Transfer Of Monetary Proceeds By IVL India To ILV Sweden Attracts IGST Under RCM: AAR

The Maharashtra Authority of Advance Ruling (AAR) has ruled that the transfer of monetary proceeds by IVL India to the applicant IVL Sweden will be liable for payment of integrated goods and services tax under the reverse charge mechanism.

The two-member bench of M. Rammohan Rao and T.R. Ramnani has observed that other than the service provided by the applicant to the Municipal Corporation of Greater Mumbai (MCGM), there is a very definite service being provided by IVL Sweden, located outside India, on account of its experience, credentials, and expertise, to the applicant, located in India, that enables the applicant to perform under the contract. There is no doubt that the services are being supplied in the taxable territory, i.e., India.

IVL Sweden is a foreign company incorporated under the laws of Sweden, and the applicant, IVL India Environmental R&D Pvt Ltd., is a company incorporated under the laws of India.

The MCGM invited bids for a contract for "Project Management Consultancy Services" for four locations. IVL Swedish Environmental Research Institute Limited evaluated applications on the basis of their credentials, work experience, and various certifications received from different government organizations as required in the bidding eligibility criteria.

However, as per the bid eligibility criteria, the contract could only be executed by a wholly owned subsidiary of the foreign company, which further implied that the parent company in its capacity could not perform the contract directly. Hence, IVL Sweden incorporated IVL India in order to execute the contract and comply with the terms and conditions of the bid eligibility criteria. MCGM issued the Letter of Award in the name of "IVL Sweden."

The applicant sought the advance ruling on the issue of whether a mere transfer of monetary proceeds by IVL India Environmental R&D PVT Ltd to IVL Swedish Environmental Research Institute Limited without the underlying import of service will be liable for payment of IGST under the reverse charge mechanism.

The AAR noted that the ultimate responsibility for the performance of the contract would remain with IVL Sweden. It has been submitted that the main consultant for this contract is IVL Sweden.

The AAR determined that because the applicant receives support services from IVL Sweden, which is located in a non-taxable territory, the entire integrated tax leviable under Section 5 of the Integrated Goods and Services Tax Act must be paid on a reverse charge basis by the recipient of such services, i.e., the applicant. Thus, the applicant has to pay GST on the money proceeds that are being transferred to IVL Sweden.

Applicant's Name: M/s. IVL India Environmental R&D Pvt Ltd.

Date: 01/12/2022

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