Sufficient degree of permanence in respect of human and technical resources qualifies as ‘Fixed Establishment’ in India – AAR, West Bengal*
by ReinHeads Team | Jul 3, 2020
| Facts |
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- IZ-Kartex named after P G Korobkov Ltd. (‘the Applicant’) is an India branch of a Russian entity (‘the Foreign Company’)
- The Applicant entered into a Maintenance and Repair Contract (‘the MARC’) with Bharat Coking Coal Ltd. (‘BCCL’) in respect of the machinery and equipment supplied
- Under the MARC, the Applicant and the Foreign Company are collectively referred to as ‘the MARC Holder’
- The Applicant contended that the GST liability under the MARC shall be payable by BCCL on reverse charge basis vide Entry No. 1 of the Notification No. 10/2017 – IT(R) dt. 28 June 2017 (‘the Notification’) (i.e., services supplied by a person located in a non-taxable territory to a person located in the taxable territory)
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| Issue before the Authority for Advance Ruling (‘the AAR’) |
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- Whether the MARC makes the supplier liable to pay GST?
- Whether the recipient for the services under the MARC is liable to pay GST on reverse charge basis under the Notification?
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| Discussion and Findings of the AAR |
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- The MARC is entered between the MARC Holder and BCCL, wherein the ‘taxes & duties’ clause distinguishes between a foreign MARC Holder and a domestic MARC Holder. However, none of the other clauses of the MARC stipulates existence of two such entities separately
- Rights, duties and obligations of the MARC holder are specified without any distinction between a foreign and domestic MARC holder
- The MARC is a long-term contract spanning over 17 years and officers, support staff and system expert would be deputed at the site for training and other activities
- The MARC Holder maintains suitable structures in terms of human and technical resources at BCCL sites to ensure supervision of the equipment, supply of spares, consumable and overheads for 5000 annual working hours for 17 years. This indicates sufficient degree of permanence to the human and technical resources employed at the sites
- The MARC Holder supplies the service at the sites from ‘fixed establishment’ as defined under Section 2(7) of the Integrated Goods and Services Tax Act, 2017 (‘IGST Act’) and the location of the supplier (i.e., fixed establishment) would be in India [under Section 2(15) of the IGST Act]
- Supply is not an ‘import of service’ under Section 2(11) of the IGST Act, since the supplier of service (i.e., the domestic MARC Holder) is located in India
- The Applicant (being a registered branch of the Foreign Company) shall be treated as the domestic MARC holder and liable to pay GST
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*Advance Ruling No. 04/WBAAR/2020-21 dated 29 June 2020 (The AAR, West Bengal)
