Supply of services by Indian branch of foreign company to the Indian recipient is not import of service under IGST Act : Says AAR

Therefore recipient is not liable to pay GST under reverse charge. The local branch of foreign company should be trearted as supplier located in India and made liable to pay GST on the supply.    

M/S. IZ-KARTEX NAMED AFTER PG KOROBKOV LTD.
(AAR, West Bengal)

Submission by Applicant

The applicant is the local branch of a Russian business entity by the same name (hereinafter ‘Foreign Company’), which entered into a Maintenance and Repair Contract (hereinafter called “MARC”) with Bharat Coking Coal Ltd (hereinafter “BCCL”) with respect to the machinery and equipment it had supplied.

The applicant submits that the supply of service by the Foreign Company in terms of the MARC is import of service within the meaning of section 2(11) of the IGST Act, 2017. The supplier is located outside India and the recipient BCCL is located in Dhanbad, India. According to section 13(3)(a) of the IGST Act, the place of supply of the service provided in terms of the MARC is the location where the machinery and equipment are used in India. All the conditions of import of service within the meaning of section 2(11) of the IGST Act are, therefore, satisfied.

Being import of service, the tax is payable by the recipient on reverse charge basis in terms of Notification No. 10/2017 – Integrated Tax (Rate) dated 28/06/2017. The Foreign Company is, therefore, not liable to pay tax on the supply of service in terms of the MARC.

Issue under consideration

The applicant wants to know whether the recipient is not liable to pay tax on reverse charge basis in terms of Notification No. 10/2017 – Integrated Tax (Rate) dated 28/06/2017. 

Held by AAR

It is a long-term contract spanning over seventeen years from the date of commissioning of the equipment. The MARC Holder is responsible for supply of the spares, components, and consumables over the entire period. It will depute the officers, support staff and system expert at the site for maintenance and repair of equipment and train the BCCL personnel. BCCL shall provide the MARC Holder access to the machines and repair facilities at all reasonable time. BCCL and the MARC Holder shall jointly sign the Equipment Logbook on daily basis recording the actual working hours per shift, breakdown hours and other details. The MARC Holder is to be paid at an agreed rate for supervision, supply of spares and consumables, and for overheads per working hour of the equipment for 5000 expected annual working hours.

It is evident from the above discussion that the MARC Holder maintains suitable structures in terms of human and technical resources at the sites of BCCL. It ensures supervision of the equipment, supply of spares and consumable and overheads for 5000 annual working hours for seventeen years, indicating sufficient degree of permanence to the human and technical resources employed at the sites. The MARC Holder, therefore, supplies the service at the sites from fixed establishments as defined under section 2(7) of the IGST Act. The location of the supplier should, therefore, be in India in terms of section 2(15) of the IGST Act.

Supply of the MARC Holder to BCCL is not, therefore import of service within the meaning of section 2 (11) of the IGST Act. The MARC Holder should be treated as a supplier located in India triggering clause 9.2.2 of the MARC, and made liable to pay GST, the place of supply being determined in terms of section 12(2)(a) of the IGST Act. The applicant, being the registered branch of the Foreign Company, should be treated as the domestic MARC Holder in terms of clause 9.2.2 of the MARC and be liable to pay tax accordingly.

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