Place of supply - performance based service

[Kaustubh Karandikar]

Goods are imported by XYZ, India from foreign buyer PQR . After receiving the goods, it is found that the goods are deficient in terms of its quality. Therefore, XYZ had performed some re – work / repair on it before putting it in to use. The re – work / repair charges were recovered from the foreign supplier PQR by issuing a Debit Note. Is XYZ required to pay GST on it? Sir, in my view, it will fall under Section 13(3)(a) of IGST Act i.e. services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services and accordingly since the repairs is performed in India, XYZ will be liable to pay GST. Please confirm.

[KASTURI SETHI]

Dear Sir,

Yes. In this scenario, XYZ is liable to pay GST.

[Shilpi Jain]

In this case the amount that is recovered from the exporter is in the nature of deficiency of the supply made by him and should not be considered as a separate supply. Should not be liable to GST as a separate transaction

AI Summary

Place of supply rules: rework charges recovered from foreign supplier may attract GST if repair services are performed in India. Whether rework charges recovered by an Indian importer from a foreign supplier attract GST turns on characterisation: one view treats the recovery as payment for a service in respect of goods physically made available in India and therefore supplied in India under place of supply rules, creating a GST liability; an alternate view treats the recovery as a contractual adjustment for deficiency of the exporter's supply, not a separate taxable supply.