from the government website. Australian Universities have also been provided the above through Global Reach and/or AAERI. I have only attempted to bring all the loose ends of the argument together at one place.
- The only remaining hope at this stage is that the efforts made by AAERI will lead to a compassionate assessment by the two concerned Ministries. I want to specifically complement and thank my AAERI colleagues and in particular the AAERI President Mr Rahul Gandhi, AAERI Vice President Mr Bubbly Johar and AAERI General Secretary Mr Rupesh Patel for their tireless efforts over the last several months. Actually, the full executive needs to be complimented for backing and supporting the effort. GST has been the biggest issue in India affecting the education representation business over the last one year. What AAERI has taken up is remarkable and the benefits of the effort will not only extend to stakeholders in the Australian Education space but to all involved with International Education Industry across countries. It is important to point out that last year several stakeholders took up the issue and this included Universities Australia which engaged their consultants in Australia. However, only the AAERI effort (engaging Deloitte) and GR effort (engaging PwC) have resulted in some direction for the industry.
- I also want to thank my Global Reach team for working closely with PwC team in making an excellent case. It may not have had the desired result but it has brought about clarity. The argument around services being export will have an impact across all industries in India and the judgment will be referred. This is exactly what an industry leader like Global Reach is expected to do. We are still deciding on the next step before us and if we will take it.
At this stage (and in foreseeable future), GST will remain applicable.
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