In this article, we will analyse a scenario where import of service will remain out of the purview of IGST.
Facts: An Indian construction company, X & Co having principal place of business in Mumbai and registered under GST has got a contract from the Govt of Maldives for construction of residential complex at Maldives.
X & Co, has engaged a Dubai based Architecture M/s M &Co, for preparation of design for construction of the said residential property at Maldives.
M/s M & Co, has raised an invoice of USD 20K on X & Co for preparation of design for construction of residential complex, at Maldives.
Issue: Whether the Mumbai based Construction Company, X & Co is liable to pay IGST under reverse charge mechanism, on remittance of USD 20K to M/s M& Co, a Dubai based architecture as professional fee for preparation of design for construction of residential complex at Maldives?
M/s M & Co, a Dubai based service provider is providing architectural service to X & Co, a Mumbai based Construction Company for its proposed real estate project in Maldives.
So location of service provider, M/s M &Co. is outside India. X & Co., an Indian construction is the recipient of the service.
Since service provider is located outside India and service recipient is located in India, sec 13(1) of IGST Act 2017, needs to be invoked to ascertain the place of supply.
The service provided by M/s M & Co. is directly in relation to construction of immovable property and considering the nature of the aforesaid service the likely provision to determine the place of supply is sec 13(4) of IGST Act, 2017.
13(4) of IGST Act
“ The place of supply of services supplied directly in relation to an immovable property, ………………… including that of architectures …….shall be the place where the immovable property is located or intended to be located.”
The service is in the nature of architecture and the same is in relation to an immovable property located in Maldives. Therefore the place of supply will be Maldives.
So location of supplier of service is Dubai and place of supply of service is Maldives and location of recipient of service is India.
In the aforesaid back ground we need to analyse whether the aforesaid transaction will qualify the test of import of service as specified u/s 2(11) of IGST Act 2017.
Sec 2(11) of IGST Act 2017
“Import of service 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”
The conditions prescribed under the aforesaid sections are cumulative in nature and non-fulfilment of any one of the conditions will dis qualify the transaction to become import.
Let us map the aforesaid conditions with the transactions undertaken by X & Co, with M/s M & Co.
Condition -1 : The supplier of service is located outside India- Satisfied (M/s M& Co is located in Dubai)
Condition-2: Recipient of service is located in India- Satisfied (X & Co is located in India)
Condition-3: The place of supply of service is in India- Not satisfied ( Place of supply of service is Maldives as prescribed u/s 13(4) of IGST Act.2017)
Therefore the transaction between X& Co and M/s M& Co will not be considered as import under IGST Act 2017.
Since the aforesaid service will not qualify as import of service, the nature of supply needs to be analysed, which could be either intra state supply or interstate supply.
Sec 8(2) of IGST Act defines intra state supply.
“………………………….where the location of supplier and the place of supply of services are in the same State shall be treated as intra-State supply”
M/s M & Co is in Dubai and place of supply is Maldives so they are in different countries and hence will not qualify as intra state supply.
Sec 7(4) of IGST Act defines supply of service in the course of interstate- trade or commerce
“Supply of service imported into the territory of India shall be treated to be a supply of service in the course of interstate trade or commerce.” (Emphasis supplied)
To qualify import of service into territory of India, sec 2(11) of IGST Act needs to be satisfied but as discussed above the transaction between X & Co and M/s M& Co. fails to qualify the test of import.
Since the said transaction is not import, sec 7(4) of IGST Act cannot be invoked to cover the aforesaid activity.
Therefore the transaction is neither import nor interstate supply nor intra state supply and place supply is out of the taxable territory. Hence the said transaction will be out of the purview of GST and the remittance of fee by X & Co to M/s M& Co will not be subject to IGST under reverse charge mechanism.
Do you think CBDT should extend Tax Audit Report and relevant ITR Due Date? Please Comment, Vote, Retweet and Like.— Tax Guru (@taxguru_in) September 18, 2018