RCM payable on Service received related research & Development with Foreign company having Joint venture with the foreign company.

[Hemlata Agarwal]

RCM payable on Service received by Indian company related to research & development with foreign company having Joint venture with the foreign company.

[Sadanand Bulbule]

RCM on import of services received from a foreign company is governed by:

Section 9[3] & 9[4] of the CGST Act,

Section 5[3] and 5[4] of the IGST Act,

Notification No.10/2017-IGST [Rate].

Plz elaborate the facts.

[YAGAY andSUN]

Let's break down your question about Reverse Charge Mechanism (RCM) on services related to Research & Development (R&D) received by an Indian company from a foreign company that has a joint venture with the foreign company.

Context:

• An Indian company receives R&D services from a foreign company.
• The foreign company has a joint venture (JV) with the Indian company or another foreign company.
• You want to know if RCM is applicable on the payment for such services.

Key Points on RCM under GST in India:

1. Reverse Charge Mechanism (RCM) under GST applies when the recipient of goods or services is liable to pay GST instead of the supplier.
2. Under Section 9(3) of the CGST Act, RCM applies on certain notified goods and services.
3. One important notification is Notification No. 10/2017 - Central Tax (Rate) dated 28 June 2017 which specifies services on which RCM is applicable when supplied by an unregistered supplier to a registered recipient.
4. Also, import of services is subject to RCM under Section 5(3) of the IGST Act.

Applicability of RCM on R&D Services from Foreign Company:

• When an Indian company receives services from a foreign supplier (i.e., import of services), the Indian company must pay GST under RCM.
• The term “import of services” means:
  • The supplier is located outside India,
  • The recipient is located in India,
  • The place of supply of services is in India,
  • The supplier and recipient are not related, or if related, the supply is not through a registered establishment of the supplier in India.
• The joint venture relationship between the Indian company and the foreign company does not exempt the Indian company from paying RCM, unless there is a permanent establishment (PE) of the foreign company in India that supplies the service.
• R&D services are considered taxable services under GST.
• So, if the R&D service is provided by the foreign company outside India, and the Indian company is receiving this service for business, the Indian company must pay GST on reverse charge basis.

Practical Summary:

Situation	RCM Applicable?	Explanation
Indian company receives R&D service from foreign company located outside India	Yes	Import of service triggers RCM on Indian recipient.
Foreign company has joint venture with Indian company (JV partner)	Yes, still applicable	JV status does not exempt RCM unless supplied via Indian PE.
Foreign company has a registered establishment (PE) in India	No, if supplied via PE	Supplies from Indian PE are regular supply with forward charge.

Additional Notes:

• The Indian company should self-invoice and pay GST under RCM, usually at the rate applicable to R&D services (typically 18%).
• The Indian company can claim input tax credit on the GST paid under RCM, subject to normal ITC rules.
• Proper documentation and declaration of RCM in GST returns is essential.

***

[Shilpi Jain]

Require further details whether the services are in relation to pharma and whether any goods are provided by the Indian co. to the foreign entity to provide the services? Refer notification 4/2021-IGST

[Shilpi Jain]

This will help you to first assess what is the place of supply and accordingly take a view whether RCM is applicable.

If you are anyway eligible for credit and can either use it or take a refund, proceed to pay under RCM.

AI Summary

Reverse Charge Mechanism applies to imported R&D services, requiring the Indian recipient to self-invoice and pay GST under RCM. Reverse Charge Mechanism applies where an Indian recipient obtains R&D services from a foreign supplier and the place of supply is in India; a joint venture does not eliminate RCM unless the foreign supplier supplies via a registered establishment or permanent establishment in India. The Indian recipient must self-invoice, pay GST under RCM at the applicable rate, disclose the liability in GST returns, and may claim ITC subject to normal conditions. Sectoral facts and notification-specific rules can change the place-of-supply and RCM applicability and therefore require factual examination.