Import of Service

[Kaustubh Karandikar]

Parent / Sister Concern of XYZ is giving a Bank Guarantee of the foreign bank to the foreign customer on behalf of XYZ. This bank guarantee is towards any damage / defects to the product exported by XYZ. The foreign bank is charging certain charges on monthly basis against this bank guarantee to the Parent / Sister Concern of XYZ. The Parent / Sister Concern is paying the same to the foreign bank and recovering from XYZ on monthly basis. Is XYZ required to pay GST on it as import of service?

[Shilpi Jain]

It would be an import of service by the parent/sister concern of XYZ. ITC can be availed of this and charged back to XYZ who can then claim refund

[Rajagopalan Ranganathan]

Sir,

A foreign bank providing service from outside India cannot be 'banking company' according to Section 45 A of Reserve Bank of India Act, 1934. hence general provision of place of supply of service will apply, that is, location of recipient of service will be place of supply. Therefore XYZ receives the service through parent/ sister concern of XYZ XYZ is liable to pay gst under RCM and XYZ can take ITC of the same.

AI Summary

Import of service: recipient liable under reverse charge when service is routed via related concern; input tax credit allowed.
Where a foreign bank provides guarantee-related services from outside India and the parent/sister concern procures them on behalf of XYZ, the service is treated as received in India by XYZ through the related concern; XYZ is liable under the reverse charge mechanism and may avail input tax credit for the foreign bank's charges recovered through the related concern.