The Gujarat Authority of Advance Ruling (AAR), consisting of members Atul Mehta and Arun Richard, has ruled that GST is not leviable on services by security managers located outside India for subscription to secured notes placed in the USA.
The applicant, M/s. Adani Green Energy Ltd. (AGEL), submitted that it requires substantial working capital to undertake its supplies. The applicant has raised USD 750 million by issuing Senior Secured Notes (Notes) carrying an interest coupon of 4.375% due for redemption in 2024 in terms of a Subscription Agreement entered into with Axis Bank Limited, Singapore and others to act as Managers. All the managers do not have any establishments in India and undertake business from their establishments outside India.
AGEL submitted that the manager arranges and facilitates coordination between the AGEL that issues the notes and the (potential) investors subscribing to the notes. The manager solicits and arranges investors to subscribe to notes issued by AEG. The manager initiates the process of book building by informing potential investors about the coupon rate at which AGEL intends to offer the notes.
The AGEL submitted that the managers technically purchase the securities and resell them to the investors. Accordingly, if one does not go by the substance of the transaction, then it is a transaction for the purchase and sale of securities, which is outside the scope of GST. Consequently, the amount designated as the fee, paid to the Managers, is nothing but a discount offered to the Managers on the face value of the security, for their agreeing to initially purchase the Notes, on which no GST is leviable.
The applicant has sought an advance ruling on the issue of whether the applicant is liable to discharge GST under the reverse charge mechanism in respect of the services of arranging for subscription supplied to the applicant by the managers located in the non-taxable territory.
The AAR observed that AGEL issues notes which are subscribed to by investors. 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 is supplying an ancillary supply by arranging the main supply between the Principals.
The AAR noted that an intermediary includes a person who arranges or facilitates the supply of securities between two or more persons. The manager has the characteristics of an agent and a broker, performing a subsidiary role in arranging the main supply. The manager's role is supportive of the main supply. The Manager satisfies the definition of an intermediary as per the IGST Act.
"We agree with AGEL that the place of supply in the present case is determined as per Section 13(8)(b) IGST Act, which is the location of the Manager. Both the manager and the place of supply are in non-taxable territory, subject transaction is not an import of service as the place of supply is outside India," the AAR said.
Applicant's Name: M/s. Adani Green Energy Ltd