Impact of Notification No. 03/2021- Integrated Tax dated 2nd June, 2021 on the business
As we are aware that, in terms of Notification no.10/2017-IT(R) dated 28.06.2017 in case of import of service, the service recipient is liable to pay GST under Reverse Charge Mechanism.
Section 2(11) of the IGST Act, 2017 define Import of Service as:
a) The location of the Supplier is outside India
b) The location of the recipient is in India
c) The place of supply is in India
Section 2(6) of IGST Act, 2017, “export of services” means the supply of any service when, ––
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India; and
(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with explanation 1 in section 8;
The GST Council in its 43rd meeting, in order to prevent double taxation or non-taxation of the supply of a service, or for the uniform application of rules, recommended to change the place of supply of the impugned MRO services, to give effect to this decision, the Government has issued Notification No. 03/2021-Integrated Tax dated 02-06-2021.
By virtue of the captioned Notification, Notification No.4/2019- Integrated Tax, dated 30th September, 2019, has been amended to state that the place of supply of maintenance, repair or overhaul service in respect of ships and other vessels, their engines and other components or parts supplied to a person for use in the course or furtherance of business shall be the location of the recipient of Service
Further, vide Notification No. 02/2021 – Integrated Tax (Rate) dated 2nd June, 2021, the GST Rate on MRO Services [Maintenance, repair, or overhaul services] in respect of ships and other vessels, their engines and other components or part has been reduced to 5%.
This change would make (a) Services provided by Indian MRO to Foreign Shipping Company as export of services; and (b) Services provided by Foreign MRO to Indian shipping company leviable to GST under Reverse Charge Mechanism payable by the Indian shipping company.
Earlier, before the notification dated 02-06-2021 if the company has received MRO service from foreign supplier, then the place of supply of MRO service falls under section 13(3)(a) of the IGST Act which states supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services shall be the location where the services are actually performed.
As a result, the place of supply is outside India and thus the above service is not an import of service. Hence, no RCM liability arises in the hands of the service receiver.
However, with the captioned amendment, if the company has received MRO service from foreign supplier, GST has to be paid on the same at 5% under Reverse Charge Mechanism, irrespective of the location of the said MRO service as the service come under the ambit of Import of service.