Taxability of Referral Services to Foreign Universities :Telangana GST AAR
by Reina Legal | May 13, 2024
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Taxability of Referral Services to Foreign Universities: Telangana GST AAR
- The Applicant entered into agreements with the foreign universities to provide referral services for the aspirants who wishes to apply and study abroad with the said universities
- The Applicant prepares the case of the aspiring student and refers it to the relevant university as per the requirements of the student. The Applicant is not bound to refer student to a university in particular but refers them based on their merits and suitability to a particular university
- The universities retain full and complete discretion over acceptance of a student applicant for enrolment. The Applicant has no authority to accept an applicant or guarantee a student applicant’s acceptance by any university
- The Applicant receives only a referral income or commission from foreign universities basis the number of successful admissions out of the referrals made by it
- Thus, the Applicant operates as an independent contractor, providing marketing/ recruitment/ referral services to the foreign universities.
| Issues before the Authority for Advance Ruling (‘the AAR’) |
- Whether the activity of providing ‘Marketing/ Recruitment/ Referral Consultant’ services by the Applicant to foreign universities on principal-to-principal basis would qualify as an ‘intermediary’ under Section 2(13) of the Integrated Goods and Services Tax Act, 2017 (‘the IGST Act’)?
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- A person would qualify as an ‘intermediary’ only if he facilitates the supply of service between two or more person. However, a person providing the service on principal-to-principal basis without facilitating a service between two persons will not be termed as an ‘intermediary’
- Concept of ‘intermediary’ under the GST legislation is same as it was under the Service tax regime. Therefore, the jurisprudence in Service tax legislation should be applied to interpret the concept of ‘intermediary’ under the GST legislation
- In various instances before the CESTAT during the service tax regime, the issue of an ‘intermediary’ with respect to marketing and referral services by Indian Service Providers to foreign colleges was raised, wherein the Tribunal has categorically held that the said Indian Service Providers are not to be considered as an ‘intermediary’
- The person who is contractually responsible for making payment for a supply shall be considered as recipient of such supply. In the present case, as per the terms of the agreement, the consideration for the services provided by the Applicant is payable by foreign university. On the contrary, there is no underlying agreement between the Applicant and students for receiving services against any consideration
- The terms of the agreement clarifies that the Applicant does not represent itself as an agent, broker, or similar person to engage into a contract, supply, or transaction with third party, such as prospective students, on behalf of the foreign universities. The agreement reflects that the Applicant is under a principal-to-principal contractual relationship with the foreign universities, whereby it is providing its independent and main service of marketing and referral
- The Applicant can be considered to be performing outsourced service of marketing and referral by foreign colleges and university, which is squarely outside the ambit of ‘intermediary’
- Accordingly, the Applicant does not meet the essential conditions required to qualify as an ‘intermediary’ under Section 2(13). These conditions include the presence of three parties and the facilitator’s provision of a main service along with ancillary services while acting as an agent or broker, which are not being fulfilled in the Applicant’s case
- As the Applicant’s activity constitutes an independent service of ‘Marketing/ Recruitment/ Referral Consultant’, it falls under Section 13(2) of the IGST Act for determining its place of supply. Consequently, the place of supply for the Applicant’s services would be the location of the recipient i.e., location of the foreign universities
- Basis the above discussions, the AAR held that:
- the Applicant should not be considered as an ‘intermediary’ for the purpose of Section 2(13) of the IGST Act
- The activity of the Applicant should qualify as ‘export of service’ in terms of Section 2(6) of the IGST Act provided the payments are received in convertible foreign exchange.
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