rcm applicablity for foregin govt fees, Goods and Services Tax - GST

[VIPUL JHAVERI]

dear expoerts

pl share your valuable guidacne on rcm applicablity on payment made to foreign govt for product registration

Posts / Replies

[KASTURI SETHI]

Sh.Vipul Jhaveri Ji,

Your query is too brief to reply. Elaborate your query.

[Padmanathan Kollengode]

Agreed. Kindly elaborate the facts as to who is paying, the purpose of payment, and so on.

[GUNASEKARAN K]

Dear Vipul Jhaveri,

Please refer the Issue Id: - 111316 Dated: 4-1-2017

And confirm whether your query is same or different one. If not same query then elaborate your doubt.

[VIPUL JHAVERI]

Sorry For Insufficient Details,

Pl Note Back Ground And Facts We Are Facing

This Is For Pharma Co. And GST Officer Is Asking To Pay RCM GST On Product Registration Charges Levied By Govt / Drug Dept Of Various Countries

Apparently On First Read We Think As Its Like Govt Chagres Its Not Taxable Service And So No RCM Impact , However Exception For Govt Is Pointed Out As Only For Central And State Govt - While This Is Of Foreign Govt So Exception Is Denied - On Simple Reading Of Sr 49 Notf 9/2017 Int Tax Rtae Dt 28/05/2017, There Was An Interesting Point To Drive Is, That Intention Of Law Can Never Be To Tax Govt Fees.

Reading Further , I Think This Product Registration Fees Enables One To Sale Product In Their Country And Is Export Related - So Going Back To Basic Definitions Of Terms Supply / Taxable Supply / Goods / Services , I Found A Ray Of Hope In Putting This As Good, As Goods Includes "Actionable Claim" Which This Fees Enables - If This Is Goods Then This Can Not Be Services And So RCM On Services From Out Of India To Person In India Complication Gets Avoided And RCM Liability Demand Becomes Null And Void At Inception Itself

Basically There Has To Be Solid Base To Drive Point Of Expenses Related Exports As Such Can Never Be Expected To Be Taxed On Similar Lines As Export Commission Decided As Tax Free

I Am Sure Your Expertise And Valuable View Points Enables, All Of Us To See New Unseen Possibilities To Argue, On Such Basics Reading Of Text Which Also Needs Intentions Of Law In Its Fair Perspective May Be Start Of RCM Base May Prove Helpful, If Anyone Can Trace Back Its Intention

Lets Delibarte And Help To Decide Way Forward

[KASTURI SETHI]

Sh.Vipul Jhaveri Ji,

After perusing your detailed query my views are as follows :-

1. The activity of registration of product with Indian Govt. or foreign Govt. is a service. No question of treating it as goods.

2. You have made payment to foreign Govt. You have made the payment for receiving service of registration of the product from a foreign country.. (Later on the product is to be exported is a separate issue.). It is import of service. Hence RCM is applicable.

3. Notification 9/17-IT (R) dated 28.6.17 (as amended ) (serial no.49) referred to by is not relevant here. It does not give you any benefit/exemption. It is not applicable to your issue.

4. Your query is different in scenario as compared to Issue ID 111316 dated 4.1.17. That query pertains to Service Tax matter. The analogy of Issue ID 111316 is not applicable to your case.

5. There is a lot of difference between the term, 'TAX' and 'FEE' You can easily search.

6. The 'fee' mentioned in Section 15 (2) (a) of CGST Act does not exclude the kind of fee paid by you to a foreign Govt. You fee falls in the exclusion clause . Emphasis is laid on the phrase, 'other than this Act'.

Thus RCM is applicable. No exemption is available. Tax is payable.

[VIPUL JHAVERI]

kasturi ji & colleagues

thanks Kasturai ji for your crisp view and noted

also happended to come across interesting article on same subject in this forum in article secation by mr surya narayan for same matter under service tax touching upon on very basics and concluding this payment can not be treated as consideration
sharing same as well for all to move forward , as may needed

Demand of Service Tax under Reverse charge - on the amounts of Fees paid to US FDA and Other Regulatory Authorities - An analysis dt 19-02-2016 - https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=6696

lets delibrate with further insights

[KASTURI SETHI]

Sh.Vipul Jhaveri Ji,

Perused the article. In the conclusion, the author has sought clarification from the Board. Moreover, it pertains to Service Tax era.

