Summary of the Valuation of Import Services from Related Person with Full ITC Eligibility
Circular No 210/04/2024 has been issued for the Valuation of Import Services from Related Person with Full ITC Eligibility. If a business import services from a related person or from one of its own establishments located outside India, it will be considered as a “supply”. This means that even if the business doesn’t pay for those services, they still have to treat it like a normal business transaction and pay GST on it. Some business have raised concerns that tax authorities are demanding GST under reverse charge for certain servicies provided by related parties located outside india.These servicies are being treated as import of services by the indian company, even though no money is actually exchanged for these services.
The issue arises from the broad interpretation of Rule 4 in schedule I of the CGST Act which says that even if no payment is made, these transactions between related parties can still be considered as supplies. however, business are saying that this should not apply beacuse, in this cases the indian company can claim full ITC.They are requesting the same treatment that applies to domestic transactions between related parties as clarified in circular No 199/11/2023- GST dated 17-07-2023. This circular says that similar transactions within india are not taxed if there is no payment involved, and they want this same rule to apply when foreign entities provide the services to their indian Comapny.
Key points of Circular:
- Rule 28 of CGST Rules,2017 specifies how to determine the value of goods or services between related parties. Normally it is open market value of goods and services.
- As per second proviso of Rule 28, if the recipient can claim full ITC the value of invoice is treated as open market value.
- For import of services from related person outside india, the indian company has to pay GST under the RCM. The indian company needs to issue self invoice and pay GST. If company can claim full ITC the value stated in self invoice is treated as open market value.
- In case where no invoice is issued for services from foreign entities, the value of those services can be treated as NIl and this will still be considered the open market value.
