Place of Supply under RCM in ISD

[Lalit Sehrawat]

Regular Taxpayer (RT) registered in Haryana and ISD is also registered in Haryana. RT has received an invoice for legal services from the Lawyer situated in Delhi. RT has paid the RCM liability, and an invoice should be issued to ISD for the distribution of the ITC pertaining to the RCM liability paid by RT. My query is what should be the place of supply for the Invoice to be issued by the RT to ISD.

[Sadanand Bulbule]

Under the CGST Act, RCM shifts on the liability to pay tax from the supplier to the recipient of goods or services.

ISD: An office that receives invoices for ITC  and distributes the tax credit to its barnches  [recepient of services]. Therefore an ISD cannot discharge liability under RCM. The actual recipient of such services, i,e., the concerned unit or branch, has to discharge the tax under RCM. Thus ISD cannot pay RCM and then distribute the ITC to its units or brances.

[YAGAY andSUN]

In terms of the Central Goods and Services Tax Act, 2017 (“CGST Act”) and the Integrated Goods and Services Tax Act, 2017 (“IGST Act”), when a Regular Taxpayer (“RT”) registered in the State of Haryana receives legal services from an advocate located in Delhi, such services fall under the notified category under Section 9(3) of the CGST Act, whereby the tax liability is to be discharged by the recipient on a reverse charge basis.

Upon payment of the RCM liability, the RT becomes eligible to avail input tax credit (ITC), subject to fulfilment of the conditions prescribed under Section 16 of the CGST Act and Rule 36 of the CGST Rules, 2017.

Where the RT functions under a registered Input Service Distributor (ISD) also registered in Haryana, the RT may distribute the ITC of input services to the ISD in accordance with Section 20 of the CGST Act read with Rule 39 and Rule 54(1) of the CGST Rules. It is crucial to note that ISD cannot discharge RCM liability, as the liability to pay tax under reverse charge remains with the actual recipient of service, i.e., the RT, not the ISD. The ISD mechanism is confined strictly to the distribution of ITC on input services, not to the discharge of tax liability.

Regarding the place of supply for the ISD invoice to be issued by the RT (acting as a distributing unit) to the ISD (also in Haryana), in accordance with Section 12(2)(a) of the IGST Act, where the supplier and recipient are located in the same State, the place of supply shall be the location of the recipient. Since both entities are situated in Haryana, the transaction does not constitute an inter-State supply under Section 7 of the IGST Act, but rather an intra-State supply, attracting CGST and SGST.

Accordingly, the ISD invoice for distribution of ITC on the RCM paid legal services shall reflect Haryana as the place of supply, and the tax components shown therein shall be CGST and SGST.

In conclusion, Haryana shall be the place of supply for the purpose of issuing the ISD invoice, and the ISD can validly receive the distributed ITC, even though the legal service originated from an advocate based in Delhi, as long as the RCM liability was correctly discharged by the actual recipient—i.e., the RT in Haryana.

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[Raghav Mehra]

Thank you for the explanation. in my case, all the facts are same.

So RT (UP) will issue an E-Invoice to ISD (UP) with CGST & SGST

It is not relevant that the original invoice from the advocate was with IGST, because the tax is already paid.

Is it correct?

Can you also explain what the treatment will be in Tally?

Thank you.

[Shilpi Jain]

Use the same PoS as the RT has done.

AI Summary

Place of supply for internal invoice when taxpayer pays reverse charge: should it be Haryana based on recipient's location? A registered taxpayer and its ISD, both located in Haryana, received legal services from a supplier in Delhi and the taxpayer discharged the reverse charge. The taxpayer must issue an invoice to the ISD to enable distribution of ITC attributable to that RCM payment. The forum question asks whether the place of supply for that internal invoice should be Haryana (location of recipient/ISD and principal establishment) despite the original supplier being located in Delhi.