TaxTMI 
TaxTMI 
2026 (9) TMI 1264
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....ngal Authority for Advance Ruling Regulations, 2018. 1.1 At the outset, we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 (the CGST Act, for short) and the West Bengal Goods and Services Tax Act, 2017 (the WBGST Act, for short) have the same provisions in like manner except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the WBGST Act. Further to the above, for the purposes of these proceedings, the expression "GST Act" means both the CGST Act and the WBGST Act. 1.2 The Applicant is part of John Wood Group Limited and is directly held by Wood International Limited, England & Wales (85.53%), which is the ultimate holding company of the group. As part of the group companies' activities, a single company incurs certain Information Technology (IT)-related costs at the group level on behalf of other companies in the group, which are proposed to be charged to the group companies on a cost-to-cost basis. The IT fees incurred by the group companies for software and IT infrastructur....
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....ware, Information Technology infrastructure and other IT support services maintained and operated globally by the group. The Applicant states that such costs are allocated among the group companies that utilise the relevant IT infrastructure and services, and the corresponding costs are thereafter charged to the respective group companies on a cost-to-cost basis. 2.3 The Applicant further submits that the Information Technology infrastructure and software facilities are maintained globally by the group company and are utilised by the various entities of the group. The expenditure incurred centrally towards such IT infrastructure and software is accordingly allocated to the group companies benefiting from such facilities. In the case of the Applicant, M/s Wood Group UK Limited, United Kingdom, charges the relevant IT fee to the Applicant by raising debit notes on a cost-to-cost basis. The Applicant treats the IT support services received from Wood Group UK Limited as an import of services for GST purposes. 2.4 The Applicant submits that, since the services are received from Wood Group UK Limited, United Kingdom, which is situated outside India, and the Applicant is located in ....
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....he second proviso to Rule 28(1) is therefore required to be understood with reference to the self-invoice issued by the recipient and not merely with reference to the commercial debit note or invoice issued by Wood Group UK Limited. The Applicant submits that the self-invoice constitutes the relevant statutory document on the basis of which the Applicant discharges GST liability under the Reverse Charge Mechanism. Accordingly, the value declared in such self-invoice is required to be regarded as the deemed open market value in terms of the second proviso to Rule 28(1). 2.8 The Applicant submits that the CBIC has also issued Circular No. 199/11/2023-GST dated 17.07.2023 dealing with valuation of internally generated services between the Head Office and Branch Office where full input tax credit is not available. The Applicant relies upon the valuation principle contained therein and submits that the same principle has subsequently been extended and clarified in Circular No. 210/4/2024-GST dated 26.06.2024 in relation to import of services from related persons where the recipient is eligible for full input tax credit. According to the Applicant, the said circular clarifies that whe....
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....ny Pvt. Ltd. v. STO [(2025) 36 Centax 146 (Mad.)]. The Applicant submits that the aforesaid judicial decisions support the proposition that, where the statutory deeming provision under Rule 28 applies, the value declared by the recipient in the self-invoice can constitute the deemed open market value for GST purposes. 2.12 The Applicant submits that the difference between the value declared in its self-invoice and the actual amount charged by Wood Group UK Limited arises because different cost allocation methodologies are being followed by the Applicant and Wood Group UK Limited. During the year 2023, Wood Group UK Limited allocated the relevant group IT costs on the basis of employee headcount. However, from the year 2024 onwards, Wood Group UK Limited changed the methodology and began allocating the relevant IT costs on the basis of employee IT usage for the concerned IT infrastructure and services. As a consequence of this change, the IT charges allocated to the Applicant by Wood Group UK Limited increased as compared with the earlier headcount-based methodology. 2.13 The Applicant submits that notwithstanding the change in methodology adopted by Wood Group UK Limited, the....
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.... input tax credit under Section 16 of the CGST Act. The Applicant therefore submits that where the tax paid under Reverse Charge Mechanism is fully available as input tax credit, there is no loss of revenue to the exchequer on account of adoption of the value declared in the self-invoice. The Applicant accordingly submits that the valuation relaxation contemplated under the second proviso to Rule 28(1) is intended precisely to address such revenue-neutral situations. 2.17 The Applicant further submits that the valuation principle contained in the second proviso to Rule 28(1) is based upon a deeming fiction and not upon determination of the actual commercial value of the services in every individual case. Therefore, once the Applicant is eligible for full input tax credit and has declared a value in the self-invoice, the declared value is required to be treated as the open market value for GST purposes, irrespective of the value mentioned in the commercial debit note issued by Wood Group UK Limited. 2.18 The Applicant also submits that the principle of adopting a value different from the actual commercial value is not unknown to the indirect tax regime. The Applicant has refer....
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....for the purpose of determining the taxable value of the imported IT support services. The Applicant accordingly prays that the said value be accepted for the purpose of discharging GST liability under Reverse Charge Mechanism, notwithstanding the difference between such value and the commercial amount charged by Wood Group UK Limited. 3. Submission of the Revenue 3.1 The concerned officer from the Revenue submits that the Applicant is engaged in rendering Engineering Design, Drawing, Procurement and Construction Management services to its group companies located abroad as well as to third parties in India. The Applicant is a part of the John Wood Group and receives certain IT-related services from its related foreign entity, M/s. Wood Group UK Limited, United Kingdom. The said IT-related costs, comprising software and IT infrastructure costs maintained globally, are incurred centrally by the group company and are cross-charged to the Applicant and other group companies on a pure cost-to-cost basis without any markup or profit element. The Applicant discharges GST under the Reverse Charge Mechanism in respect of such import of services by issuing self-invoices and claims full ....
