Under the Goods and Service tax laws in India, the supply of services is taxed in India. This also includes import of services into India. The taxability of a service is determined by the place of supply in India. The supply of certain services like technical services, engineering services or legal services also attracts GST under reverse charge mechanism. However, there has been confusion as to whether such services provided by a foreign company in India would be taxable under GST and whether they would require registration under GST for providing such services.
Registration under GST:
Registration as part of the GST system means that the taxpayer will be registered on the official system and will be able to collect input tax credit on the taxes paid for their customers. Registration means that the taxpayer will be recognized as a supplier of services, can collect tax from their customers and receive input tax credit on the taxes paid for suppliers and purchasers. The input tax credits that are claimed can also be utilized by the taxpayer towards payment of taxes on further supply.
Essentially every supplier of goods and services as understood under the Acts, are required to register under the law, except in the case of businesses with a turnover of below INR 20 lakhs. Such small business can opt to register as well, but there is no requirement. GST registration is linked to the PAN (Permanent Account Number) and once the registration is successful, a unique 15 digit GSTIN will be allotted to the company.
The following supplier of services has to be registered under the GST law regardless of their turnover:
- If they provide inter-state supplies.
- A person receiving services that is chargeable under the reverse charge mechanism.
- Non-resident taxable persons who do not have a fixed place of business in India.
- Agent or principle that is supplying services on behalf of someone else.
- E-commerce operators
- Other such service providers as demarcated under the law.
Taxable supply providers have to be registered under the central GST and the respective state GST.
What is ‘supply’ and ‘location of service’?
The taxable event under GST in India is the supply of goods or services, in exchange for consideration. ‘Supply’ has been defined as, “all forms of supply of goods or services or both that includes sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.” It also includes the import of services.
Hence, any such companies or business that are providing services which will fall within the lieu of ‘supply of services’ and have turnovers greater than INR 20 lakhs will have to receive registration under GST.
For foreign companies supplying services into India, the determination of taxable supply might be more difficult. If the foreign company is supplying services into India, then it will be considered an import of service under the Integrated Goods and Service Tax Act. Import of services is when the supply of service is made by a foreign business to a place of supply in India or to a recipient of service in India. Such services are taxed under section 7 of the IGST Act. Certain import of services if they are made by a person in a non-taxable territory to a person in a taxable territory in India, will be taxable under the reverse charge scheme. Under this scheme the recipient will be liable to pay tax.
The place of supply of services can be determined as the location of the supply of services, or the location of the recipient of the supply of services. It may defer on a case to case basis.
If foreign businesses are providing services in India and they do not fall under reverse charge mechanism, it implies that they also require registration under the GST law. This question has been a matter of dispute in India, and recently the Authority for Advance Ruling has tried to provide a substantive answer.
What if foreign companies are deputing employees?
In the case of M/s. Komatsu Pvt. Ltd, the Customs, Excise, Service, tax Appellate Tribunal (CESTAT) held that service tax could not be applicable on the services provided by deputed employees of a foreign company.
In this particular case, the parents company (a foreign entity) has deputed employees to work in the Indian factories, and were paid in foreign exchange. The assessing officers contented that these services should be taxable under the reverse charge mechanism. However, the tribunal ruled that there was no existence of a service provider-receiver relationship, and the foreign entity continued to manage and exercise full control over the deputed employees. Hence, it was not taxable under the service tax.
Similarly, the Authority for Advance Ruling heard the case of M/s. Tokyo Electronic Power Company wherein the foreign entity was questioning whether they required registration under the Odisha Goods and Service Tax.
The facts of the case are as follows:
- The Japanese entity Tokyo Electronic Power Company entered into an agreement with an Indian entity in Odisha to provide certain consultancy and technical services, and to provide the same engineers from the foreign entity would be deputed for the project.
- The company was registered as a foreign company for PAN purposes.
- The employees were deputed from the foreign offices and would visit the project sites, while staying in hotels.
- The foreign company did not have any fixed place of business in India.
The question being contested was whether the foreign company was required to obtain CGST registration for the consultancy services provided in Odisha. The foreign company argued that since they did not have a fixed place of business in India, they would not fall within the meaning of ‘location of supply of service’ and hence it would not be taxable under GST.
The Tribunal held that although the company may not have had a fixed place of business in India, the long term project entered into by both the parties was a ‘fixed place of business. The project was entered into on a long term basis and the foreign entity was deputing engineers specifically to provide technical support for the project. The technical support was crucial and the foreign company cannot argue that it was not a supply of service.
They held that the foreign entity was clearly providing a continuous and permanent supply of service to a fixed location of service. Hence, they could not be considered an importer of service but rather had to be taxed as a supplier located in India. The tribunal ruled that the foreign company had to register under the Odisha GST and CGST.
The important points from the ruling are as follows:
- Even if there is no “fixed” place of business for a foreign entity, entering into a long term permanent project will also qualify as a fixed place of business in terms of ‘location of service’.
- If the employees are deputed specifically on a permanent basis and contribute technical support and know-how to the project, then that it taxable as a service under GST.
- If the services are being provided by employees situated in India (who exercise control in India) to service recipients in India, then they are a taxable supplier of service in India.
- Every service provider in India has to be registered under the appropriate central and state registration.
How to Obtain Registration for GST:
The process for GST registration is fully digital, and is a hassle free process. Before initiating the registration process, companies must be sure to have the following details and documents:
- The company must have a PAN card.
- Charter documents that provide proof of constitution like the Memorandum of Association or Articles of Association. Or the certificate of incorporation.
- List of directors or partners along with their proof of address, and PAN details (if Indian).
- Details of the authorized signatory along with the proof of their appointment.
- Details of their principle place of business, along with the proof of address.
- Bank account details along with their proof documents.
- Have certified digital signature certificates.
The registration can be done online at the GST online portal (
https://www.gst.gov.in/ ), after selecting registration from the ‘services’ tab. Briefly, the following are the steps for registration:
- Create a new registration by entering the details required and generating a Temporary Reference Number.
- Once the TRN is generated, the user may login and fill in the details of the GST application form.
- Along with the form, the scanned copies of all the required documents must also be attached.
- The form must be submitted by the authorized signatory long with their DSC or e-signature.
Once the application is approved, the GSTIN (GST Identification Number) a unique code assigned to each business will be generated.
