The Maharashtra Authority for Advance Ruling (AAR) has recently ruled that the transfer of monetary proceeds without underlying import of services by M/s. IVL India Environmental R&D Private Limited is liable to be taxed under Integrated Goods and Services Tax (IGST) as per the Reverse Charge Mechanism (RCM).
The assessee seeked ruling on the liability to pay tax on mere transfer of monetary proceeds by the applicant, IVL India Environmental R&D Private Limited to IVL Swedish Environmental Research Institute Limited.
The assessee submitted that, even after incorporation of IVL India by IVL Sweden, the entire obligation, performance, and responsibility shall still remain in the hands of IVL Sweden.
The applicant-assessee had also enumerated certain facts of the case which proves that IVL India is acting just on behalf of IVL Sweden because IVL Sweden cannot execute the contract on its own due to a number of contractual terms and conditions in the contract which include:–
A letter of award to IVL Sweden, Specific requirement of incorporation of an Indian entity in the Letter of Award, Credentials and Work Experience of IVL Sweden and the work to be performed by IVL Sweden.
The applicant also contended that the ultimate beneficiary in this regard is IVL Sweden as the entire obligation Of the contract, performance of the contract and responsibility of the contract lies with IVL Sweden which means that the ultimate beneficiary of the contract and the consultant to MCGM is IVL Sweden. It is just to meet the obligations of the contract and the Bidding qualification that IVL Sweden had to incorporate an Indian entity.
The Authority Bench of members M Rammohan Rao and T R Ramani observed that, the “services are received by the applicant from IVL to further perform its services under the contract, for which monetary proceeds flow from the applicant to IVL Sweden.”
It was also noted that, “As per Section 2(11) of the Integrated Goods and Service Tax Act, 2017, “Import of services means the supply of any service, where: The supplier of service is located
outside India; The recipient of service is located in India; and The place of supply of service is in India.”
Thus, it was conclusively ruled, in view of Sr. No. 1 of Notification No. 10/2017 Integrated Tax (Rate) dated June 28, 2017, that, since support services are being supplied by IVL Sweden, located in a non-taxable territory to the applicant the whole of integrated tax leviable under Section 5 of the Integrated Goods and Services Tax Act, shall be paid on reverse charge basis by the recipient Of the such services i.e. the applicant. Thus, the applicant has to pay GST on the money proceeds which is being transferred to IVL Sweden.”
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