HC validates “Nil value” for import of services absence self-invoice in light of CBIC Circular

 This Tax Alert summarizes the recent Delhi High Court (HC) ruling disposing Writ Petitions in a batch matter on valuation of import of services relating to secondment of employees from overseas entity.

Revenue had sought to tax the service by including in transaction value, the consideration by way of expenses incurred in foreign currency (salary paid by overseas company and recovered from Indian entity) and in Indian Rupees (salary paid to expats in India).

The key observations of the HC are:

• Although payments were made, no invoices were generated by Indian entity for services provided by related foreign entities.
• Para 3.7 of Circular 210/4/2024-GST clarified that where no invoice is generated by Indian entity for services rendered by its foreign affiliate, the value of such services can be deemed as “Nil” and treated as open market value as per the second proviso to rule 28.
• In view of the above and in light of the explicit terms of the Circular, the value of the service rendered would have to be treated as “Nil".
• In one of the cases, the taxpayer had not only paid tax on a reverse charge basis but had also taken credit of the same. Once the position to govern all assessees pan-India came to be clarified by the CBIC, the continuation of penalty proceedings or for that matter the imposition of interest would not sustain.

Accordingly, HC quashed the show cause notices to the extent the issue relates to secondment of employees.

Comments

• This is the first ruling wherein the HC has examined valuation aspect of secondment arrangement in light of Circular No. 210/4/2024.
• Reading of the HC ruling, suggests that the relevance of second proviso to Rule 28 is not qua payment but qua the self-invoice.
• It is relevant to note that the Circular referred to the case where services are provided on free of cost basis. It remains to be seen whether CBIC amends the Circular to clarify that Nil value basis no self- invoice being generated would apply only in case of supplies without commercial consideration.
• Businesses, who have already paid tax along with interest and availed ITC of the tax so paid, may explore the possibility of claiming refund of interest, basis the ruling.

One will need to evaluate implication of HC ruling on various other services provided by related entities outside India to their Indian affiliates