The West Bengal Authority for Advance Ruling (WBAAR) has held that the value declared by an Indian recipient in a self-invoice issued for import of services from a related foreign entity can be deemed to be the open market value under Rule 28(1) of the CGST Rules, 2017, provided the recipient is eligible to avail the full amount of Input Tax Credit (ITC).

The applicant is engaged in rendering engineering design, drawing, procurement and construction management services to group companies and third parties. Its group operations extend across India and various overseas jurisdictions, including the United Kingdom, Singapore, Spain, the United States and Canada. 

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The company forms part of the John Wood Group. It is directly held by Wood International Limited, England and Wales, which holds 85.53% of the applicant, while John Wood Group Limited, Scotland is the ultimate holding company. 

As part of the group’s global operations, certain IT-related expenses are incurred centrally by a group company. These expenses include costs relating to software, IT infrastructure and other IT facilities used by multiple group entities. The centrally incurred costs are subsequently allocated to the group companies benefiting from the infrastructure and services.

In the applicant’s case, Wood Group UK Limited charges IT-related costs to the Indian entity through debit notes on a cost-to-cost basis. The applicant treats the IT support services received from the UK entity as an import of services for GST purposes. 

Since the services are received from a foreign entity, the applicant discharges IGST under the Reverse Charge Mechanism (RCM) and issues a self-invoice under Section 31(3)(f) of the CGST Act. It subsequently claims the corresponding ITC, subject to the applicable provisions. 

Dispute arose over valuation of imported IT services

The central issue before the Authority was not whether the IT services constituted an import of services. Rather, the key question concerned the value on which IGST was required to be discharged under RCM.

The applicant and the foreign group company followed different cost-allocation methodologies.

During 2023, Wood Group UK Limited allocated the relevant group IT costs on the basis of employee headcount. From 2024 onwards, however, the foreign entity changed the methodology and began allocating costs based on employee IT usage relating to the relevant infrastructure and services.

As a consequence, the IT charges allocated to the Indian entity increased. Despite the change adopted by the foreign entity, the applicant proposed to continue determining the value for its GST self-invoice using the earlier headcount-based allocation methodology. 

This resulted in a potential difference between:

• the amount reflected in the foreign group’s commercial debit note; and
• the value declared by the Indian recipient in its GST self-invoice.

The applicant argued that this difference resulted purely from different cost-allocation methodologies and did not represent a dispute regarding the underlying IT services received.

Applicant’s reliance on Rule 28

The applicant contended that Wood Group UK Limited and the Indian entity were related persons for GST valuation purposes. Therefore, valuation was governed by Rule 28 of the CGST Rules, 2017.

Particular reliance was placed on the second proviso to Rule 28(1), which provides that where the recipient is eligible for full ITC, the value declared in the invoice is deemed to be the open market value of the goods or services. 

According to the applicant, the provision operates as a substantive valuation mechanism. Once the statutory conditions are satisfied — namely, that the recipient is eligible for full ITC and a value has been declared in the invoice — the declared value is required to be treated as the open market value.

The applicant further argued that since it is required to issue a self-invoice under Section 31(3)(f) in respect of the imported services on which tax is payable under RCM, the expression “invoice” in the second proviso to Rule 28(1) should include the self-invoice issued by the recipient. 

Reliance on CBIC Circular No. 210/4/2024-GST

A significant part of the applicant’s case was based on CBIC Circular No. 210/4/2024-GST dated June 26, 2024.

The Circular deals specifically with the valuation of import of services from a related person where the recipient is eligible for full ITC.

The Authority noted that the Circular clarified that Rule 28(1)’s second proviso applies where goods or services are supplied between distinct or related persons and the recipient has full ITC eligibility. 

The Circular further clarifies that the principle earlier laid down in Circular No. 199/11/2023-GST for supplies between domestic distinct persons is equally applicable to import of services between related persons.

In particular, where a foreign affiliate provides services to its related Indian entity and the Indian entity is eligible for full ITC, the value declared in the invoice by the related domestic entity may be deemed to be the open market value under the second proviso to Rule 28(1). 

The applicant therefore argued that the value declared in its self-invoice could be adopted as the deemed open market value even if it differed from the commercial amount appearing in the foreign affiliate’s debit note.

Revenue supported the applicant’s interpretation

Interestingly, the jurisdictional Revenue did not oppose the applicant’s interpretation.

The Revenue accepted that the IT-related services received from Wood Group UK Limited constituted imported services and that GST was payable by the applicant under RCM.

