Valuation of supply of import of services by a related Person where the recipient is eligible to full ITC
In accordance with the 53rd GST Council recommendations the Central Board of Indirect Taxes and Custom (CBIC) issued Circular No. 210/04/2024-GST on June 26, 2024. This circular clarifies the way of valuation for import of services where the recipient is eligible for full ITC.
Existing Rule in CGST Act 2017:
Rule 28(2) Second proviso: This proviso clearly states that where the recipient is eligible for full ITC, the value declared in the invoice shall be deemed to be the value of supply of said service.
Issue with the said rule: The term “recipient” in this rule is not explicitly defined to mean “distinct person” or “related person”. However, two circulars have been issued to clarify that “recipient” can be interpreted as both a “distinct person” and a “related person.”
Earlier circular issued:
Circular 199/11/2023 dated 17.07.2023: Clarified that in respect of supplies of services between distinct persons, where the recipient is eligible for full ITC, the value of such supply shall be the value declared in the invoice when a tax invoice is issued.
However, if no tax invoice is issued, the value of such supply shall be NIL.
Circular issued on 26.06.2024:
Circular 210/04/2024: Clarified that the earlier circular’s provisions regarding supplies between distinct persons also apply to the import of services between related persons.
Hence the value of the import service from the related party will be the value declared in the invoice if a tax invoice has been issued. If no tax invoice is issued, the value of the import service shall be NIL.
Unattended aspect of Rule 28(2) in the circulars:
Import of service between distinct person: The circular 199/11/2023 addresses supply of services between domestic distinct person, whereas the import of services between distinct person has been left unattended.
Domestic supply of service between related person: Thecircular210/04/2024 addresses import of services between related party whereas the domestic supply of services between related party has been left unattended.
We believe that in such situations, the value of such supplies should be determined in line with the attended cases of distinct and related persons as outlined in their respective circulars.
SW Point of View:With this circular the govt aim to provide consistency and clarity in valuing services between distinct and related persons. By explicitly stating that second proviso of rule 28(2) can be applicable for both Distinct and related person, the government simplifies compliance for businesses. This reduces ambiguity and potential disputes, ensuring that businesses can apply a uniform approach to valuing services, whether in domestic or import transactions.
