RCM Provision in case supplier is located in non taxable territory

[KSA Associates]

As per notification no.10/2017 of IGST (rate),

Sr. no 1 states that in case of supplier is located in non taxable territory and recipient is located in taxable territory, than the provision of RCM will be applicable. The Sr.no 1 stays silent on whether this provision is applicable only in case place of supply is in India or place of supply is outside India.

In case of Savio jewellery it has been taken stand that in case place of supply is outside India then also provisions of RCM will be applicable.

Dear expert, kindly evaluate whether in case of place of supply is outside India whether the provisions of RCM under Sr no 1 will be applicable or not?

[YAGAY andSUN]

Your query addresses an important interpretational issue under Notification No. 10/2017 – IGST (Rate), particularly Sr. No. 1, which deals with reverse charge mechanism (RCM) on import of services.

Relevant Text – Sr. No. 1 of Notification No. 10/2017 – IGST (Rate)

Category of Supply: Any service supplied by any person who is located in a non-taxable territory to any person located in the taxable territory.
Recipient liable to pay tax: Any person located in the taxable territory.

This entry does not explicitly mention the condition of "place of supply" being in India, and that’s where the interpretational challenge lies.

Key Legal Interpretation Issues

• Under Section 7(1)(b) of the IGST Act, import of services means:
  1. Supplier of service is located outside India,
  2. Recipient is located in India,
  3. Place of supply is in India.

All three conditions must be satisfied for a transaction to qualify as “import of services”, and hence, be taxable in India under IGST.

So, if the place of supply is outside India, then technically it is not an import of service, and therefore should fall outside the scope of IGST — and, by extension, outside the RCM under Notification 10/2017.

Case Law: Savio Jewellery India vs. UoI

In the Savio Jewellery case, the Gujarat High Court held that even if the place of supply is outside India, RCM would still apply, relying on the language of Notification 10/2017 which only requires the supplier to be in non-taxable territory and recipient in taxable territory.

• This is a controversial and disputed interpretation, as it appears to bypass the requirement of the place of supply being in India, which is fundamental to defining a transaction as a supply liable to tax in India under the IGST Act.

Expert View & Practical Position

While the notification’s language is broad, its application must be read harmoniously with the charging section of the IGST Act (Section 5), which imposes tax only on supplies where the place of supply is in India.

Therefore, if place of supply is outside India, the service does not qualify as "import", and RCM under Notification 10/2017 should ideally not apply.

However, in light of judicial precedents like Savio, and in the absence of a CBIC clarification, some tax officers may still attempt to apply RCM even when place of supply is outside India, leading to potential litigation.

Conclusion

• As per strict reading of the IGST Act, RCM under Sr. No. 1 of Notification 10/2017 should not apply where the place of supply is outside India, since such a service does not qualify as an “import of service.”
• However, courts (e.g., Savio case) have taken a broader view, which may be relied upon by authorities in certain cases.
• In practical terms, taxpayers should assess the litigation risk, maintain robust documentation, and may consider seeking an advance ruling or clarification from CBIC where significant amounts are involved.

Let me know if you'd like a note or memo drafted on this issue for internal or client use.

[KASTURI SETHI]

Place of supply is  a determinant factor for nature of supply whether inter-State or intra-State.

[KASTURI SETHI]

Pl read, 'only for nature of supply'.

[Sadanand Bulbule]

In any case, the taxpayers liable to pay tax under RCM have to bear in mind the following requirement as mandated under Section 31[3] of the CGST Act:

(f) a registered person who is liable to pay tax under sub-section (3) or sub-section (4) of section 9shall within the period as may be prescribed, issue an invoice in respect of goods or services or both received by him from the supplier who is not registered on the date of receipt of goods or services or both;

(g) a registered person who is liable to pay tax under sub-section (3) or sub-section (4) of section 9shall issue a payment voucher at the time of making payment to the supplier.

[Shilpi Jain]

If PoS is abroad, GST levy would not attract.

AI Summary

RCM Under GST Notification 10/2017 Challenges Interpretation of Place of Supply and Tax Liability Across Territories A legal discussion forum explores the applicability of Reverse Charge Mechanism (RCM) under GST Notification 10/2017 when a supplier is in a non-taxable territory. The key issue centers on whether RCM applies when the place of supply is outside India. While the notification's language is broad, strict interpretation of the IGST Act suggests RCM should not apply if place of supply is outside India. However, judicial precedents like the Savio Jewellery case have taken a broader view, potentially creating uncertainty for taxpayers.