Import of services under GST - Taxability and Exemption

Goods and Services Tax (GST)
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August 28, 2021

With the introduction of Goods and Service Tax (GST) in India from July 1, 2017, the word ‘services’ has been defined under Section 2(102) of Central Goods and Service Tax Act, 2017 (CGST Act) to mean anything other than goods, money and securities. However, the activity with regard to the use of money or its conversion by cash or by any different mode, from one form, currency or denomination to another form, currency or denomination for which a separate consideration is charged has been kept within the definition of service.

Further, the Indian Constitution Act was also amended to align itself with the GST provisions, and Article 269A was inserted. This clarifies that supplies of any goods or services or both in the course of import into the territory of India shall be considered to be a supply of goods, or of service or both in the course of interstate trade or commerce and Central Government shall levy and collect GST on such transactions.

Another act, called Integrated Goods and Service Tax Act, 2017 (IGST Act), was also introduced to determine the place of supply where tax liability will be discharged in case of an inter-state and intra-state supply export and import of goods and services.

Taxability for import of services

As per the provisions of Section 7(1) (b) of the CGST Act, the import of services for a deliberation whether or not in the course or improvement of business shall be considered a supply; hence any transaction concerning import of service, whether done by a GST registered person or an individual or any other person for business purpose or personal use, shall always be considered as supply of services.

Under Schedule I to Section 7 of the CGST Act, it has also been clarified that import of services by a taxable person from a related person or from a definite person in the course or improvement of business shall be treated as supply even if it is made without any consideration.

As per provisions of Section 7(4) of the IGST Act, the supply of services imported into the territory of India shall be considered to be a supply of services in the course of inter-State trade or commerce and subject to GST.

Section 2(11) of the IGST Act defines import of services as the supply of any service wherein:
- The supplier of service is located outside India;
- The recipient of service is located in India; and
- The place of supply of service is in India.

Supply of services to a special economic zone developer or a unit is also treated as inter-State supply by IGST Act and shall be subjected to GST but at zero rates.

So from a combined reading of the provisions above, it can be concluded that the services of Google and Facebook used by all of us, without any consideration, are not considered as supply as they are not used for the furtherance of business. On the other hand, import of services by an Indian branch from their parent company, in the course or improvement of business, even if it is without consideration, will be considered as supply and subjected to GST.

Thus, import of services can be examined as supply based on the criteria of consideration and usage of services is in the course or improvement of the business. The same has been explained in the table below:

Nature of services	Consideration	Business test
Import of services by a non-taxable person	Necessarily Required	Not required
Import of services by a taxable person from a distinct person or a related person	Not required	Necessarily Required

Exemption on Import of Services for personal use
Certain exemptions have been provided about the import of service for personal use, which is as follows:

Services acquired from a service provider located in non-taxable territory by:

The Central Government, State Government, Union territory, a governmental authority, a local authority or an individual with any purpose other a non than commerce, industry or any other business or profession;
An entity indicated under Section 12AA of the Income-tax Act, 1961 (43 of 1961) to provide charitable activities; or
A person located in the taxable territory:
- Provided that the exemption shall not apply to online information and database access or reclaim services received by persons specified in entry (a) or entry (b); or
- Services by way of transporting goods by a vessel from a place outside India up to the customs station of consent in India received by persons specified in the entry.

Applicability of reverse charge mechanism in case of import of service
Import of service is subject to GST under reverse charge mechanism. A reverse charge mechanism means the person importing services will be liable to deposit GST to the Government Treasury instead of paying the service provider. Under the GST Act, any person required to deposit GST under a reverse charge basis is mandatorily required to acquire GST registration and file GST returns, irrespective of any other criteria. Therefore, it is essential for all persons importing services into India to be aware of regulations above obtaining to import services under GST.

At AJSH, we assist our clients with various GST matters (GST registration, GST advisory, GST assessments, filing of GST returns, claiming GST audits) by providing them with adequate support and guidance from our end. If you have any questions or would like to know more about the import of services under GST, kindly contact us.