RCM on drawing charges paid

[Kaustubh Karandikar]

XYZ (Belgium) had placed an order on PQR(India)for supply of Machinery. The drawings relating to these Machinery was supplied by XYZ to PQR and issued an Invoice on PQR towards recovery of Drawing charges. Is PQR required to pay GST under reverse charge on the amount paid to XYZ? In my view, it will fall under Section 13(2) of IGST Act and therefore, PQR will be liable to pay GST under reverse charge. Views of the experts please.

[Shilpi Jain]

Yes agreed. In case the contract is worded in such a way that the Indian company would provide the machinery based on the drawings provided by the company abroad, this liability can be avoided

[Ganeshan Kalyani]

In my view, there is no supply of drawing. It is according to terms of the customer that machinery should be as per drawing supplied to supplier.

[Shilpi Jain]

Thereby the terms of the contract are very critical in this case.

AI Summary

Reverse charge liability may arise for payments to a foreign supplier for technical drawings depending on contractual allocation of supply. Whether an Indian recipient must pay GST under reverse charge for payments to a foreign supplier for drawings depends on whether the drawing charges constitute a taxable import of services under Section 13(2) IGST. If the foreign supplier is the provider of drawings for consideration, reverse charge liability arises on the Indian recipient; if drawings are customer provided specifications and not a separate supply from the foreign party, reverse charge will not apply. Contractual terms allocating who supplies and charges for drawings are determinative.