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....el for and on behalf of other companies in the group and the same is cross-charged to all other all other group companies on a cost-to-cost basis. IT fees incurred by the group companies on the software and IT infrastructure expense, is maintained globally by the single group company and all the companies in the group are being benefitted. In order to ensure that the relevant cost is allocated to all the group companies where the IT infrastructure is being used. The cost incurred centrally is charged to all the companies on cost-to-cost basis. Here in the applicant's case M/S Wood Group UK Limited, United Kingdom charges IT fee on cost-to-cost basis by raising debit notes on the applicant. The applicant discharges his tax liability under Reverse Charge by issuing self invoice. 4.3 Under these circumstances, the applicant has placed the following question before this authority: Question: Whether the value mentioned in the self-invoice raised by the applicant can be deemed as open market value as per Circular No. 210/4/2024-GST dated 26.06.2024 for the payment of GST under reverse charge? 4.4 The applicant submits that as per the meaning of supply under Section 7 of....
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....of the CGST Rules, 2017 is applicable. However, in terms of the second proviso to Rule 28(1), where the recipient is eligible for full Input Tax Credit, the value declared in the invoice may be deemed to be the open market value of the goods or services. The Revenue further relies upon Circular No. 210/4/2024-GST dated 26.06.2024, which clarifies that the principle contained in Circular No. 199/11/2023-GST is equally applicable to the import of services from foreign related entities. Accordingly, the Revenue submits that the value declared by the Applicant in the self-invoice may be accepted as the deemed open market value for discharging GST liability under RCM, subject to verification that the Applicant is eligible for full Input Tax Credit of the tax paid under RCM. 4.6 We will begin our discussion with the concept of supply in the GST Act since any tax under the regime is imposed on the incidence of taxable supply. Section 7 of the CGST Act, 2017 elaborates the concept of supply. The relevant portion of the said section is reproduced as under: Section 7. Scope of Supply. (1) For the purposes of this Act, the expression 'supply' includes- (a) all fo....
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....7 defines related persons as under: Explanation.-For the purposes of this Act,- (a) persons shall be deemed to be 'related persons' if- (i) such persons are officers or directors of one another's businesses; (ii) such persons are legally recognised partners in business; (iii) such persons are employer and employee; (iv) any person directly or indirectly owns, controls or holds twenty-five per cent. or more of the outstanding voting stock or shares of both of them; (v) one of them directly or indirectly controls the other; (vi) both of them are directly or indirectly controlled by a third person; (vii) together they directly or indirectly control a third person; or (viii) they are members of the same family; (b) the term 'person' also includes legal persons; (c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related. 4.7 Now we will apply the discussions made so far to the factual matrix of the present case as represented before us and dete....
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....he provisions of Section 13(2) of the IGST Act, 2017 since the services supplied are not covered by sub-sections (3) to (13) of Section 13. Section 13(2) stipulates as under: (2) The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services: Provided that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services. So, in the present case, the place of supply is India. Thus, the transaction qualifies as import of services. As such, it is includible in Entry 4 of Schedule I appended to Section 7 supra. So it can be concluded that the transaction as referred to in the application is a supply under the provisions of the CGST Act, 2017. 4.8 Once the transaction is established as supply, now we will move on to the points of nature, taxability and value of the referred supply. In the preceding paragraph, we have discussed that the transaction under question is an import of service by virtue of the definition provided in Section 2(11) of the IGST Act, 2017. Section 7(4) of the I....
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....ue of transaction in the present case on which tax is to be paid by the recipient of services. Since the IGST Act, 2017 does not contain any specific provision for value of supply, by virtue of application of Section 20 of the IGST Act, 2017, we have to refer to Section 15 of the CGST Act, 2017 for determination of value of supply in the present case. Section 15(1) of the Act is as under: (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. It is evident that the above provisions will be applicable where the supplier and recipient are not related. It is not applicable where both are related, as in the present case. In that case the provisions of sub-sections (1), (2) and (3) are not applicable. To determine value of supply in cases where the supplier and recipient are related persons, provisions of Section 15(4) is applicable which reads as under: (4) Where the value of the supply of goods or services or both can....
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....d person where recipient is eligible to full input tax credit - Reg. As per S.No. 4 of Schedule I of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the 'CGST Act'), import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business, is to be treated as supply even if made without consideration. 2. Representations have been received from trade and industry stating that demands are being raised by some of the field formations against the registered persons seeking tax on reverse charge basis in respect of certain activities undertaken by their related persons based outside India, by considering the said activities as import of services by the registered person in India, based on an expansive interpretation of the deeming fiction in S. No. 4 of Schedule I of CGST Act, though no consideration is involved in the said activities and the same are not considered as supplies by the said related person in India. It has been represented that the same treatment, which is being given to domestic related parties/ distinct persons as per clarification provided by Circular ....
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.... State to the office of that organisation in another State, both being distinct persons. It has been clarified in the said circular that as per the second proviso to rule 28(1) of CGST Rules, in respect of supply of services by Head Office (HO) to Branch Offices (BO) of an organisation, the value of the said supply of services declared in the invoice by HO shall be deemed to be open market value of such services, if the recipient BO is eligible for full input tax credit. It has also been clarified vide the said circular that in cases where full input tax credit is available to the recipient, if HO has not issued a tax invoice to the BO in respect of any particular services being rendered by HO to the said BO, the value of such services may be deemed to be declared as Nil by HO to BO, and may be deemed as open market value in terms of second proviso to rule 28(1) of CGST Rules. 3.5 The second proviso to Rule 28 (1) of CGST Rules, is applicable in all the cases involving supply of goods or services or both between the distinct persons as well as the related persons, in cases where full ITC is available to the recipient. Accordingly, it is evident that the clarification which....