Related Party Transactions

[Kaustubh Karandikar]

XYZ (India) is having a group company PQR in (Abu Dhabi). XYZ is providing design services to PQR, which it bills on an hourly basis. XYZ requires a software for design which will be supplied as a licence by an ABC(India) to be used by the employees of XYZ. The cost of the software will be borne by PQR but invoice of ABC will say “Bill to” PQR and “Ship to” XYZ. The software licence fee will be paid monthly/quarterly basis over 1 year by PQR. 1) Does XYZ had any GST liability in this transaction since XYZ and PQR are related? 2) Can XYZ claim ITC of the invoice issued by ABC?

[Nandan Khambete]

1) If transaction value of Hourly rate is independent of usage of Software; meaning, value of the free use of software should be added to transaction value which is charged by XYZ to PQR.In this case, no separate RCM applicable in my opinion.

2) No, XYZ cannot claim ITC on Invoice billed to PQR.

AI Summary

Related party supply valuation: include free software use in transaction value; ITC not available if invoice billed to related party. If a supplier's hourly charge does not account for free use of a software licence supplied for its employees but billed to a related recipient, the economic value of that free use should be added to the supplier's transaction value; no separate reverse charge applies. Where the licence invoice is billed to the related recipient, the supplier cannot claim input tax credit on that invoice.