Is Foreign company deputing engineers to Indian project site liable to be registered under GST?
Registration of an entity is the initial basic step one has to follow to carry on supply or any other GST compliances. While one may find the registration process unnecessary and complicated, it is followed by a number of advantages, such as legal recognition as supplier of goods/services, availment of ITC, legal authorisation to collect tax from customers etc.
Knowing the place of supply is extremely important under GST. It is on the basis of ‘Place of Supply’ whether we can determine if GST is chargeable or not and if GST is chargeable whether IGST or CGST and SGST/UTGST is applicable. Place of Supply is covered under the IGST Act..
Let us refer to the case of Tokyo Electric Power Company (GST AAR Odisha), where the applicant sought for a ruling as to whether the Applicant was required to be registered under GST for the consultancy services provided to Odisha Power Transmission Corporation Limited or not.
Facts of the Case:
- M/s Tokyo Electric Power Company Service Limited (TEPSCO), a Japan based company, in association with Tokyo Electric Power Company, Holding Inc., (Applicant), a Japan based Company (collectively referred to as Consultants) entered into an agreement with an Indian entity Odisha Power Transmission Corporation Limited (OPTCL).
- The consultants agreed to provide consultancy services to M/s Odisha Transmission System Improvement Project (Project), Odisha, India.
- The Applicant would provide and transfer the technical knowledge in relation to the outdoor GIS equipment to OPTCL’s engineer and staffs through the actual consulting activities during the design stage and implementation stage of the Project.
- The Applicant would early out/provide consultancy services by the expert as per the time schedule mentioned in the Agreement.
Observations by AAR on the contention of the applicant
- It was argued by the applicant, that the applicant was neither liable to obtain registration as a regular taxpayer nor as a non-resident taxable person for the consultancy services provided to M/s OPTCL.
- Applicant tried to establish that the supply was made by the Foreign Company, who was located in Japan and was not the supplier in the context of rendering consultancy service.
- Applicant contended that the project location from where the services were provided could not be considered to be the location of the supplier of services.
- In this regard, it was submitted that in terms of Section 2(71) of the CGST, Act the ‘location of the supplier of services’ could be considered any of the following three locations:
- a ‘place of business’ for which registration is taken
- a place which is a ‘fixed establishment’
- in absence of such places, the location of the ‘usual place of residence’ of the supplier
- As per the applicant’s understanding, the place of business in the instant case, would fall outside India as it has no fixed establishment in India and the usual place of residence is also not in India.
- Further, it was also submitted that the services supplied by Applicant to OPTCL would be covered under the ambit of Entry No. 1 of Notification No. 10/2017- Integrated Tax (Rate) dated 28th June, 2017 and OPTCL should be liable to tax under RCM and therefore, Applicant was exempted from obtaining registration.
Observations by AAR on whether the applicant is required to be registered under GST for the consultancy services
- AAR saw that the applicant had entered into an agreement with M/s OPTCL to provide consulting services.
- AAR found from the contract document that OPTCL had provided an office to the consultant and the office operation and maintenance charge etc also were borne by OPTCL.
- Before deciding the case, AAR analysed the definition of ‘location of the supplier of services.
- In terms of Section 2(15) of the IGST Act, 2017, the ‘location of the supplier of services’ means
- where a supply is made from a place of business for which the registration has been obtained, the location of such place of business
- where a supply is made from a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment;
- where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the provision of the supply; and
- in absence of such places, the location of the usual place of residence of the supplier
- Location of supplier was usually where a supply was made from, a place mentioned as a principal place of business on the GST registration certificate.
- But in the instant case, the place of supply and the location of supplier was at the project site which was different from the place of business.
- It was observed that it was a long-term contract spanning over 46 months followed by 6 months of defects liability period.
- The applicant was responsible for providing and transferring the technical knowledge in relation to the outdoor GIS equipment to OPTCL Engineer and staffs through the actual consulting activities during the design stage and implementation stage of the project.
- In order to carry out the aforementioned tasks, it would depute the support staff and expert belonging at the project site.
- OPTCL would provide them access to the project site in respect of which access was required for the performance of the services.
- The expert so deputed to the project site by the applicant was to be paid at an agreed rate for the aforementioned tasks.
- It was evident from the above discussion that the expert belonging maintained suitable structures in terms of human and technical resources at the sites of OPTCL.
- It ensured provision of supply of consulting services for the contract period, indicating sufficient degree of permanence to the human and technical resources employed at the sites.
- The applicant through its expert belonging, therefore, supplied the service at the sites from fixed establishments as defined under section 2(7) of the IGST Act.
- The location of the supplier should, therefore, be in India in terms of section 2(15) of the IGST Act.
Therefore, AAR did not agree with the contention of the applicant that the services supplied to OPTCL would be covered under the ambit of Entry No. 1 of Notification No. 10/2017- Integrated Tax (Rate) dated 28th June, 2017 and should be liable to tax under RCM.
Supply of consulting services through sub-station Engineer/ expert of the applicant to OPTCL was not, therefore import of service within the meaning of section 2 (11) of the IGST Act. The Engineer/expert belonging to the applicant should be treated as a supplier located in India, and was liable to pay GST, the place of supply being determined in terms of section 12 (2) (a) of the IGST Act. Since, applicant was liable for payment of GST, AAR held that he was required to be registered under GST for the consultancy services provided to Odisha Power Transmission Corporation Limited