Import of Service, Goods and Services Tax - GST

[Kaustubh Karandikar]

1. XYZ exported the goods which needs some rework / repairs at the customer’s premises outside India. The subsidiary Companies outside India had done the required rework / repairs on behalf of XYZ and recovered the amount in foreign currency from XYZ. Is XYZ required to pay GST under reverse charge? In my view, it will fall under Section 13(3)(a) of IGST Act i.e. in case of services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services, the place of supply shall be the location where the services are actually performed and therefore no GST since the services are performed outside India. Views of the experts please.

2. XYZ exported the goods which needs some rework / repairs at the customer’s premises outside India. The customer had done the necessary rework / repairs and recovered the amount in foreign currency from XYZ. Is XYZ required to pay GST under reverse charge? In my view, it will fall under the default section i.e. Section 13(2) of IGST Act i.e. the place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services and since the recipient i.e. XYZ is in India, XYZ is liable to pay GST under reverse charge. Views of the experts please.

Posts / Replies

[GUNASEKARAN K]

Dear Mr.Kaustubh Karandikar,

This matter was placed before the GST Council in its 43rd Meeting held on the 28th May, 2021. The GST Council deliberated on the issue and recommended that a suitable clarification, including any clarificatory amendment, if required, may be issued for removal of any doubt, to clarify the decision of the GST Council that re-import of goods sent abroad for repair attracts IGST and cess (as applicable) on a value equal to the repair value, insurance and freight.

Hence GST leviable on the value of service portion along with cost of Freight & Insurance

Also please read the Circular: 16/2021-Customs

https://taxinformation.cbic.gov.in/view-pdf/1000226/ENG/Circulars

[Kaustubh Karandikar]

Sir, there is no re - import involved. only repair carried out outside India in both the cases.

[GUNASEKARAN K]

Sir, please let me understand "XYZ exported the goods"

Export of Tools, Spare Parts or Consumable which are needed to done the repair work?

Export of Goods for Free of Cost under AMC or Warranty conditions?

Does your customer gives any debit note / service invoice for claiming the repair expenses?

[Kaustubh Karandikar]

Export of Tools, Spare Parts or Consumable which are needed to done the repair work? They are machines.

Export of Goods for Free of Cost under AMC or Warranty conditions? Yes

Does your customer gives any debit note / service invoice for claiming the repair expenses? Yes

[GUNASEKARAN K]

1. Export of Goods - Exporting goods or services as free of cost as per sales contract / AMC Conditions will not fall as 'Supply' under section 7 of CGST Act as there is no consideration to be received there-against. Hence No GST Payable

2. Reimbursement of Repair Expenses - GST payable under RCM like import of service.

[GUNASEKARAN K]

Dear Kaustubh Karandikar,

The related AAR for your reference.

2023 (6) TMI 1296 - AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH - UP ADRG-15/2022 dt. 05.12.2022

2020 (10) TMI 764 - AUTHORITY FOR ADVANCE RULING, TAMILNADU - TN/23/AAR/2020 DATED 04.05.2020

[Amit Agrawal]

No GST is payable under RCM in both scenarios under discussion here.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

Dear Sir,

Query-wise my views are as under :-

Answer to query no.1 : Rework and repair services are export of service. No RCM is applicable. No GST is payable.

Answer to query no.2 : No RCM is applicable. It is not import of service despite making payment by the exporter (supplier) to his customer (in a foreign country/non-taxable territory) for rework and repair services.. . No GST is payable.

[KASTURI SETHI]

In both the situations, it is the liability of the exporter(supplier) to supply defect-free, quality goods/durable goods to the customer located outside India. The exporter is supposed to bear the cost of repair/rework etc.

