2020 (11) TMI 528 - AAAR - GST

Levy of GST - reverse charge mechanism - supply of service to BCCL in terms of MARC - import of service or not - benefit of N/N. 10/2017-Integrated Tax (Rate) dated 28.06.2017 - Challenge to AAR decision - HELD THAT - From the definition of fixed establishment , it is clear that the registered place of business cannot be termed a fixed establishment. Here, the domestic entity IZ-KARTEX is registered with GST authorities and hence, going by the definition, it cannot be termed a fixed establishment. In that sense, the decision of the WBAAR does not hold good in legal terms. Also, the WBAAR has not adduced any finding to draw conclusion that IZ-Kartex as registered in India maintains suitable structures in terms of human and technical resources to provide the service for which the MARC has been entered into between the parties. Further, the findings of the WBAAR mentions that it is evident that the MARC holder maintains suitable structures in terms of human and technical resources at the sites of BCCL. This finding is somewhat different from what is required to declare the MARC holder a fixed establishment. Here, as per the findings, the suitable structure in terms of human and technical resources is maintained not at the premises of the MARC holder but at the premises of BCCL. This does not comply the definition of the fixed establishment . From the facts of the case, it is seen that the IZ-Kartex named after Korobkov, the Russian company has entered into the MARC with BCCL. They have deployed DDP-N, an Indian company as the subcontractor. DDP-N in turn, issues invoice to the Russian company. Again, the Russian company is raising bills on BCCL against supply of service. Hence, it is amply clear that the service is being provided by the appellant s foreign entity. Contrary to any material finding in the order of the Advance Ruling, it is clear beyond doubt that the conditions of import are satisfied in the present case. The order of Advance Ruling is modified to the extent that the supply of service by the appellant to BCCL qualifies as import of service as defined under Section 2(11) of the IGST Act, 2017 and GST is payable on such import of service by BCCL under reverse charge mechanism in terms of Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017.

Summary

Issues Involved:
1. Determination of the person liable to pay GST under the Maintenance and Repair Contract (MARC) between the appellant and BCCL.
2. Classification of the service as an import of service under the GST Act.
3. Validity of the WBAAR's conclusion regarding the location of the supplier.

Issue-wise Detailed Analysis:

1. Determination of the Person Liable to Pay GST:
The appellant, a Russian company, entered into a MARC with BCCL for the maintenance of Electric Rope Shovels. The appellant raised invoices inclusive of tax, but BCCL required revision of invoices by reducing the tax element paid under the reverse charge mechanism. The appellant contended that as per Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017, BCCL is liable to pay IGST on services imported from the appellant under the reverse charge mechanism. The WBAAR held that the supply of service to BCCL is not an import of service, and thus, the appellant's domestic entity is liable to pay tax.

2. Classification of the Service as an Import of Service:
The appellant argued that the services rendered under the MARC qualify as an import of service, as the supplier (appellant) is located outside India, the recipient (BCCL) is located in India, and the service is provided in India. The WBAAR concluded that the domestic entity of the appellant is the supplier, based on the fixed establishment of human and technical resources at BCCL's site. However, the appellate authority found that the WBAAR did not consider the entire control of activities resting with the foreign entity and the fact that the domestic entity was established in 2018, while services were provided since 2015. The appellate authority concluded that the conditions for import of service under Section 2(11) of the IGST Act are satisfied.

3. Validity of the WBAAR's Conclusion Regarding the Location of the Supplier:
The WBAAR's conclusion was based on the presence of human and technical resources at BCCL's site, indicating a fixed establishment in India. However, the appellate authority noted that the definition of 'fixed establishment' excludes the registered place of business and requires suitable structures at the supplier's premises, not the recipient's. The appellate authority found that the WBAAR's conclusion did not comply with the definition of 'fixed establishment' and that the appellant's domestic entity does not maintain the required resources to provide the service. The appellate authority also noted that the MARC holder's activities are controlled by the foreign entity, and the domestic entity acts merely as a collection and disbursement center.

Conclusion:
The appellate authority modified the WBAAR's order, concluding that the supply of service by the appellant to BCCL qualifies as an import of service under Section 2(11) of the IGST Act, 2017. Consequently, GST is payable by BCCL under the reverse charge mechanism as per Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017.