Clarification on Import of Services from Related Persons under CGST Act

Schedule I of CGST Act: Import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business, is treated as supply even if made without consideration. Representations Received: Concerns were raised about demands being made for tax on reverse charge basis for certain activities by related persons outside India, even when no consideration is involved. Request for similar treatment as provided for domestic related parties per Circular No. 199/11/2023-GST dated 17.07.2023, particularly when full Input Tax Credit (ITC) is available to the recipient in India.

Rule 28 of CGST Rules: This rule deals with the value of supply between distinct or related persons, stating the value can be open market value, value of like kind and quality, or determined by rules 30 or 31. The second proviso to Rule 28 states that if the recipient is eligible for full ITC, the value declared in the invoice shall be deemed the open market value. Circular No. 199/11/2023-GST: Clarifies taxability of services provided between offices of the same organization in different states. If full ITC is available and no tax invoice is issued, the value may be deemed as Nil and considered open market value.

Applicability to Import of Services: The second proviso to Rule 28(1) is applicable to both domestic and international related persons where full ITC is available. For import of services by a registered person in India from a related person outside India, tax is paid under reverse charge mechanism. A self-invoice is required under Section 31(3)(f) of CGST Act. Specific Scenarios: If full ITC is available to the domestic entity, the value of services declared in the invoice by the domestic entity is deemed the open market value. If no invoice is issued by the domestic entity for services provided by the foreign affiliate, the value is deemed as Nil and considered the open market value.

Action Required: Issue suitable trade notices to publicize this clarification. Report any difficulties in implementation to the Board. Authority: (Sanjay Mangal) Principal Commissioner (GST) Note: Hindi version of the circular will follow.