Summary:The article explains that GST under the Reverse Charge Mechanism (RCM) does not apply to every payment made to a foreign entity and depends on whether the transaction qualifies as an import of services under Section 2(11) of the IGST Act, 2017, requiring the supplier to be outside India, the recipient to be in India, and the place of supply to be in India. It outlines the relevant provisions of Sections 5(1), 5(3), 7(4) and the place of supply rules under Section 13, including specific rules for immovable property, events, passenger transport, OIDAR services and other categories. The article discusses the GST implications of employee secondment, overseas hotel accommodation, participation in exhibitions outside India, trademark registration fees, and ocean freight under CIF and FOB imports. It also notes that secondment arrangements are fact-specific, overseas accommodation and exhibitions outside India generally do not attract RCM where the place of supply is outside India, and distinguishes between statutory trademark fees and professional services. The article further discusses Notification No. 13/2023-Integrated Tax (Rate) dated 26.09.2023, tracking foreign payments through Forms 145 and 146 and Section 393(2) of the Income-tax Act, and concludes that businesses should examine foreign payments, agreements and invoices to determine whether RCM applies.
Introduction
Cross-border transactions have become common for Indian businesses, resulting in frequent payments to overseas suppliers for various services. However, every payment made to a foreign entity does not automatically attract GST under Reverse Charge Mechanism (RCM). The taxability depends on whether the transaction qualifies as an Import of Services under GST, particularly based on the location of the supplier, recipient and the place of supply under the IGST Act, 2017. This article explains the key provisions relating to GST on import of services, RCM, place of supply rules and their application to common transactions such as employee secondment, overseas accommodation, exhibitions, trademark registration and ocean freight.
- Statutory Framework Governing Import of Services
- Place of Supply Rules for Import of Services
- Analysis of GST Liability on Import of Services
- Transactions Covered as Import of Services
- Specific Services and Practical Scenarios
- 1. GST on Secondment of Employees
- 2. GST on Services Relating to Immovable Property
- 3. GST on Exhibition or Event Services Outside India
- 4. GST on Payment of Trademark Registration Fees Abroad
- 5. GST on Ocean Freight in Import Transactions
- How to track foreign payments for import of services from books of accounts
- Conclusion
Statutory Framework Governing Import of Services
Legal Definition:
Section 5(1) of the IGST Act 2017 provides that:
“Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both…”
Thus, IGST is levied only on inter-State supplies.
Section 5(3) of the IGST Act 2017 provides:
“The Government may, on the recommendations of the Council, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient…”
Notice the words “categories of supply”. It does not create a separate levy. It merely shifts the liability to pay tax on a supply that is otherwise taxable under Section 5(1).
Section 7(4) of the IGST Act 2017 provides:
“Supply of services imported into the territory of India shall be treated to be a supply of services in the course of inter-State trade or commerce.”
Therefore, only import of services becomes an inter-State supply by this deeming provision.
As per section 2(11) of IGST Act, 2017, ‘‘import of services” means
“The supply of any service, where––
(i) the supplier of service is located outside India;
(ii) the recipient of service is located in India; and
(iii) the place of supply of service is in India;”
Notification 10/2017 Integrated GST (IGST) Rate provides Categories of services on which integrated tax will be payable under reverse charge mechanism (RCM) which provides as follows:
| Sl. No. | Category of Supply of Services | Supplier of service | Recipient of Service |
| (1) | (2) | (3) | (4) |
| 1 | Any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient. | Any person located in a non-taxable territory | Any person located in the taxable territory other than non-taxable online recipient. |
Place of Supply Rules for Import of Services
Now let’s understand the provisions of place of supply rules.
Section 13 provides place of supply of services where location of supplier or location of recipient is outside India.
As per Section (13)(2) The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services.
The Place of supply for sub-sections (3) to (13) are as follows:
| Section | Nature of Service | Place of Supply (POS) | Key Points / Exceptions |
| 13(3)(a) | Services in respect of goods requiring the goods to be physically made available to the supplier | Place where services are actually performed | If provided remotely by electronic means, POS is where the goods are located. Exception: Goods temporarily imported into India for repairs/treatment and exported without use in India (other than for repair/treatment). |
| 13(3)(b) | Services requiring physical presence of the recipient | Place where services are actually performed | Applies where the recipient (or representative) must be physically present with the supplier. |
| 13(4) | Services directly related to immovable property | Location of the immovable property | Includes architects, interior decorators, estate agents, accommodation, rights to use property, construction and coordination services. |
| 13(5) | Admission to or organization of cultural, artistic, sporting, scientific, educational, entertainment events, conferences, fairs, exhibitions, etc. | Place where the event is actually held | Covers ancillary services relating to admission or organization. |
| 13(6) | Services under Sections 13(3), 13(4) or 13(5) supplied at more than one location (including taxable territory) | Location in the taxable territory | Applicable where services are performed across multiple locations including India. |
| 13(7) | Services under Sections 13(3), 13(4) or 13(5) supplied in more than one State/UT | Each respective State/UT | Value to be apportioned based on contract or, if absent, on the prescribed basis. |
| 13(8)(a) | Banking, financial institution or NBFC services to account holders | Location of the supplier | Applies only to services provided to account holders. |
| 13(8)(b) | (Omitted) | — | Provision omitted by amendment. |
| 13(8)(c) | Hiring of means of transport (excluding aircraft and vessels) for up to one month | Location of the supplier | Covers short-term hiring of transport such as cars, yachts, etc. |
| 13(9) | (Omitted) | — | Provision omitted by amendment. |
| 13(10) | Passenger transportation services | Place where the passenger embarks on the conveyance for a continuous journey | Embarkation point determines POS. |
| 13(11) | Services provided on board a passenger conveyance | First scheduled point of departure of the conveyance | Includes food, beverages, entertainment and similar onboard services. |
| 13(12) | Online Information and Database Access or Retrieval (OIDAR) services | Location of the recipient | Recipient deemed located in taxable territory if any two prescribed non-contradictory conditions are satisfied (IP address, billing address, SIM country code, bank, card, etc.). |
| 13(13) | Government’s power to notify special POS rules | Place of effective use and enjoyment (if notified) | Intended to prevent double taxation, non-taxation, or ensure uniform application of POS rules. |
Analysis of GST Liability on Import of Services
Analysis: –
Accordingly, services supplied by a person located in a non-taxable territory to a person located in the taxable territory (other than a non-taxable online recipient) are liable to GST under reverse charge only where the place of supply is in India, as only then do such services qualify as ‘import of services’ under Section 2(11) read with Sections 5(1), 5(3) and 7(4) of the IGST Act.
