Inserted by Notification 04/2018-IT effective 01.01.2019. The supply of services attributable to different States / UTs, under sub-section (7) of section 13 of the IGST Act, in the case of services supplied in respect of goods which are…
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IGST Rules · Rule 7
Rule 7 — Cross-border performance services on goods
Inserted by Notification 04/2018-IT effective 01.01.2019.
The supply of services attributable to different States / UTs, under sub-section (7) of section 13 of the IGST Act, in the case of services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services, or in the case of services supplied to an individual, represented either as the recipient of services or a person acting on behalf of the recipient, which require the physical presence of the recipient or the person acting on his behalf, where the location of the supplier of services or the location of the recipient of services is outside India, and where such services are supplied in more than one State / UT, shall be taken as being in each of the respective States / UTs, and the proportion of value attributable to each such State / UT in the absence of any contract or agreement between the supplier of service and recipient of services for separately collecting or determining the value of the services in each such State / UT, as the case may be, shall be determined in the following manner —
(i) in the case of services supplied on the same goods, by equally dividing the value of the service in each of the States / UTs where the service is performed;
(ii) in the case of services supplied on different goods, by taking the ratio of the invoice value of goods in each of the States / UTs, on which service is performed, as the ratio of the value of the service performed in each State / UT;
(iii) in the case of services supplied to individuals, by applying the generally accepted accounting principles.
Illustration 1: Kolkata company tests dredging machine in Orissa and Andhra Pradesh — equal split.
Illustration 2: Delhi company services 2 cars (J in Delhi, A in Gurugram) — invoice value ratio.
Illustration 3: Makeup artist for actor in Mumbai and Goa — GAAP.
BLOCK 2 — PARALLEL / OPERATIVE FRAMEWORK
PROVISION
NOTE
s. 13(7) IGST — Multi-State cross-border services framework
Parent section.
s. 13(3) IGST — Performance services on goods
Substantive POS provision; Rule 7 supplies multi-State apportionment.
s. 22 IGST
Rule-making power.
Notification 04/2018-IT
Inserted Rule 7 effective 01.01.2019.
Rule 4 IGST Rules (domestic equivalent)
Conceptual parallel for multi-State scenarios.
FA 2018 IGST Amendment Act s. 6 — proviso to s. 13(3)(a)
Excluded repair/treatment on temporarily-imported goods from performance-location rule.
Circular 209/3/2024-GST
Comprehensive POS clarifications.
Circular 195/07/2023-GST
POS for repair / IT support / ancillary services.
BLOCK 3 — COMMENTARY
1. Statutory Architecture
Rule 7 supplies the apportionment formula for cross-border performance services on goods or to individuals where the services span multiple Indian States. Three formulas address three scenarios — same goods (equal split), different goods (invoice value ratio), individuals (GAAP). The same-goods equal-split reflects that performance is uniform across States. Different-goods ratio reflects that service value scales with goods value. GAAP for individuals provides flexibility for personal-presence-based services.
2. Historical Context
Rule 7 was part of Notification 04/2018-IT structural expansion effective 01.01.2019. Pre-Rule 7, multi-State cross-border performance services faced operational uncertainty. Rule 7 standardised with three-formula framework.
3. Judicial Evolution
GVK Industries Ltd v Income Tax Officer — (2011) 4 SCC 36 [Supreme Court — 5-Judge Constitution Bench]
Brief Facts: Question was the extent of Parliament's legislative competence to tax extraterritorial events. GVK had paid fees to a Swiss consultant for services rendered abroad in connection with raising finance for an Indian power project. Question was whether such fees could be taxed under the Income-tax Act when the service was entirely rendered abroad.
Issue: Constitutional limits of extraterritorial legislation under Article 245 — whether Parliament can tax events occurring wholly outside India if there is a 'real and substantial' nexus with India.
HELD: Parliament has competence to legislate with extraterritorial operation provided there is a real and substantial nexus with India — not merely an illusory or fanciful connection. A nexus that is rationally connected to the welfare of India is sufficient. Pure extraterritoriality without nexus is impermissible.
"Parliament's competence to legislate with extraterritorial operation is conditioned on the existence of a real and substantial — and not merely fanciful — nexus with India. The nexus must be rational and connected to India's legitimate concerns."
