Eligibility of input tax credit wherein place of supply is outside India

[saravjit singh]

If any Indian consultancy firm provides technical and advisory services to an Indian company in relation to acquisition of working unit outside India. In that case whether the input tax credit is available to that Indian unit in terms of section 16(1) of CGST as the place of supply is outside India.

[Shilpi Jain]

Pls have a relook whether at all the place of supply should be outside India while paying the tax.

[KASTURI SETHI]

The query is too brief to reply. Pl. elaborate full facts and situations.

Do you fulfil the conditions laid down under Section 2 (6) of IGST Act, 2017 ? In case you qualify to the conditions, then ITC is admissible. 

For detailed reply, elaborate your query.

[Sadanand Bulbule]

I endorse the reply.

[YAGAY andSUN]

 In the scenario you’ve described, where an Indian consultancy firm provides technical and advisory services to an Indian company in relation to the acquisition of a working unit outside India, the key issue is whether the Indian company can claim Input Tax Credit (ITC) on the services provided by the consultancy firm, considering the place of supply is outside India.

Let's break this down step by step:

1. Place of Supply of Services:

Under GST, the place of supply determines whether the supply is considered as an export of service or a domestic supply. The place of supply is determined as per the provisions of Section 13 of the IGST Act, which deals with the place of supply of services.

In your case:

• The consultancy services are related to the acquisition of a working unit outside India. As per Section 13(2) of the IGST Act, the place of supply for advisory and technical services in relation to immovable property or business assets outside India is the location of the recipient of the service, i.e., India (as the recipient is the Indian company).

Thus, even though the working unit being acquired is outside India, the place of supply is still considered India because the recipient of the service (the Indian company) is located in India.

2. Classification as Export or Domestic Supply:

The key aspect here is whether the service qualifies as an export of service under Section 2(6) of the IGST Act. A service can be considered an export of service if it meets the following conditions:

• The supplier of the service must be located in India.
• The recipient of the service must be located outside India.
• The place of supply must be outside India.
• The payment for the service must be received in convertible foreign exchange or in Indian rupees wherever permitted by the RBI.

In this case, even though the consultancy firm is in India, the recipient (the Indian company) is also in India, and the service relates to the acquisition of a unit outside India. Since the place of supply is India, this does not qualify as an export of service. Therefore, the consultancy services are considered as a domestic supply under Indian GST.

3. Eligibility for Input Tax Credit (ITC):

According to Section 16(1) of the CGST Act, an Indian company is eligible to claim ITC on any goods or services that are used in the course of business, provided:

• The services are received by the registered person.
• The services are used in the course or furtherance of business.
• The tax invoice is available, and the services are used for business purposes.

However, Section 17(5) of the CGST Act restricts the claim of ITC on certain types of goods and services, including:

• Services that are used for the purpose of construction of an immovable property (other than plant and machinery).
• Services that are used for personal use.

In this case, since the consultancy services are related to the acquisition of a working unit (business-related), the Indian company is likely to be using the services for the furtherance of its business, which should allow it to claim ITC.

The important thing here is that the place of supply for the consultancy services is India, and the Indian company is receiving these services in connection with a business transaction. Hence, the Indian company should be eligible for ITC on the consultancy services, even though the acquisition is happening outside India.

4. Practical Considerations:

• Documentation: The Indian company will need to ensure that they have proper documentation, including the GST invoices from the consultancy firm.
• GST Registration: The Indian company must also be registered under GST and the services must be used for business purposes.
• No Export of Service: Since the service is not an export of service, ITC will be available to the Indian company on the same terms as for any domestic service.

Conclusion:

Yes, the Indian company can claim Input Tax Credit (ITC) on the technical and advisory services provided by the Indian consultancy firm, even though the place of supply is related to an acquisition outside India. This is because the place of supply for GST purposes is still India, and the services are used in the course of business.

Just ensure that all the conditions under Section 16(1) of the CGST Act are met, and the documentation is properly maintained for claiming the credit. If there are any doubts or if the situation is complex, it's always advisable to consult a GST consultant or tax advisor for further clarity.

Let me know if you need any more details or help!

[saravjit singh]

Thanks a lot🙏

AI Summary

Input Tax Credit Available for Technical Services Used in Foreign Business Acquisition Under Section 16(1) of CGST Act The query concerns whether an Indian company can claim Input Tax Credit (ITC) for technical and advisory services provided by an Indian consultancy firm related to acquiring a working unit outside India. Despite the acquisition being outside India, the place of supply would be India as per Section 13(2) of IGST Act since the recipient is located in India. The services do not qualify as export since both supplier and recipient are in India. ITC should be available under Section 16(1) of CGST Act as the services are being used for business purposes, provided proper documentation and GST registration requirements are met. The transaction is considered a domestic supply for GST purposes.