GST on supply of services by Associated Enterprises located outside India

According to section 2(12) of CGST Act, the term ‘Associated Enterprises’ shall have the same meaning as assigned to it in section 92A of the Income Tax Act, 1961. Therefore, we will have to look into the definition of ‘Associated Enterprises’ in the Income Tax Act, 1961. Section 92A defines ‘Associated Enterprises’ which is a quite wide definition consisting 13 different limbs under which an enterprise shall be treated as an ‘Associated Enterprises’.

Refer Section 92A of Income Tax Act:- https://incometaxindia.gov.in/Acts/Income-tax%20Act,%201961/2014/102120000000037184.htm

In summarized manner, as per section 92A (1) of the Income Tax Act, an enterprise would be regarded as an associated enterprise, if:
(a) it participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the enterprise; or
(b) in respect of it, one or more persons who participate, directly or indirectly or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise.

Section 92A (2) provides that two enterprises shall be deemed to be associated enterprise of for the purpose of section 92A (1), the two enterprises satisfy, at any time during the previous year, any of the specified conditions as above.

There can be two situations when we talk about GST implications for transactions with associated enterprises.

• Firstly, if the associated enterprise is located in India, no separate provision has been made under GST laws. Normal GST provisions shall apply.
• Secondly, if the associated enterprise is located outside India, any supply of service received from such enterprise shall be liable for GST under reverse charge. This rule is applicable only for import of services from associated enterprises. For import of goods from associated enterprises, it is otherwise also liable for GST under RCM under normal GST provisions.

What will be the ‘Time of Supply’ in reverse charge for supplies from associated enterprises located outside India?

In case of supply by associated enterprises, where the supplier of service is located outside India, the time of supply shall be the date of entry in the books of accounts of the recipient of supply or the date of payment, whichever is earlier.

For example: -

Date of invoice: - 1^st October, 2020; Date of payment: - 10^th October, 2020
Date of entry in the books of receiver: - 17^th October, 2020
In this example, ‘Time of Supply’ shall be 1oth October, 2020.