Consultancy service provided by Japan based company, having fixed establishment in India is not liable for RCM under - import of service

The Hon'ble AAR Odisha, in the matter of Tokyo Electric Power Co.[Order No.02/Odisha-AARJ2020-21 dated November 19, 2020] held that supply of consultancy service to an Indian entity Odisha Power Transmission Corporation Limited ("OPTCL") is not import of service in terms of Section 2(11) of the Integrated Goods and Services Tax Act, 2017 ("IGST Act") as the location of supplier as per Section 2(15) of the IGST Act is in India. Therefore, the Tokyo Electric Power Company, Holding Inc., being the supplier of service in India, is liable to pay tax and required to take GST registration.

Facts

M/s Tokyo Electric Power Company Service Limited ("TEPSCO"), a Japan based company, in association with Tokyo Electric Power Company, Holding Inc., ("Applicant"), a Japan based Company (collectively referred as "Consultants") has entered into an agreement dated, April 13, 2018, with OPTCL, whereby consultants have agreed to provide consultancy services to M/s Odisha Transmission System Improvement Project ("Project"), Odisha, India.

The Applicant will provide and transfer the technical knowledge in relation to the outdoor Geographic Information System ("GIS") equipment to OPTCL's engineers and staff through the actual consulting activities during the design stage and implementation stage of the project. The Applicant would carry out/provide consultancy services by the expert belonging/sub-station Engineer.

The Applicant was of view that he is neither liable to obtain registration as a regular taxpayer nor as a non-resident taxable person for the consultancy services provided to OPTCL. The Applicant also tried to establish that the supply is made-by the Foreign Company, who is located in Japan is not the supplier in the context of rendering consultancy service and would be liable to pay the tax under Reverse Charge Mechanism ("RCM").

Issues

Whether the Applicant is required to be registered under Odisha Goods and Services Act, 2017 ("OGST Act") and Central Goods and Services Act, 2017 ("CGST Act") for the consultancy services provided to Odisha Power Transmission Corporation Limited?

Held

The Hon'ble AAR Odisha, in Order No.02/Odisha-AARJ2020-21 dated November 19, 2020 held as under:

· After analyzing the definition of 'location of the supplier of services', in terms of Section 2(15) of the IGST Act, the AAR noted that location of supplier is usually where a supply is made from, a place mentioned as a principal place of business on the GST registration certificate. But in the present case, the place of supply and the location of supplier is at the project site which is different from the place of business and it is a long-term contract spanning over 46 months, followed by 6 months of defects liability period.

· Observed that, the Applicant is responsible for providing and transferring the technical knowledge in relation to the outdoor GIS equipment to OPTCL Engineer and staffs through the actual consulting activities during the design stage and implementation stage of the project. In order to carry out the aforementioned tasks, it would depute the support staff and expert belonging at the project site. OPTCL shall provide them access to the project site in respect of which access is required for the performance of the services. The expert so deputed to the project site by the Applicant is to be paid at an agreed rate for the aforementioned tasks.

· Stated that, it is evident that the expert belonging maintains suitable structures in terms of human and technical resources at the sites of OPTCL. It ensures provision of supply of consulting services for the contract period, indicating sufficient degree of permanence to the human and technical resources employed at the sites. The Applicant through its expert belonging, therefore, supplies the service at the sites from fixed establishments as defined under Section 2(7) of the IGST Act. The location of the supplier should, therefore, be in India in terms of Section 2(15) of the IGST Act. Therefore, the Authority did not agree with the contention of the Applicant that the services supplied to OPTCL would be covered under the ambit of Entry No. 1 of Notification No. 10/2017- Integrated Tax (Rate) dated June 28, 2017 and shall be liable to tax under RCM.

· Held that, supply of consulting services through sub-station Engineer/ expert of the Applicant to OPTCL is therefore not the import of service within the meaning of Section 2(11) of the IGST Act. The Engineer/expert belonging to the Applicant should be treated as a supplier located in India, and made liable to pay GST, the place of supply being determined in terms of Section 12(2)(a) of the IGST Act. Since, the Applicant is liable for payment of GST, he is required to be registered under OGST Act and CGST Act for the consultancy services provided to OPTCL.

Relevant Provisions

Section 2(7) of the IGST Act

"(7) "fixed establishment" means a place (other than the registered place of business) which is characterised by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services or to receive and use services for its own needs;"

Section 2(11) of the IGST Act:

"(11) "import of services" means the supply of any service, where -

(i) the supplier of service is located outside India;
(ii) the recipient of service is located in India; and
(iii) the place of supply of service is in India;

Section 2(15) of the IGST Act

"(15) "location of the supplier of services" means, -

(a) where a supply is made from a place of business for which the registration has been obtained, the location of such place of business;

(b) where a supply is made from a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment;

(c) where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the provision of the supply; and

(d) in absence of such places, the location of the usual place of residence of the supplier;"

Section 12(2) of the IGST Act

"Place of supply of services where location of supplier and recipient is in India-

(2) The place of supply of services, except the services specified in sub-sections (3) to (14), -

(a) made to a registered person shall be the location of such person;

(b) made to any person other than a registered person shall be, -

(i) the location of the recipient where the address on record exists; and
(ii) the location of the supplier of services in other cases."