Service Recipient eligible to obtain Advance Ruling only when GST is paid under Reverse Charge Mechanism: AAR

Facts: Telstra Telecommunication (P) Ltd (“The Applicant”) is engaged in providing internet connectivity services. As a part of the internet connectivity services, the Applicant leased customer premises equipment’s like routers, modems etc. In addition, the Applicant would provide various Point of Presence (PoP) across different states in India. To provide last mile connectivity services the Applicant contracted with third-party vendors such as Tata Teleservices, Bharti Airtel etc. for providing leased circuit services across the country.

Applicant’s Interpretation of Law: The Applicant took a view that the place of supply in case of internet connectivity service would be determined based on address of the recipient. In case address of recipient is of a State other than location of the supplier, it would be considered as inter-state supply, if it is in the same State then it will be considered as intra-state supply. In light of this, Applicant approached the Maharashtra Advance Ruling Authority for determining tax liability on receipt of last mile connectivity services.

Subsequently, the Applicant also sought advance ruling in relation to admissibility of input tax credit paid or deemed to have been paid. To determine taxability, the AAR decided to understand whether the activity undertaken by the Applicant was covered under specific questions as per Section 97 (2). Issue Involved: Whether on perusal of transaction proposed to be undertaken, if it was evident that applicant was not supplier of services but was recipient of services from supplier, he would not be entitled to seek advance ruling?

Held: The Hon’ble AAR of MAHARASHTRA vide its Order No. GST/ARA/82/2018-19/B-12 dated January 23, 2019 concluded that the Applicant was not supplier of services instead he was a recipient of services. In addition, being a recipient of services, he was not paying tax under reverse charge mechanism on the transaction under study. On reading of Section 95 wherein the term “Applicant” is defined at sub-section (c) means any person registered or desirous of obtaining registration under this Act.

The Hon’ble AAR gave a finding that the person filing application for advance ruling was recipient of services from supplier who leased circuit facility. On this aspect was concluded that the person filing application for advance ruling was not an “Applicant”, as he did not qualify the conditions of an “Applicant” as mentioned under Section 95. For obtaining advance ruling unless the recipient was paying the taxes under reverse charge mechanism on the transaction of receipt of supply resulting in him being registered under the Act he cannot seek advance ruling under Section 97 of the Act.