Transfer of monetary income from IVL India to ILV Sweden attracts IGST under RCM: AAR
The Maharashtra Authority of Advance Ruling (AAR) has decided that IVL India’s transfer of monetary proceeds to the applicant IVL Sweden will become liable for payment of integrated goods and services tax under the reverse charge mechanism.
The two-man bench off M. Rammohan Rao and TR Ramnani has observed that apart from the service provided by the applicant to the Municipal Corporation of Greater Mumbai (MCGM), there is a very definite service provided by IVL Sweden, located outside India, due to its experience, merit and expertise, for the applicant, located in India, which enables the applicant to perform as per the agreement. There is no doubt that the services are provided in the taxable territory viz. India.
IVL Sweden is a foreign company incorporated under Swedish law and the applicant, IVL India Environmental R&D Pvt Ltd., is a company incorporated under the laws of India.
MCGM invited bids for a contract for “Project Management Consultancy Services” for four locations. IVL Swedish Environmental Institute Limited evaluated applications on the basis of their merits, work experience and various certifications obtained from various government organizations as required in the tender eligibility criteria.
However, according to the eligibility criteria, the contract could only be performed by a wholly owned subsidiary of the foreign company, which further implied that the parent company in its capacity could not perform the contract directly. Consequently, IVL Sweden has incorporated IVL India to implement the contract and comply with the terms of the tender eligibility criteria. MCGM issued the Letter of Award in the name of “IVL Sweden.”
The applicant sought a preliminary ruling on the question whether a mere transfer of monetary proceeds from IVL India Environmental R&D PVT Ltd to IVL Swedish Environmental Research Institute Limited without the underlying importation of services will become liable to IGST under the reverse charge mechanism.
AAR noted that ultimate responsibility for the implementation of the contract would remain with IVL Sweden. It has been stated that the main consultant for this contract is IVL Sweden.
The AAR determined that since the applicant receives support services from IVL Sweden, which is located in a non-taxable territory, the entire integrated tax levied under Section 5 of the Integrated Goods and Services Tax Act must be paid on a reverse charge basis by the recipient of such services, ie. the applicant. The applicant must therefore pay VAT on the money transferred to IVL Sweden.
Applicant’s Name: M/s. IVL India Environmental R&D Pvt Ltd
Date: 2022-12-01