Relevance: Constitutional anchor for cross-border place-of-supply provisions under s. 13 of the IGST Act (services where supplier or recipient is outside India) — establishes the nexus doctrine that underpins extraterritorial GST on imports of services.
All India Federation of Tax Practitioners v Union of India — (2007) 7 SCC 527 [Supreme Court — 3-Judge Bench]
Brief Facts: The constitutional validity of the service-tax levy on chartered accountants, cost accountants, and architects was challenged on the ground that these professions had been historically regulated by State legislation and were therefore outside Union legislative competence.
Issue: Constitutional foundation of the service-tax levy — whether 'service' can be taxed by the Union under the residuary entry (Entry 97 List I) and what is the doctrinal nature of a service-tax levy.
HELD: Service-tax upheld. The Court held that service-tax is a value-added tax on the value of services rendered, traceable to Entry 97 of List I until Entry 92C was inserted by the Constitution (88th Amendment). The economic concept of value addition through services is the doctrinal basis on which service-tax — and now GST on services — rests.
"Service-tax is a value-added tax on the commercial activity of providing services. The taxable event is the rendition of service and the levy attaches to the value addition at the point of service delivery."
Relevance: Constitutional anchor for taxation of services under GST — pre-101st-Amendment doctrinal framework that informs the place-of-supply concept under s. 12 and s. 13 of the IGST Act.
Union of India v Mohit Minerals Pvt Ltd — (2022) 10 SCC 700 [Supreme Court — 3-Judge Bench (Constitution Bench questions)]
Brief Facts: Importers of coal on CIF basis were held liable under Notification Nos. 8/2017-Integrated Tax (Rate) and 10/2017-Integrated Tax (Rate) to pay IGST on ocean freight component under reverse charge under s. 5(3)/(4) of the IGST Act. Importers challenged the levy as ultra vires the charging section and contended that IGST had already been paid on CIF value (which included freight) at the time of import under s. 3(7) of the Customs Tariff Act.
Issue: Whether IGST could be levied separately on the ocean freight component of CIF imports when the entire CIF value (inclusive of freight) had suffered IGST under s. 3(7) of the Customs Tariff Act; and whether GST Council recommendations are binding on the Union and States.
HELD: Levy struck down. The Court held that the impugned notification offended the principle of 'composite supply' under s. 8 of the CGST Act because ocean freight in CIF imports is part of the composite supply of imported goods and cannot be artificially severed. Further, the GST Council's recommendations are recommendatory, not binding, on the Union and States — both Parliament and State legislatures have simultaneous legislative power under Article 246A.
"The recommendations of the GST Council are not binding on the Union and the States. The recommendations only have a persuasive value. To regard them as binding would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST."
Relevance: Foundational authority on the IGST charging section, the limits of reverse-charge notifications under s. 5(3)/(4), and the constitutional architecture of the GST Council. Repeatedly cited in RCM, place-of-supply, and composite-supply disputes.
Commissioner of Income Tax v Vatika Township Pvt Ltd — (2015) 1 SCC 1 [Supreme Court — 5-Judge Constitution Bench]
Brief Facts: The Income-tax Act's surcharge provisions had been amended mid-year. Question was whether the amendment applied retrospectively to assessment years already commenced. Constitution Bench was constituted to settle conflicting two-Judge Bench rulings on the presumption of prospectivity for fiscal statutes.
Issue: Whether a fiscal statute that imposes or enhances a burden operates prospectively unless expressly or by necessary implication retrospective; and what is the standard of clarity required for retrospective imposition.
HELD: Strong presumption of prospectivity for any provision that imposes or enhances a burden. Retrospective imposition requires either an express statutory direction or a necessary implication so unmistakable that no reasonable construction can avoid it. Beneficial provisions may be construed retrospectively; burden-imposing provisions cannot.
"If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on another, it could be construed to be retrospective. The same is not true of a provision imposing a tax or otherwise creating a fresh burden — there, the presumption of prospectivity is at its strongest."
Relevance: Constitutional anchor for prospective operation of GST amendments. Decisive in every dispute over the effective date of a notification, amendment, or rule change under IGST.
