This is to apprise you of recent ruling of the Authority for Advance Ruling (‘AAR’), West Bengal in the case of IZ-Kartex named after P G Korobkov Limited, 2020-VIL-165-AAR. The AAR held that Maintenance and Repair services provided by Indian Branch (‘Branch’) of a Foreign Company (‘FC’) is exigible to GST in the hands of Branch.   

Brief facts: 

• The Applicant was Branch of FC. FC supplied machinery and equipment to a customer in India (‘recipient’). Pursuant to such supply, FC entered into Maintenance and Repair Contract (‘MARC’) with the recipient for a period of 17 years. As per MARC, the requisite scope of work was required to be executed by Branch.
• The Applicant sought an advance ruling as to the person liable to pay GST FC or the recipient under Reverse Charge Mechanism as ‘import of service’. The Applicant submitted that service is supplied by FC and not Branch. 

AAR’s decision: 

The AAR rejected the Applicant’s contention and held as under: 

• Branch maintains requisite human and technical resources in recipient’s premises. Further, the span of contract indicates sufficient degree of permanence. Therefore, recipient’s site shall be deemed as ‘fixed establishment’ of the Applicant in terms of definition of ‘fixed establishment’ under Section 2(50) of the Central Goods and Services Tax Act, 2017 (‘CGST Act’). 

• Branch constitutes ‘supplier of service’ and not FC for the following reasons:

• Branch supplies spares, consumable etc. as and when required
• Branch deputes support staff, officers and system experts on site who are responsible to maintain equipment, train recipient’s personnel etc.
• Branch renders all on-site services
• MARC holds Branch responsible for execution of MARC

• Services received by recipient do not qualify as ‘import of service’ and are exigible to tax on forward charge basis in the hands of Branch.

NITYA Comments:

The AAR correctly holds Branch’s liability to pay GST on MARC. However, the conclusion that recipient’s site is fixed establishment of Branch seems flawed. Under Section 2(71) of the CGST Act, supplier of service is registered place of supplier from where it provides service. In several rulings, it has been held that services are provided from the place from where operations are carried on and invoicing is done, and not where services are executed [K.M. Trans Logistics Pvt. Ltd., 2019-VIL-35-AAR]. Hence, Branch provides services from where it is located.