Clarification on Valuation of Imported Services by Related Persons with Full ITC Eligibility

Last updated: 27 June 2024

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This notification clarifies the valuation of imported services provided by related persons to businesses in India, specifically when the recipient is eligible for full Input Tax Credit (ITC). It addresses concerns raised by industry regarding tax demands on activities undertaken by foreign related entities. The clarification aims to align treatment with domestic related party transactions, ensuring fair application of GST rules.

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.

For full notification please refer to the attachment

FAQ :

The notification provides a clarification on the valuation of imported services supplied by a related person, particularly when the recipient in India is eligible for full Input Tax Credit (ITC).

It addresses concerns raised by businesses about tax demands being raised on reverse charge basis for services imported from related foreign entities, even when no consideration is paid.

Schedule I, S.No. 4 of the CGST Act, 2017, states that the import of services by a person from a related person or another establishment outside India, in the course of business, is considered a supply even if no consideration is involved.

The notification aims to provide the same treatment as domestic related party transactions, as clarified in Circular No. 199/11/2023-GST, for cases involving foreign entities providing services to related parties in India where full ITC is available.

The notification is addressed to Principal Chief Commissioners, Chief Commissioners, Principal Commissioners, Commissioners of Central Tax, and Principal Directors General, Directors General.