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The Applicant, a Russian entity, had entered into a Maintenance and Repair Contract (‘MARC’) with Bharat Coking Coal Limited (‘BCCL’), an Indian entity. As per the terms of the agreement, the foreign supplier was be responsible for taxes and duties in BCCL’s country during execution of the contract. The services were actually rendered by appointing a sub-contractor to execute a part of the obligations under MARC. The Applicant had specifically deployed its supervising and technical employees at the site of BCCL, whose salaries were also borne by the Applicant. On account of certain problems in the payment channel, the Applicant had opened a branch in India and registered under the CGST Act. According to the Appellant, the recipient of services, i.e., BCCL was liable to pay IGST on the imported services under reverse charge mechanism.
In view of the afore-stated background, the Appellant had sought an advance ruling to specify the person liable to pay tax and whether it is justified by BCCL to deduct GST from payments made to foreign company. The WB AAR had observed that deputation of human and technical resources at the site of BCCL constitutes as 'fixed establishment' and therefore concluded that the location of the 'supplier' in the present case was in India. Therefore, it had been that held that the supply of service to BCCL was not import of service. The recipient was not liable to pay GST on reverse charge basis. The Applicant, being the domestic MARC holder was liable to pay the tax as applicable. Aggrieved, the Applicant had preferred an Appeal against the order of the AAR.
The WB AAAR observed that the AAR had not considered various terms of the agreement which inter alia state that the entire control of the activities would rest with the foreign entity, which had entered into an agreement with BCCL. The AAR had further observed that the service is ensured from the Applicant’s domestic entity for 17 years of the contract. However, it has not taken into consideration the fact that the Applicant is providing service to BCCL since 2015, whereas the domestic entity came into existence in 2018 only. The AAAR had further observed that the registered place of business of the Applicant cannot be termed as 'fixed establishment'. The AAR had not adduced any finding to draw conclusion that the Applicant as registered in India maintains suitable structures in terms of human and technical resources to provide the service for which the MARC has been entered into between the parties Accordingly, it was held by the AAAR that the ruling of the AAR does not hold good.
It was further observed that in terms of Section 2(11) of the IGST Act, import of service contains the following three elements:
The AAAR noted that the Applicant, being a foreign entity had been raising invoices upon BCCL and therefore the conditions of import as envisaged herein-above were being fulfilled. Accordingly, the AAAR modified the AAR order to the extent the supply of services by the Applicant to BCCL qualified as import and GST on such services is payable under reverse charge mechanism in terms of Notification No. 10/2017 – Integrated Tax (Rate) dated 28 June 2017.
IZ Kartex named after p. G. Korobkov Limited [Appeal case No. 02/WBAAAR/APPEAL/2020 dated 17 August 2020]
The information provided in this update is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This update is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial/ quasi judicial authorities may not take a position contrary to the views mentioned hereinrra quis.
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