Place of Supply Provisions’ for classifying a transaction as ‘Export of Service’

Analysing the ‘Place of Supply Provisions’ for classifying a transaction as ‘Export of Service’ under GST regime

Facts of the Case:

ABC Pvt. Ltd. registered in state of Maharashtra imported goods from a UK based company (not having Permanent Establishment in India). Also, some services are to be provided by the UK based company along with the imported goods in India. For the services, UK based company entered in to a contract with XYZ Pvt. Ltd. registered in Delhi. For providing the services, XYZ Pvt. Ltd. will get the consideration in convertible foreign exchange.

XYZ Pvt. Ltd. considered this transaction as “export of service” and made supply without payment of taxes.

Query:

Whether the services provided by XYZ Pvt. Ltd. shall qualify as “export of service”?

Points to be Considered:

As we all know Goods & Service Tax (GST) is a destination-based tax i.e., the goods/services will be taxed at the place where they are consumed. Place of Supply is crucial under GST. It plays a pivotal role in identifying whether the supply is made in India or Outside India. Before we analyse whether a transaction be considered as Export of Service or not, let us go through some important sections of Integrated Goods & Service Tax (IGST) Act:-

Export of Services as defined under section 2(6) of the IGST Act

“export of services” means the supply of any service when,

• the supplier of service is located in India;
• the recipient of service is located outside India;
• the place of supply of service is outside India;
• the payment of such service has been received by the supplier of service in convertible foreign exchange and
• the supplier of service and the recipient of service are not merely establishment of a distinct person in accordance with Explanation 1 in section 8.

Place of Supply of Services under section 13(3)(a) of the IGST Act:-

“Place of Supply” for services provided 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 shall be the location where the services are actually performed.

By analysing the above provisions, it may be deduced that for a transaction to qualify as export of services, place of supply of service should be outside India. Merely entering a transaction with a foreign national and receiving consideration in convertible foreign exchange does not qualify the transaction as “export of service”.

Opinion/View:

In this case XYZ Ltd. entered into a contract with UK based company for providing services in relation to goods supplied by UK based company to ABC Pvt. Ltd. in Maharashtra. As per Section 13(3)(a) mentioned above, Place of Supply of service shall be the location where the services are actually performed.

As the goods being located in Maharashtra and services relating to these goods are provided in Maharashtra itself by XYZ Pvt. Ltd., place of supply for such services would be Maharashtra.

Even though recipient is located outside India and supplier of service received consideration in convertible foreign currency, this transaction is not qualified as “export of service” because the place of supply is in India not outside India.

 So this is an Inter-State supply and IGST needs to be paid.