It further accepted that Rule 28 applied because the applicant and the foreign group entity were related persons. The Revenue specifically relied upon the second proviso to Rule 28(1) and Circular No. 210/4/2024-GST.

According to the Revenue, the value declared by the applicant in the self-invoice could be accepted as the deemed open market value subject to verification that the applicant was eligible for full ITC of the tax paid under RCM. 

Authority first examined whether the transaction constituted a supply

Before deciding the valuation question, the WBAAR examined whether the transaction qualified as a taxable supply under GST.

The Authority referred to Section 7 of the CGST Act, under which import of services for consideration constitutes a supply irrespective of whether it is in the course or furtherance of business.

The Authority also referred to Section 2(11) of the IGST Act, which defines “import of services” as a supply where:

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

The Authority further considered the definition of “related persons” contained in the Explanation to Section 15 of the CGST Act, including situations where both persons are directly or indirectly controlled by a third person. 

Foreign group relationship established

Applying these provisions to the facts, the Authority found that the applicant and the foreign group entity were related persons because of the common corporate ownership structure.

The Authority noted that the applicant was directly held by Wood International Limited, England and Wales, with an 85.53% holding, while John Wood Group Limited, Scotland was the ultimate holding company.

On this basis, the Authority concluded that the entities fell within the related-person framework under Section 15. 

The Authority then examined the place of supply. Since the services were not covered by the special provisions contained in Section 13(3) to 13(13) of the IGST Act, Section 13(2) applied, under which the place of supply is generally the location of the recipient.

As the recipient was located in India, the place of supply was India. Consequently, the transaction qualified as an import of services. 

IGST payable under Reverse Charge

Having established that the transaction constituted an import of services, the Authority turned to the mechanism for payment of tax.

Section 7(4) of the IGST Act treats imported services as inter-State supplies. Section 5(3) of the IGST Act empowers the Government to notify categories of services on which tax is payable by the recipient under RCM.

The Authority referred to Notification No. 10/2017-Integrated Tax (Rate) dated June 28, 2017, which covers services supplied by a person located in a non-taxable territory to a person located in the taxable territory.

Accordingly, the Authority held that the applicant, being the Indian recipient, was liable to discharge IGST under RCM. 

Valuation under Rule 28 becomes the decisive issue

The Authority then examined the valuation mechanism.

Since the IGST Act does not contain a separate provision determining the value of this supply, Section 20 of the IGST Act requires reference to the relevant provisions of the CGST Act, including Section 15.

The Authority observed that the normal transaction-value mechanism under Section 15(1) applies where the supplier and recipient are not related. Since the applicant and the foreign entity were related persons, Section 15(4) became relevant, requiring valuation in the prescribed manner. 

That led the Authority to Rule 28.

Rule 28 prescribes the valuation mechanism for supplies between distinct or related persons. Ordinarily, the value is the open market value; if that is unavailable, the value of supplies of like kind and quality is considered, followed by the Rule 30 and Rule 31 mechanisms.

However, the second proviso to Rule 28(1) creates a specific deeming mechanism where the recipient is eligible for full ITC:

the value declared in the invoice is deemed to be the open market value.

The Authority specifically reproduced and considered this proviso. 

Crucial finding: “invoice” includes the self-invoice

The most significant aspect of the ruling concerns the interpretation of the word “invoice” in the second proviso to Rule 28(1).

The Authority examined Section 31 of the CGST Act, which deals with tax invoices. Section 31(3) contains specific provisions dealing with issuance of invoices in situations involving reverse charge. Clause (f) requires a registered person liable to pay tax under the reverse charge provisions to issue an invoice for goods or services received from an unregistered supplier, within the prescribed period. 

The Authority then read Section 31(3)(f) together with the second proviso to Rule 28(1).

Its conclusion was clear: the invoice contemplated by the second proviso to Rule 28(1), in the circumstances before it, refers to the self-invoice issued by the recipient.

This interpretation is particularly important for RCM transactions involving imported services, because the recipient is responsible for raising the statutory self-invoice and paying the tax.

Full ITC is the decisive condition

After considering Circular No. 210/4/2024-GST along with Section 31(3)(f) and Rule 28(1), the Authority held that the value shown in the applicant’s self-invoice could be deemed to be the market value.

However, this benefit was made subject to one decisive condition — full ITC eligibility.

The Authority expressly observed that the value mentioned in the self-invoice could be deemed to be the open market value if the applicant was eligible to avail the full amount of ITC.

Conversely, if the applicant was not eligible to avail the full ITC, the Authority stated that the relevant Rule 28 mechanism would not apply.

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