Liability to pay GST under RCM goes beyond taxable territory

[Kamal Aggarwal]

Recent Judicial Ruling

Be prepared to pay GST in India on the fee paid for participating in an exhibition held outside India, if we go by the latest ruling by the Hon’ble High Court of Rajasthan. The hon’ble high court has, in the case of M/S. SAVIO JEWELLERY VERSUS COMMISSIONER, CENTRAL GOODS AND SERVICE TAX, JAIPUR., THE ASSISTANT COMMISSIONER, CENTRAL GOODS AND SERVICE TAX, SUPERINTENDENT, CENTRAL GOODS AND SERVICE TAX, AUDIT CIRCLE, JAIPUR, UNION OF INDIA, STATE OF RAJASTHAN [2024 (5) TMI 658 - RAJASTHAN HIGH COURT] , held that where an exhibition is held outside India, the recipient of the service is liable to pay GST under RCM on this service as per Notification 10/2017 – Integrated Tax (Rate) dated 28^th June 2017.

Key Point of the Judgment

The decision is based on Section 5(3) of the IGST Act, 2017 and Notification 10/2017 – Integrated Tax (Rate) dated 28^th June 2017, which specifies the services on which tax is payable under RCM by the recipient of the services. The relevant portion of the said Notification provides as follows: -

Sl. No.	Category of Supply of Services	Supplier of service	Recipient of Service
(1)	(2)	(3)	(4)
1	Any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient.	Any person located in a non-taxable territory	Any person located in the taxable territory other than non-taxable online recipient.

Court’s Interpretation

Based on the above Notification, the decision states as follows: -

“In the present case, the supply of service has taken place outside India and as per the notification the receiver of service is the person who is registered in the taxable territory. Petitioner is a registered person who is located in the taxable territory. We do not find any reason to entertain the writ petition as the services received outside India is already taxable at the hand of the receiver of services, who is a registered person in taxable territory  i.e. India.”

Implications for Businesses

This judgment will have extremely serious consequences as this principle can be extended to any service availed by a business outside India. For example, if a person stays in a hotel outside India for his business, he would also be liable to pay GST in India under RCM.

Legal Consideration

The decision also refers to Section 13(5) of the IGST Act, 2017 regarding place of supply. However, the place of supply has been rendered completely irrelevant in arriving at the conclusion. Also, the definition of ‘import of service’ given in the Section 2(11) of the IGST Act, 2017 and provisions of Section 7(1)(b) of the CGST Act, 2017 have also not been considered.

Analysis

GST is payable on supply of goods or services or both. Section 7(1)(b) of the CGST Act, 2017 includes ‘import of services’ within the expression ‘supply’.  Import of service is defined in Section 2(11) of the IGST Act. One of the condition specified therein is that the ‘place of supply’ should be in India. The place of supply of services where either the supplier or the recipient is outside India has been provided in Section 13 of the IGST Act, 2017.

In the present case, as per Section 13(5) of the IGST Act, 2017 the place of supply is outside India. Consequently, the transaction would not qualify as import of service as it does not fulfil all the requirements of Section 2(11) of the IGST Act, 2017. As a natural corollary, the transaction would not qualify as a supply. When a transaction does not qualify as a supply in the first place, the question of any person liable to pay tax does not even arise.

Conclusion

The Section 5(3) of the IGST Act, 2017 empowers the Government to specify the person liable to pay tax. The Notification 10/2017 – Integrated Tax (Rate) dated 28^th June 2017 has been issued in pursuance to such powers. But neither this provision nor this notification can create a tax liability unless it has been demonstrated that the transaction qualifies as a supply in terms of Section 7 of the CGST Act, 2017. Only once this basic threshold is crossed, the other provisions like person liable to pay, value at which payable, rate of tax etc. come into play. Not before that. This decision has not addressed this fundamental aspect and hence in my humble opinion, needs a relook.

Discussions to this article

[T Jayaraman]

Yes, a very proper analysis by Mr. Aggarwal

A Notification cannot create a taxable event, beyond the provisions of a statute. Notifications are always subordinate to the basic provisions of the Act and this issue is totally overlooked in the judgement, and hope is appealed by the party and position is set right.

T. Jayaraman