4. Circulars and Notifications
Notif 04/2018-Integrated Tax dated 31.12.2018 — Rule 7 insertion
Cross-border performance services POS proxy.
IGST Amendment Act 2018 s. 6 dated 29.08.2018 (effective 01.02.2019) — Substituted proviso to s. 13(3)(a)
Repair/treatment on temporarily-imported goods exported back excluded from performance-location rule.
Circular 195/07/2023-GST dated 17.07.2023 — POS for repair / IT support / ancillary services
Related operational framework.
Circular 209/3/2024-GST dated 26.06.2024 — Comprehensive POS clarifications
Reaffirms cross-border framework.
5. Worked Examples
Example 1 — Same-goods testing in two States (Illustration 1)
Facts: Kolkata company tests dredging machine; performance in Orissa and AP.
Computation / Steps:
Step 1. Sub-clause (i) — same goods → equal split.
Step 2. 50% Orissa + 50% AP.
Result: Equal split for same goods across multiple States.
Example 2 — Different-goods servicing (Illustration 2)
Facts: Delhi company services 2 cars — Delhi-based car J and Gurugram-based car A.
Computation / Steps:
Step 1. Sub-clause (ii) — different goods → invoice value ratio.
Step 2. Apply ratio of invoice value of car J : car A.
Step 3. Allocate service value in that ratio between Delhi and Haryana.
Result: Invoice value ratio for different goods. Verifiable via invoices.
Example 3 — Service to individuals (Illustration 3)
Facts: Makeup artist services actor in Mumbai (some scenes) and Goa (other scenes).
Computation / Steps:
Step 1. Sub-clause (iii) — services to individual → GAAP.
Step 2. GAAP basis — could be days of service, scenes, costs, or other reasonable basis.
Result: GAAP allocation for personal-presence services. Flexible basis.
Example 4 — Repair on temporarily-imported goods — Rule 7 not applicable
Facts: Foreign machine sent to Indian repair shop; repair in Mumbai and Delhi; sent back to foreign country.
Computation / Steps:
Step 1. Post-FA 2018 proviso to s. 13(3)(a) — repair on temporarily-imported goods excluded from performance-location rule.
Step 2. Fall back to s. 13(2) default — POS = recipient location (outside India).
Step 3. Export of services framework applies.
Step 4. Rule 7 multi-State proxy not triggered (no multi-State POS).
Result: FA 2018 proviso to s. 13(3)(a) excludes repair-export. Rule 7 not triggered. Export of services framework applies.
Example 5 — Contract overrides Rule 7
Facts: Service contract with foreign client specifies 70:30 State allocation.
Computation / Steps:
Step 1. Contract priority.
Step 2. Rule 7 default not applied.
Result: Contract priority. Rule 7 default only in absence.
6. Practitioner Planning
7. Litigation Defence
8. Procedural Map
Step 1. Identify cross-border performance service
s. 13(3)(a) goods or (b) individual.
Step 2. Confirm multi-State performance
Rule 7 trigger.
Step 3. Confirm supplier or recipient outside India
s. 13 framework prerequisite.
Step 4. For FA 2018 proviso scope (repair-export), recognise exclusion
Default s. 13(2) export framework.
Step 5. Check contract for State-wise split
Contract priority.
Step 6. Apply sub-clause-specific formula
(i) same-goods equal / (ii) different-goods value ratio / (iii) individual GAAP.
Step 7. Compute State-wise allocation
Per formula.
Step 8. Issue separate State invoices
Standard practice.
Step 9. Report in GSTR-1 POS-wise
Each State separately.
Step 10. Document formula working for audit defence
Per applicable sub-clause.
Rule 7 — Cross-border performance services checklist (12 items)
□ Identified cross-border performance service
□ Confirmed multi-State performance
□ Confirmed supplier or recipient outside India
□ For FA 2018 proviso scope, recognised exclusion
□ Checked contract for State-wise split
□ For same goods, applied equal split (i)
□ For different goods, applied invoice value ratio (ii)
□ For individuals, applied GAAP (iii)
□ Computed State-wise allocation
□ Issued separate State invoices
□ Reported in GSTR-1 POS-wise
□ Documented formula working for audit
CROSS-REFERENCES