Wholly owned subsidiary must pay IGST under reverse charge for parent company support services

The AAR Maharashtra held that a wholly owned subsidiary transferring monetary proceeds to its foreign parent company for support services must pay IGST under reverse charge mechanism. The applicant company, while executing a contract with MCGM based on its Swedish parent's credentials, received essential support services enabling contract performance. Despite claiming no service import, the AAR found definite services were supplied by the Swedish entity to enable the Indian subsidiary's contract execution. Under Notification 10/2017 entry 1, IGST is payable on reverse charge basis when services are supplied from non-taxable territory to taxable territory, making the recipient liable for tax payment.

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Issues Involved:
1. Whether the transfer of monetary proceeds by IVL India to IVL Sweden without an underlying import of service will be liable for payment of Integrated Goods and Service Tax (IGST) under the reverse charge mechanism.

Issue-wise Detailed Analysis:

1. Background and Eligibility Criteria:
- IVL Sweden, a foreign company, was awarded a tender by the Municipal Corporation of Greater Mumbai (MCGM) for "Project Management Consultancy Services" based on its credentials and experience.
- The contract could only be executed by a wholly-owned subsidiary (WOS) of IVL Sweden, leading to the incorporation of IVL India.
- The contract was signed by both IVL Sweden and IVL India, with the Letter of Award (LoA) issued in the name of IVL Sweden.

2. Contractual Obligations and Performance:
- IVL India was incorporated to meet contractual obligations, and without IVL Sweden's support, it would not have been possible for IVL India to execute the contract.
- IVL Sweden's credentials were essential for obtaining the contract, and the execution was to be carried out by IVL India based on IVL Sweden's expertise.
- The applicant (IVL India) argued that it did not receive any services from IVL Sweden and that IVL Sweden provided services directly to MCGM.

3. Legal Provisions and Interpretations:
- The relevant legal provisions include Section 9 of the CGST Act, Section 5 of the IGST Act, and Notification No. 10/2017 - IGST (Rate) dated June 28, 2017.
- 'Service' is defined under Section 2(102) of the CGST Act, and 'Import of service' is defined under Section 2(11) of the IGST Act.
- As per the applicant, the transfer of monetary proceeds from IVL India to IVL Sweden without an underlying import of service should not attract IGST under the reverse charge mechanism.

4. Observations and Findings:
- The applicant (IVL India) is performing services at the ground level, supported by IVL Sweden's expertise.
- The services provided by IVL Sweden to IVL India enable the latter to perform under the contract with MCGM.
- The support services from IVL Sweden to IVL India constitute an import of services as defined under Section 2(11) of the IGST Act.

5. Liability for IGST under Reverse Charge Mechanism:
- The services provided by IVL Sweden to IVL India fall under the purview of import of services, making IVL India liable to pay IGST under the reverse charge mechanism.
- The transfer of monetary proceeds by IVL India to IVL Sweden is subject to IGST under Entry No. 1 of Notification 10/2017 - IGST (Rate) dated June 28, 2017.

Conclusion:
- The transfer of monetary proceeds from IVL India to IVL Sweden, without an underlying import of service, is liable for payment of IGST under the reverse charge mechanism as per Entry No. 1 of Notification 10/2017 - IGST (Rate) dated June 28, 2017.

Order:
- The transfer of monetary proceeds by IVL India to IVL Sweden is liable for payment of IGST under the reverse charge mechanism under Entry No. 1 of Notification 10/2017 - IGST (Rate) dated June 28, 2017.

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