Background: The local branch of a foreign company contracted to undertake repairs and maintenance of machinery for an Indian company.
Query(ies): Who is liable to pay GST on the aforesaid supply? That is:
- Should this transaction be treated as supply of service by the foreign company to the Indian company? If so, the Indian company is liable to pay GST under reverse charge for import of service; or
- Should this be treated as supply of service by the branch of foreign company to the Indian company? If so, the branch is liable to pay GST under forward charge.
Observation(s): The rights, duties and obligations under the contract were not distinguished between the foreign company and its branch in India. The service provider was supposed to maintain suitable human and technical resources at the site of the service recipient. The tenor of the contract spanned 17 years. Owing to these factors, it was concluded that services were supplied at the site from "fixed establishment" under Section 2(7) of IGST Act. As a corollary, the location of supplier should be India under Section 2(15)(b) of IGST Act.
Ruling: It was, therefore, ruled that there is no import of service from the foreign company by the Indian company. Rather, the branch of the foreign company is liable to pay GST under forward charge.
Comment(s): In the aforesaid ruling, the authority has interpreted the term "supply" from a physical perspective. However, an in-depth reading of the IGST Act gives a perspective that the term "supply" should be read in the legal sense. That is, privity of contract should have been analysed.