Companies with head offices or branches abroad will not get any more show-cause notices (SCNs) regarding the GST dues for fiscal year 2017-18. The due date for the same was August 5. For the years subsequent to 2017-18, no new notices will be processed based on the June 26, 2024 circular.
The circular dated June 26 from the Central Board of Indirect Taxes & Customs (CBIC) prescribed valuation norms for supply by foreign companies to their offices in India, which get full Input Tax Credit (ITC). It said that in cases where a foreign company is providing certain services to its subsidiary here, the value of such services declared in the invoice by the domestic entity ‘may be deemed as open market value’.
However, if the subsidiary does not issue an invoice for any service provided by the foreign affiliate, the value of such services may be declared as ‘Nil’ and deemed as open market value. This is similar to domestic companies, headquartered in one State and has branches in another.
The issue came to limelight against after the DGGI issued show-cause notices to ten major foreign airlines with a demand of ₹10,000 crore.
“For fiscal year 2018-19 and onwards, show cause notice for GST dues to specific transaction by companies having head offices or branch abroad are to be examined on case-to-case basis keeping in mind June 26 circular. One critical factor will be availing exempted services. In case there is even one per cent worth of total invoice value is of exempted services, the demand will be issued. However, in case of availing 100 per cent ITC, there will be no demand notice,” a source explained.
When asked about specific sectors, another source said that barring one, issue for foreign shippers has been resolved while for foreign airlines, there are some issues pending as they use both exempted and non-exempted services. “In various countries, there is threshold of exempted services value. GST Council in forthcoming meetings may think of providing a threshold,” he said.
Meanwhile, in reaction to GST notices to foreign airlines, International Air Transport Association (IATA) said that nowhere else in the world is such approach followed and Indian carriers operating overseas do not face similar tax demands. “DGGI’s assertion that GST should apply to expenses incurred by the headquarters of foreign airlines (with a branch office in India) in the course of providing air transport services is flawed. It does not take into consideration the nature and conventions involved in the provision of international air transport. Furthermore India is alone in its approach – nowhere else around the world is this practiced,” IATA’s regional vice president for North Asia and Asia Pacific Xie Xingquan said in a statement.