In a recent advance ruling sought by Tandus Flooring India Pvt Ltd (Tandus India) pertaining to service tax, the Authority for Advance Rulings–Central Excise, Customs and Service Tax (AAR) has held that the marketing and sales support in India rendered by Tandus India to Tandus group companies situated abroad amounts to export of services.
The ruling is being seen as an important one as it was based on deliberations on the place of provision (PoP) of services rules 2012 and service tax rules (STR) governing export of services as introduced in the negative list regime.
Tandus group is a leading manufacturer of floor covering material and has worldwide sales operations. Tandus India is a wholly-owned subsidiary of Tandus Flooring Asia Pte Ltd based out of Singapore. Tandus Flooring US LLC (Tandus US) and Tandus Flooring (Suzhou) Co Ltd (Tandus China) are group companies. Tandus India has been providing marketing and support services in relation to carpets and floor covering material proposed to be sold in India by Tandus US and Tandus China.
Tandus India would promote, market and demonstrate the products to customers in India, manage the dealers’ accounts and projects, assist the customers to select the appropriate product and submit various marketing research reports to the Tandus US and Tandus China. However, the ultimate sale transactions were carried by Tandus US and Tandus China directly or through their own dealers in India.
Keeping in mind the relatively nascent understanding of new provisions under the negative tax regime, Tandus India had approached AAR to determine the place of provision of marketing and sales support services provided to Tandus US and Tandus China, and if the place of provision happens to be outside the taxable territory, whether the same would qualify as export of services.
The services of the nature provided by Tandus India can be confused with the ‘intermediary services’. The term ‘intermediary’ as defined under PoPs means an agent or any other person who arranges or facilitates a provision of a main service between two or more persons but does not include a person who provides the main service on his own account. The place of provision in case of intermediary services is governed by the rule 9 of the PoPs which is the location of service provider. However, Tandus India demonstrated its services to be a main service, and as such clearly covered by rule 3 of the PoPs where