No Question of RCM when GST is not applicable when Place of Supply is non-taxable territory: AAR

M/s. Adani Green Energy Ltd. (AGEL) submitted that it requires substantial working capital to undertake its supplies and for this purpose, it has raised USD 750 million by issuing Senior Secured Notes carrying an interest coupon of 4.375% due for redemption in 2024 in terms of Subscription Agreement entered into with Axis Bank Limited, Singapore and others for acting as Managers. All the Managers do not have any establishment in India and have been incorporated outside India and undertake business from their establishment outside India which is shown in the Subscription Agreement.

The authority was asked to decide whether the applicant is liable to discharge GST under the reverse charge mechanism on the services of arranging for subscriptions supplied to the applicant, by the managers located in the non-taxable territory.

The issue to be decided was whether the Manager is an intermediary or not, it was found that AGEL issues Notes which are subscribed by Investors, and the Senior Secondary Notes issued by AGEL are in the nature of securities. The main supply of Notes is between AGEL and investors both acting as Principals and the Manager supplies an ancillary supply by arranging the main supply between the principals.

The authority noted that an intermediary includes a person who arranges/ facilitates the supply of securities between two or more persons. In the instant case, the Manager has the characteristics of an agent and a broker, performing a subsidiary role in arranging the said main supply.

We note that Manager’s role is supportive of the main supply and satisfies the definition of Intermediary as per the IGST Act.

The authority agreed with AGEL that the place of supply in the present case is the location of the Manager as determined as per Section 13(8)(b) IGST Act. Both the Manager and Place of Supply both being in non-taxable territory, the subject transaction is not an import of service as the place of supply is outside India. GST is not leviable on the subject transactions under RCM by AGEL.