[Amit Agrawal]

In continuation of my last post at serial No. 7 above, I wish to add as under:

A. Even though there is supply involved where XYZ is indeed service-recipient in both the circumstances, Section 13(3)(a) of IGST Act is applicable in both the situations described in the query. Considering our difference of opinion for second situation described in your query, kindly allow me to explain my reasoning behind my views:

A1. In both cases, as explained by you, XYZ is under legal obligation to provide those services (i.e. repairs / rework) under warranty / AMC to the customer. From that, this is my understanding that subject services under discussion here is only due to that warranty / AMC contract & not otherwise (i.e. goods / machines were exported and found in order by the customer and after usage of those goods (i.e. machines) by the customer for some time, some problems cropped up requiring repair / rework which is part of XYZ's warranty / AMC obligation)

A2. In second situation described in your query, it appears that customer has merely acted as an agent of XYZ for getting repairs done by a third person on behalf of XYZ. Here, XYZ is the service-recipient and third person (who has carried the actual repair work) is supplier of repairs-services.

A3. In second situation described in your query, even if the customer has NOT acted as agent of XYZ for getting repairs done on behalf of XYZ but provided repairs services on a principal to principal basis to XYZ, still, Section 13(3)(a) of IGST Act is applicable & NOT Section 13(2). This is because, here, XYZ (& NOT the customer) remains the service-recipient and the customer (who has carried the actual repair work on principal to principal basis) is supplier of repairs-services.

A3. Thus, under both the situations described in your query, there are services (i.e. repairs / rework) supplied in respect of goods (i.e. which were exported outside India and now, lies outside India at the time of repair / rework) which are required to be made physically available by the recipient of services (i.e. XYX) to the supplier of services including its representative (i.e. Subsidiary of XYZ or Third party vendor or 'Customer as supplier of service on principal to principal basis', as the case may be) in order to provide the services (i.e. repairs / rework). Hence, Section 13(3)(a) of IGST Act is applicable in both the situations described in the query.

B. As place of supply lies outside India, there is no import of any services in both scenarios under discussion here and hence, no GST is payable by XYZ under RCM.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

Sh.Kaustubh Karandikar Ji,

Sir, In continuation of my replies dated 30.7.2023, I further opine as under :-

Before arriving at any concrete and correct decision on these issues, the followings facts and aspects are worth consideration :-

(i) Rework and repair services have been performed on exported goods and these services have been consumed outside country. No dispute. .

(ii) Place of supply in both situations is the major determinant factor to decide whether GST is payable or not. Whether it is import of service or not. No dispute.

(iii) Making payment for repair services to the service provider located in a foreign country is only one of the parameters and NOT ONLY parameter to determine whether it is export or import. There are also other conditions which are to be qualified for this purpose. Thus the making payment does not mean import of service has taken place. Cannot be disputed.

(iv) Place of supply of exported goods is outside India in respect of both situations. No dispute.

(v) Therefore, the place of supply of rework and repair services is also outside India, these services being integrally related to exported goods. Exported goods are zero rated supply and hence these services are also zero rated supply. Here goods and services cannot be segregated for any reason.

(vi) Providers of these services in both situations is located in a foreign country (non-taxable territory).

(vii) Place of supply of exported goods is outside the country and therefore, it is not in dispute that these services are integrally related to exported goods. Both cannot be separated. On this count place of supply for goods and services in both situations is outside India and such services are also to be treated as zero-rated.

(viii) Suppose the exported goods are under warranty period, the cost of services and spares etc. is already included into the agreed upon price of the goods supplied. Under the warranty period or otherwise, it is the liability of the supplier-exporter to supply quality goods and defect-free goods. If any exported goods become defective in transit, it is the responsibility of the supplier to get the same repaired and bear the expenses incurred.

(ix) Related person issue in the first situation does not jeopardize or disturb the status of export of service.

(x) There is no issue of intermediary person here.

[KASTURI SETHI]

I also agree with the comprehensive replies of Sh.Amit Agrawal, Sir.

[Finacus Technologies]

I learnt many things from this disscusion, Import of services under Goods and Services Tax (GST) refers to receiving services from a foreign country, which is subject to GST and requires payment of Integrated GST (IGST) in India.

[Kaustubh Karandikar]

Thanks all the experts for the valuable guidance and views.

[Shilpi Jain]

One more way of looking at scenario 2 could be that it is a reduction in the price due to defects. So only a credit note has to be issued. No tax liability. though contract / PO terms would be critical for this