Regarding the concept of 'fee' , please email your WhatsApp number (if possible). I shall send you an article pertaining to GST regime on your whatsApp. That article throws light on how 'fee' charged by Govt. from a business entity is taxable under RCM.

[Shilpi Jain]

There is an exemption entry for Govt. services where it is done for registration under any act. So to me it looks like the querist is asking falling under this entry.

There are some cases which have considered 'under any law' mentioned in certain laws as relating to Indian laws only.

So maybe registration under foreign laws may not be covered under this exemption.

Further, as other experts mentioned, further facts may be required.

[Amit Agrawal]

Subject supply under discussion here is definitely not covered under exemption under Sr. No. 49 of Notification No. 9/2017-Integrated Tax (Rate).

Difference between fees v/s taxes, sovereign V/s non-sovereign etc. & its impact under GST needs to be understood. Furthermore, differences between GST act and erstwhile service tax regime also needs to be noted.

In this context, attention is invited to BUILDERS ASSOCIATION OF NAVI MUMBAI Versus UNION OF INDIA as reported in 2018 (4) TMI 461 - BOMBAY HIGH COURT where it is observed that "..... With respect, it cannot be said that the activities performed by sovereign or public authorities under the provisions of law, which are in the nature of statutory obligations are excluded from the purview of the present enactment. Pertinently, the dividing line between governmental and non-governmental, sovereign and regal functions and otherwise is not very thin and post globalisation, liberalisation and privatisation. In that context, a useful reference can be made to a judgment of the Hon'ble Supreme Court in the case of N. Nagendra Rao and Co. vs. State of Andhra Pradesh 1994 (9) TMI 316 - SUPREME COURT. The observations in paras 23 and 24 are extremely relevant. These paragraphs read as under:- ...."

It is also worth noting that appeal against this decision is rejected by Apex Court (as reported in 2023 (6) TMI 637 - SC ORDER), where Apex court ruled as follows: "We do not find any good ground and reason to take a different view than the one expressed by the High Court. However, it is clarified that we have not examined the question of exemption granted by Notification No. 12 of 2017-CT (Rate) dated 28.06.2017 w.e.f., 01.07.2017. We have also not examined the scope and ambit of the expression in Clause 2 (a) of Schedule-II “licence to occupy land is a supply of services” of the Central Goods and Services Act, 2017. These aspects are left open."

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

[Amit Agrawal]

So, unless and until place of subject services is outside India (Say, hypothetically specking, due to applicability (if any) of Section 13 (3 (a) of the IGST Act, 2017 to the situation under discussion), liable to pay GST under RCM cannot be denied.

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

[KASTURI SETHI]

Difference between 'tax' and 'fee'

In common parlance, fee is in lieu of some service and tax is a statutory duty towards constitution and in the interest of India.Tax is not in lieu of service.

Example of Fee : Market fee, tuition fee, Add fee, parking fee, etc. Advance license fee charged by DGFT department. There are so many examples.

Example of Tax : Income tax, CST, VAT, Central Excise duty, ST, property tax, wealth tax, gift tax CGST, SGST, IGST etc.

Tax is not fee and fee is not tax

[vijay kumar]

It's a service and not goods since the dossiers submitted are examined (premises visited, if required) and the product regn certificate is granted, it's not just on payment of fee that a certificate is granted, to term it as goods.. Secondly, GST Act extends to India.. Accordingly, Governments referred to under Nofn.12/2017 would mean Indian Governments only and cannot include a Foreign Government and hence exemption will not apply.. The intention of not charging Govt fee to GST will therefore apply to Indian Governments only.. Liability is under RCM under Nonf.10/2017-IGST (sl.no.1)

[VIPUL JHAVERI]

