Reverse Charge on import of services from affiliate company

[Yatin Bhopi]

Dear Sir

We have parent company abroad who give us various services like Professional, IPR, management consultancy services etc. The billing cycle is quarterly (we cant shift billing cycle on monthly basis) and they also raise the invoice and we make payment on due date.

Since billing cycle is quarterly we make monthly provision for expenses in the books of accounts. In service tax we used to make payment on provision basis. many times provision was excess as compare to invoice raise by parent company and we used to adjust this excess payment for making payment of service tax subsequently in next month as allowed in rule 6(4A). but under GST there is no self-adjustment allowed and only way to get excess payment is refund.

Since affiliate company is issuing invoice and we also make payment to them and accounting entry for provision for expenses is done as per accounting requirement, Is there any way(since wording in the act is entry in the books)? or can we pay service tax when we make payment to associate company

logic behind making assesses to make payment of entry in the books of account is many times sister concerns are giving various services to each other but not raise invoice or make payment to each other instead they do only book adjustment by passing accounting entries. in our case raising of invoice and making payment is also happening.

Please share your views

[Rajagopalan Ranganathan]

Sir,

Section 31 (2) of CGST Act, 2017 stipulates that "A registered person supplying taxable services shall, before or after the provision of service but within a prescribed period, issue a tax invoice, showing the description, value, tax charged thereon and such other particulars as may be prescribed:

Provided that the Government may, on the recommendations of the Council, by notification and subject to such conditions as may be mentioned therein, specify the categories of services in respect of which––(a) any other document issued in relation to the supply shall be deemed to be a tax invoice; or (b) tax invoice may not be issued.

Rule 47 of CGST Rules, 2017 stipulates that "the invoice referred to in rule 46, in the case of the taxable supply of services, shall be issued within a period of thirty days from the date of the supply of service:

Provided that where the supplier of services is an insurer or a banking company or a financial institution, including a non-banking financial company, the period within which the invoice or any document in lieu thereof is to be issued shall be forty five days from the date of the supply of service:

Provided further that an insurer or a banking company or a financial institution, including a non-banking financial company, or a telecom operator, or any other class of supplier of services as may be notified by the Government on the recommendations of the Council, making taxable supplies of services between distinct persons as specified in section 25, may issue the invoice before or at the time such supplier records the same in his books of account or before the expiry of the quarter during which the supply was made.

In my opinion the second proviso to rule 47 will help you to find a solution in your case.

[RAMESH PRAJAPATI]

As per Sr No 4 of the Schedule I of the CGST Act, " Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business" is a supply even it is made without consideration. Further, supply is being made from non-taxable territory to India so tax is payable by recipient on reverse charge basis. As informed by the querist that payment is made against the invoice raised by the parent company. Then there is no problem but time and value of supply should be determined as per GST Act / Rules 2017.

AI Summary

Reverse charge on import of related party services: recipient liable and time and value governed by GST Act and Rules. Reverse charge applies to imports of services from a related person and the recipient must pay tax on reverse charge; time of supply and value of supply are to be determined under the CGST Act and Rules. Rule 47 proviso allows suppliers making taxable supplies between distinct persons to issue invoices before or at the time the supply is recorded or before the quarter's end, which helps align invoicing with monthly accounting provisions and avoid mismatches.