Reverse charge liability in case of overseas agent services

[pradeep kataria]

As per FA'2016, clause (b) of Sec. 13(8) of the IGST Act was deleted. Now, the place of supply of services, in case of an overseas agent's services, will be the location of the recipient. Given the fact that as per the terms of the contract, commission will be due and payable to agent once the customer remits the payment. The question is, in such a case, when the time of supply will trigger, particularly when no payment is made, or no self-tax invoice is issued, but an accounting entry is passed at the year-end in the books for providing the liability. The liability is booked in bill payable account and will be transferred to the agent account once payment is received.

[YAGAY and SUN]

Post omission of clause (b) of Section 13(8) of the IGST Act, 2017, the place of supply of intermediary/agent services defaults to Section 13(2), i.e., the location of the recipient. Accordingly, such services qualify as import of services, subject to satisfaction of conditions under Section 2(11) of the IGST Act.

In respect of time of supply, the relevant provision is Section 13(3) of the CGST Act, 2017 (applicable to import of services). The time of supply shall be the earlier of:

(a) the date of payment as entered in the books of account of the recipient or the date on which payment is debited in the bank account, whichever is earlier; or

(b) the date immediately following sixty days from the date of issue of invoice by the supplier.

In the present case, where the contractual terms stipulate that commission becomes due only upon receipt of payment from the customer, the liability itself is contingent until such realization. In absence of issuance of invoice by the overseas agent and in absence of any payment (including book entry reflecting payment), clause (b) of Section 13(3) cannot be triggered for want of an identifiable invoice date.

Further, a mere year-end accounting provision by way of a book entry in "bill payable" account, without crystallization of liability under the contract and without corresponding payment or invoice, does not constitute "payment" within the meaning of Explanation to Section 13, as it lacks the element of consideration being settled or acknowledged as due.

Accordingly, the time of supply shall not trigger merely on account of year-end provisioning. It shall arise only upon occurrence of either:

(i) actual payment (including book entry reflecting payment to the agent), or

(ii) issuance of invoice by the overseas agent followed by lapse of sixty days therefrom, whichever is earlier.

[Shilpi Jain]

If your question is regarding expense accounted in March for which payment is yet to be made, then please look at section 14

If services are received and invoice is issued for the service in March (before 30th) ideally no rcm liability.

But the only issue here is, invoice issued by service provider is not invoice under GST and there is no requirement to issue self invoice by recipient before this date!!

[pradeep kataria]

If I am not wrong, Sec 14 of the CGST Act comes into play when there is a change in the rate of tax in respect of the supply of goods /services. Since there is no change in the tax rate on Agent services, Sec. 14 will not apply.

A self-tax invoice is required to be issued within 30 days from the date of receipt of services as per Rule 47A.

Neither payment has been made to the service provider nor a self-tax invoice issued on 31st March (at the time of booking provision), as Rule 47A permits 30 days' time, which has not lapsed & hence the requirement of clause (a) or (c) of Sec 13(3) of the CGST Act has not been met. Clause (b) is not applicable as the service provider is not registered.

The first proviso to Sec. 13(3) of the CGST Act states that where it is not possible to determine the time of supply as per clause (a),(b) or(c), the time of supply shall be the date of entry in the books of accounts of the recipient of services.

The only question is " Whether or not booking the provision of Overseas Agent Services will trigger the RCM Liability"?

[Shilpi Jain]

Agreed, section 14 will not apply since no change in rate of tax.

In that case you will have to ascertain time of supply as per section 13. This will depend on terms of the contract, whether this is a continuous supply of service.

If yes, then as per 31(5) identify when invoice has to be issued and basis that the time of supply will arise u/s 13.

if the time of supply arises before the amendment then no GST liability under RCM.

AI Summary

Reverse charge liability for overseas agent services depends on import of services rules and time of supply triggers.
Post-omission of clause (b) of section 13(8) of the IGST Act, overseas agent or intermediary services take the recipient's location as the place of supply and are treated as import of services subject to section 2(11). Time of supply under section 13(3) is the earlier of payment, including a book entry reflecting payment, or sixty days after the supplier's invoice. A year-end provision alone does not constitute payment or crystallise liability, so reverse charge liability is not triggered merely by booking the provision.