Key Takeaways:

1. For imported services from related parties, the invoice value is deemed the open market value when full input tax credit is available.

2. If no invoice is issued, the value of such services may be deemed as Nil for GST purposes.

3. This clarification extends the principles of Circular No. 199/11/2023-GST to international related party transactions.

4. The circular aims to reduce disputes and simplify GST compliance for businesses with foreign affiliates..

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Detailed Narrative:

The CBIC has addressed a significant issue in GST compliance through Circular No.210/4/2024-GST, dated June 26, 2024.

This circular focuses on the valuation of imported services from related parties, particularly when the recipient is eligible for full input tax credit.

The need for this clarification arose from industry representations highlighting demands raised by field formations. These demands sought tax on a reverse charge basis for certain activities undertaken by related persons based outside India, even when no consideration was involved.

To address this, the CBIC has invoked the second proviso to Rule 28(1) of the Central Goods and Services Tax Rules, 2017. This rule states:

> "Provided further that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services"

The circular extends this principle to imported services from related parties. It clarifies that:

1. When a foreign affiliate provides services to a related domestic entity eligible for full input tax credit, the value declared in the invoice by the domestic entity is deemed the open market value.

2. If no invoice is issued for such services, the value may be deemed as Nil and considered the open market value.

This approach aligns with the treatment of domestic related party transactions, as clarified in Circular No. 199/11/2023-GST dated July 17, 2023.

It's important to note that in cases of imported services from related parties, the registered person in India is required to:

- Pay tax under the reverse charge mechanism

- Issue a self-invoice under Section 31(3)(f) of the CGST Act

This clarification simplifies compliance and potentially reduces disputes in cases involving multinational companies with Indian subsidiaries or branches.

FAQs:

Q1: Does this circular apply to all imported services?

A1: No, it specifically applies to imported services from related parties where the recipient is eligible for full input tax credit.

Q2: What if no invoice is issued for the imported service?

A2: In such cases, the value of the service may be deemed as Nil for GST purposes.

Q3: How does this circular affect existing GST assessments?

A3: While not explicitly stated, this clarification may impact ongoing assessments and disputes related to valuation of imported services from related parties.

Q4: Is this treatment the same as for domestic related party transactions

A4: Yes, this circular aligns the treatment of international related party transactions with domestic ones as per Circular No. 199/11/2023-GST.

Q5: Who is responsible for paying GST on these imported services?

A5: The registered person in India is required to pay tax under the reverse charge mechanism and issue a self-invoice.

Key Precedents:

1. Circular No.210/4/2024-GST dated June 26, 2024: Provides the main clarification on valuation of imported services from related parties.

2. Rule 28 of Central Goods and Services Tax Rules, 2017: Outlines the valuation rules for supplies between distinct or related persons.

3. Circular No. 199/11/2023-GST dated July 17, 2023: Earlier clarification on valuation of services between distinct persons domestically.

4. Section 31(3)(f) of the CGST Act: Mandates issuance of self-invoice for reverse charge mechanism.

5. S.No. 4 of Schedule I of the Central Goods and Services Tax Act, 2017: Treats import of services from related persons as supply even without consideration.

Circular No.210/4/2024-GST

F. No. CBIC- 20001/4/2024-GST

Government of India

Ministry of Finance

Department of Revenue

Central Board of Indirect Taxes and Customs

GST Policy Wing

North Block, New Delhi,

Dated the 26th June, 2024

To,

The Principal Chief Commissioners/Chief Commissioners/Principal Commissioners/Commissioners of Central Tax (All)

The Principal Directors General/ Directors General (All)

Madam/Sir,

Subject: Clarification on valuation of supply of import of services by a related person where recipient is eligible to full input tax credit – Reg.

As per S.No. 4 of Schedule I of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the ‘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 to be treated as supply even if made without consideration.

2. Representations have been received from trade and industry stating that demands are being raised by some of the field formations against the registered persons seeking tax on reverse charge basis in respect of certain activities undertaken by their related persons based outside India, by considering the said activities as import of services by the registered person in India, based on an expansive interpretation of the deeming fiction in S.No. 4 of Schedule I of CGST Act, though no consideration is involved in the said activities and the same are not considered as supplies by the said related person in India. It has been represented that the same treatment, which is being given to domestic related parties/ distinct persons as per clarification provided by Circular No. 199/11/2023-GST dated 17.07.2023, may also be provided in cases where a foreign entity is providing service to its related party located in India, in cases where full ITC is available to the said recipient located in India.

3.1 In order to clarify the issue and to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in exercise of its powers conferred by section 168 (1) of the CGST Act, hereby clarifies the issues as under:

3.2 Rule 28 of Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the ‘CGST Rules’) is reproduced as below:

“Rule 28.Value of supply of goods or services or both between distinct or related persons, other than through an agent. –

(1) The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall-

(a) be the open market value of such supply;

(b) if the open market value is not available, be the value of supply of goods or services of like kind and quality;

(c) if the value is not determinable under clause (a) or (b), be the value as determined by the application of rule 30 or rule 31, in that order:

Provided that where the goods are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to ninety percent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person:

Provided further that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services.”

3.3 As per second proviso to rule 28(1) of CGST Rules, in cases involving supply of goods or services or both between the distinct or related persons where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the said goods or services.

3.4 It may be noted that vide Circular No. 199/11/2023-GST dated 17.07.2023, clarification has been issued regarding taxability of services provided by an office of an organisation in one State to the office of that organisation in another State, both being distinct persons.It has been clarified in the said circular that as per the second proviso to rule 28(1) of CGST Rules, in respect of supply of services by Head Office(HO) to Branch Offices(BO) of an organisation, the value of the said supply of services declared in the invoice by HO shall be deemed to be open market value of such services, if the recipient BO is eligible for full input tax credit. It has also been clarified vide the said circular that in cases where full input tax credit is available to the recipient, if HO has not issued a tax invoice to the BO in respect of any particular services being rendered by HO to the said BO, the value of such services may be deemed to be declared as Nil by HO to BO, and may be deemed as open market value in terms of second proviso to rule 28(1) of CGST Rules.

3.5 The second proviso to Rule 28 (1) of CGST Rules, is applicable in all the cases involving supply of goods or services or both between the distinct persons as well as the related persons, in cases where full ITC is available to the recipient. Accordingly, it is evident that the clarification which has been issued vide Circular No. 199/11/2023-GST dated 17.07.2023 in respect of supplies of services between distinct persons in cases where full ITC is available to the recipient, is equally applicable in respect of import of services between related persons.

3.6 In case of import of services by a registered person in India from a related person located outside India, the tax is required to be paid by the registered person in India under reverse charge mechanism. In such cases, the registered person in India is required to issue self-invoice under Section 31(3)(f) of CGST Act and pay tax on reverse charge basis.

3.7 In view of the above, it is clarified that in cases where the foreign affiliate is providing certain services to the related domestic entity, and where full input tax credit is availableto the said related domestic entity, the value of such supply of services declared in the invoice by the said related domestic entity may be deemed as open market value in terms of second proviso to rule 28(1) of CGST Rules. Further, in cases where full input tax credit is available to the recipient, if the invoice is not issued by the related domestic entity with respect to any service provided by the foreign affiliate to it, the value of such services may be deemed to be declared as Nil, and may be deemed as open market value in terms of second proviso to rule 28(1) of CGST Rules.

4. It is requested that suitable trade notices may be issued to publicize the contents of this Circular.

5. Difficulty, if any, in the implementation of the above instructions may please be brought to the notice of the Board. Hindi version would follow.

(Sanjay Mangal)

Principal Commissioner (GST)