Transactions Covered as Import of Services
Taxability of Import of Service under GST includes the following: –
1. Import of service for a consideration whether or not in the course or furtherance of business [Section 7]
2. Import of service without consideration by a taxable person from related person or from any of his establishment outside India, in the course or furtherance of business [ Schedule I to CGST Act]
Specific Services and Practical Scenarios
1. GST on Secondment of Employees
Secondment of employees can be referred to as an arrangement wherein a group company located outside India sends its employees (“seconded employees”) to another group company located in India for a temporary period.
In such a situation, the salary and other entitlements of the seconded employees are paid by the foreign company, and such costs are reimbursed to the foreign company by the Indian counterpart.
In this case GST is leviable on the supply of services between two related parties even if such a supply is made without consideration.
However, it is pertinent to note that GST is not leviable for services provided by an employee to an employer. Accordingly, if the foreign person is coming to India and employed in Indian company and being paid salary then it will not amount to Import of Service and RCM is not applicable.
It is pertinent to note that Secondment is a highly fact-specific issue, particularly after the decision in C.C.,C.E. & S.T.-Bangalore Vs Northern Operating Systems Pvt Ltd. (Supreme Court). The actual arrangement, control over employees, contractual terms, salary/reimbursement mechanism and nature of the relationship need examination.
2. GST on Services Relating to Immovable Property
If any person from India goes on business trip outside India and takes accommodation services towards stay in hotel then as per provisions of section 13(4) mentioned above the place of supply shall be the location of immovable property and Hence IGST is not required to be discharged under RCM.
3. GST on Exhibition or Event Services Outside India
M/s ABC private limited in vehicle manufacturing company and plans to display its vehicles in exhibition in Italy. As per section 13(5) of IGST Act the place of supply will be location where the event is held i.e. Italy and Hence IGST is not required to be discharged under RCM.
4. GST on Payment of Trademark Registration Fees Abroad
If it is merely a statutory fee imposed by the foreign government/authority for registration of the trademark, there is a strong basis to contend that it is not consideration for a supply of service and therefore RCM should not arise merely because the payment is made outside India.
However, if paying a foreign trademark consultant/attorney/agent for services such as:
- filing the trademark application;
- handling registration;
- responding to objections;
- representing before the foreign trademark authority;
- providing legal/professional assistance,
then this is much more clearly a service received from a person located outside India, and RCM applicability will arise.
5. GST on Ocean Freight in Import Transactions
CIF import — No RCM on ocean freight
Where goods are imported on CIF basis, the foreign exporter arranges and pays the ocean freight to the foreign shipping line.
The Supreme Court in Union of India v. Mohit Minerals Pvt. Ltd., held that IGST cannot be separately levied under RCM on ocean freight in a CIF import. The ocean freight forms part of the composite supply of imported goods, on which IGST is already paid at the time of import,
FOB import — RCM can apply
If the Indian importer purchases the goods on FOB basis and separately engages/pays a foreign shipping line for transportation from outside India to the Indian customs station, this is different from the Mohit Minerals situation.
Here, the Indian importer is actually procuring the transportation service from the foreign shipping line. Accordingly, the import of service provisions and RCM need to be examined.
Further vide Notification No. 13/2023- Integrated Tax (Rate) dated 26-09-2023 w.e.f. 01-10-2023 entry 10 of Notification 10/2017 Integrated GST (IGST) is also removed.
How to track foreign payments for import of services from books of accounts
As per the Income-tax law, the taxpayer is required to file Form 145 and Form 146 (Form 15CA and Form 15CB under the erstwhile law) for payments towards services. Further, TDS is required to be deducted under Section 393(2) of the Income-tax Act (corresponding to the erstwhile Section 195 of the Income-tax Act, 1961) for payments made to non-residents or foreign companies, as applicable.
These details are crucial for tracking payments towards import of services from the books of accounts. However, this mechanism may primarily track payments made through Authorised Dealer (AD) banks. There may be certain instances where the company makes payments through credit cards, in which case the requirement to file Form 145 and Form 146 may not arise. Such transactions therefore need to be tracked separately to ensure that all payments towards import of services are appropriately identified.
Conclusion
The applicability of GST under RCM on import of services depends primarily on the nature of the service and the applicable place of supply provisions. Therefore, merely making a payment to a foreign entity does not mean that GST is payable in India. Businesses should review their foreign payments, underlying agreements and invoices to determine whether the transaction qualifies as an Import of Services under GST and ensure appropriate RCM compliance.
