Transfer of Monetary Proceeds to Foreign Parent Company by its Indian Subsidiary – GST Payable?

Exchange of services and consideration is normal between subsidiary and its parent company. These entities are treated as deemed distinct person in eyes of law and accordingly GST is to be paid by them on services provided. However, question arises towards payment of GST liability when no service is supplied by foreign parent company to its wholly-owned Indian subsidiary company but consideration is being paid by Indian wholly-owned subsidiary to foreign parent company.

Import of Service is defined under section 2(11) of the Integrated Goods and Services Act, 2017 as the supply of any service, where-

• 1) the supplier of service is located outside India;
• 2) the recipient of service is located in India; and
• 3) the place of supply of service is in India.

As per Sl. No. 1 of Notification no. 10/2017 – Integrated Tax (Rate), ‘Any service supplied by any person who is located in a non-taxable territory to a person other than non-taxable online recipient’, shall be paid by the person located in the taxable territory other than non-taxable online recipient under reverse charge mechanism.

Furthermore, Schedule I of the CGST Act, 2017, which talks about the activities to be treated as supply even if made without consideration, at para 4 provides as under – “4. Import of Services by a taxable person from a related person or from any of his other establishment outside India, in course or furtherance of business”.

Similar problem has been dealt by the Authority for Advance Ruling – Maharashtra. It has recently passed ruling (No. GST-ARA- 50/2020-21/B-108, Mumbai date 01/12/2022) where the applicant has sought advance ruling in respect of whether mere transfer of monetary proceeds by wholly-owned subsidiary of foreign company to its parent company without underlying import of service will be liable for payment of IGST under RCM?

During the ruling, it has been found out that parent company is providing service to its wholly-owned Indian subsidiary and assumed monetary proceeds were for the same. Therefore, as per per Sl. No. 1 of Notification no. 10/2017 – Integrated Tax (Rate) dated June 28, 2017, on import of service, subsidiary is liable to pay GST under reverse charge mechanism.

However, if only there is mere transfer of monetary proceeds without import of service ,no GST liability will arise, as GST liability only arises when service is being provided. Thus, when the service is being imported by any taxable person with or without consideration from related person or any of its establishment outside India, in course and furtherance of business, it is chargeable under GST and GST is paid by recipient under Reverse Charge Mechanism.