14 February 2024
1.Indian company issued work order to foreign company in INR 2. They have a 55% subsidiary company in India 3. If the order value is Rs.100/- , the subsidiary co. in India will raise bill of Rs.80/- and foreign company will also raise invoice in INR for Rs.20/- 4.The remittance of Rs.20/-will be in foreign currency and directly payable to foreign company My question are: a) The invoice raised by foreign company in INR for Rs.20/- is valid or not. b) Is this can be treated as Import of Service c) Is IGST payable on RCM on import of services?
09 July 2024
Let's address each of your questions based on the scenario provided:
a) **Validity of Invoice Raised by Foreign Company in INR for Rs.20/-:**
Invoices raised by foreign companies in INR are generally valid if the transaction is within the framework of legal and contractual agreements. In international transactions, it's common for foreign companies to invoice in the currency agreed upon with the Indian company. As long as the invoice details the nature of the service provided, the value in INR, and complies with other invoicing requirements under Indian laws (such as GST regulations), the invoice should be considered valid.
b) **Treatment as Import of Service:**
Yes, this arrangement can be treated as an import of service under GST rules. Import of service is defined under GST as the supply of any service where the supplier is located outside India, the recipient is located in India, and the place of supply of the service is in India. In your scenario: - The foreign company is supplying services (part of the work order) to the Indian company. - The recipient (Indian company or its subsidiary in India) is located in India. - The place of supply is determined based on the location of the recipient.
Since the foreign company is providing a service to the Indian company (or its subsidiary in India), and the consideration for this service is remitted in foreign currency (Rs. 20/-), it qualifies as an import of service under GST.
c) **IGST Payable on Reverse Charge Mechanism (RCM) on Import of Services:**
Under GST, import of services is subject to GST under reverse charge mechanism (RCM). This means the liability to pay GST is on the recipient of the service (Indian company or its subsidiary in India) rather than on the foreign supplier. Here’s how it works: - IGST (Integrated Goods and Services Tax) is applicable on import of services. - The recipient of the service (Indian company or its subsidiary in India) is required to pay IGST on such import of services under RCM. - The recipient can claim input tax credit (ITC) of the IGST paid on import of services, provided it is used for business purposes.
### Conclusion:
a) The invoice raised by the foreign company in INR for Rs.20/- is valid as long as it complies with invoicing requirements and reflects the agreed-upon consideration for the services provided.
b) Yes, this transaction can be treated as an import of service under GST.
c) IGST is payable on reverse charge mechanism (RCM) by the recipient (Indian company or its subsidiary in India) on the value of services imported from the foreign company.
It’s important for the Indian company and its subsidiary to ensure compliance with GST regulations regarding import of services, including payment of IGST under RCM and proper documentation of invoices and input tax credit.
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