Dear Experts

Thanks for your valuable views- normally all such readings are driving us to conclude easily on rcm applicability de facto - however if we dwell deep, i am sure there may be option to defend,

one point i could imagine is defending this as intermediary services - if we now agree as its service and not goods - and in effect the actual purpose for this does tantamount to allow
one to trade into their country as such approving agencies never enters into any trade with seller but only facilities by allowing trade for their country business man for their registered/approved product , their role is more or less similar , to foreign broker who helps to identify foreign buyer - even intermediary definition extends to one who facilitates trade and may this help, i am unable to see any reason than , to put under rcm to pay and get credit back seems wrong blockage of funds ,

if anyone can throw more light on basic inception of rcm it may help - i could remember it was to help allow small timers to be out while large cos are asked to self pay on their behalf, while Intention to tax foreign country expenses helping us to bring foreign revenues was always out of gst scope even like third country exports where goods do not touch india its remains out of gst,
this topic is tricky and i am sure learned , experienced and talented experts here will come out with some out of box thinking,

anyways thanks all genius & experts who have shared their valuable thoughts and frank views

[KASTURI SETHI]

Sh.Vipul Jhaveri Ji,

(i) You are emphasizing on two aspects i.e. 'intermediary services' and 'intention of law' . If you talk of 'intermediary services', it means you intend to challenge the classification of service and, in turn, place of supply' . Both are integrally linked. It will be a long battle and the matter may travel up to the Supreme Court.

(ii) Regarding intention of law, it will remain a matter of interpretational dispute until and unless the issue is decided by the Apex Court inasmuch as GST laws are still in their infancy and you will not find cooked up legal material in your favour.

In both ways, it will not be a cake walk.

(iii) It looks appealing, exciting and inspiring to talk of 'out of box thinking'. It also means you find all the views/opinions/thoughts expressed so far by all the experts are inside the box. If it is so, you must go ahead in search of 'out of box thinking'. For this purpose you will have to engage an expert Advocate.

[Ganeshan Kalyani]

“intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account;

Assuming if a person abroad has helped you to get the product registration with foreign govt. then also the same does not fall in the above exclusion 'intermediary' service of exemption.

[KASTURI SETHI]

Sh.Vipul Jhaveri Ji,

Leaving aside technicalities and technical language plus jugglery of the words and the intention of the legislature, the following facts cannot be denied or overlooked ;-

(i) Your company has made payment to foreign supplier of service.

(ii) You have received service from a foreign based supplier.

In simple words, these two facts will suffice to prove the import of service. It will be very easy for the department. . Recently I have dealt with such case (99 % facts are similar). These two facts will eclipse your outside box thoughts, if any.. Out of box thinking is appreciated but such thinking must produce tangible results otherwise it will be costly in terms of time, money and energy to be consumed, especially, in view of the majority of opinions expressed by all experts.

[Amit Agrawal]

In given circumstances where tax-payer does not seem to have any valid arguments to defend on-liability to pay taxes under RCM. I think this is simply a case about misreading of exemption entry under Sr. No. 49 of Notification No. 9/2017-Integrated Tax (Rate).

I see no point to engage in a long, painful loosing battle with Revenue, where interest-liability will keep on increasing every passing day.

I think, focus should get shifted to how to avoid proceedings u/s 74 (i.e. revenue neutrality & misreading of exemption entry etc.) and how to avail ITC against taxes if paid now under RCM (where interest-liability also gets crystalised and stop increasing any more).

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

[Amit Agrawal]

Please read in above post as '.................to defend non-liability to pay taxes ..............'

[VIPUL JHAVERI]

Thanks a lot to all experts

things are made amply clear by all to conclude "pay rcm" is the only option and this Point is well taken

Thanks for very frnak expressions and valuable experience and guidance shared to avoid any undue waste of time and money further

please do share if any clrificarion relexation etc gets issued from dept/govt

[KASTURI SETHI]

(i) I agree with ALL the views (including at serial no.17 dated 17.8.23) of Sh.Amit Agrawal, Sir.

(ii) It is also pertinent to mention that here 'majority' is not 'a crowd'.

[Padmanathan Kollengode]

I also concur with views of Kasturi Sir, that the subject matter is taxable as 'import of service'.

As advised by experts, the querist should try to pay the applicable taxes with interest and avoid penalty u/s 73/74 etc. I also urge the querist not to fall for any 'out of box' solutions when the subject matter seems to be clearly taxable in Law, as such fancy ideas will only end up in a long-drawn litigation culminating in huge interest and penal consequences. Rather focus should be on admitting the tax and interest, and buying 'peace'.