Circular No. 202/14/2023-GST, dated 27th October, 2023, issued by the Central Board of Indirect Taxes and Customs under the Ministry of Finance, Government of India, sheds light on the conditions for considering the supply of services as an export of services under the Integrated Goods & Services Tax Act, 2017 (IGST Act). The focus of this circular is on the payment aspect, specifically pertaining to the use of INR (Indian Rupees) in export remittances.
Detailed Analysis
The circular clarifies the conditions specified in sub-clause (iv) of Section 2(6) of the IGST Act, which states that for a supply of services to qualify as an export of services, the payment must be received by the supplier of services in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India (RBI).
Key points to consider:
1. Definition of Export of Services
Clause (6) of section 2 of the IGST Act defines “export of services.” To qualify as an export of services, the supply of services must meet five conditions, including the one related to payment mentioned above.
2. RBI’s Role
The circular refers to RBI’s A.P. (DIR Series) Circular No.10 dated 11th July, 2022, which clarifies the use of INR for international trade transactions. The RBI’s circular emphasizes the promotion of global trade and the support for using INR for trade transactions. It allows for the settlement of trade transactions in INR through Special Rupee Vostro Accounts. This means that Indian importers can make payments in INR for goods or services supplied from overseas sellers, while Indian exporters can receive export proceeds in INR.
3. Foreign Trade Policy (FTP) 2023
The Foreign Trade Policy 2023, which came into effect on 1st April, 2023, explicitly permits invoicing, payment, and settlement of exports and imports in INR. This is subject to compliance with RBI’s A.P. (DIR Series) Circular No.10 dated 11th July, 2022. It emphasizes the use of Special Rupee Vostro Accounts for this purpose.
4. Fulfilling Conditions for Export of Services
The circular concludes that when Indian exporters of services are paid in INR from the Special Rupee Vostro Accounts of the correspondent bank(s) of the partner trading country, as per the RBI’s circular and the Foreign Trade Policy, they are considered to meet the conditions of sub-clause (iv) of clause (6) of section 2 of the IGST Act. This clarification is made without prejudice to any other permissions or approvals required under other laws.
Conclusion
Circular 202/14/2023 provides essential clarification regarding the use of INR for export remittances. It ensures that when Indian exporters of services receive payments in INR through designated Special Rupee Vostro Accounts, they fulfill the conditions for export of services as per the IGST Act. This clarification simplifies the process and promotes ease of doing business for exporters. Suitable trade notices are recommended to publicize the content of this circular, and any implementation difficulties should be promptly brought to the notice of the Board for resolution.
F.No. 20/06/22/2023-GST-CBEC
Government of India
Ministry of Finance
Department of Revenue
Central Board of Indirect Taxes and Customs
GST Policy Wing
Circular No. 202/14/2023-GST | Dated: 27th October, 2023
To
The Pr. Chief Commissioners /Chief Commissioners / Principal Commissioners /Commissioners of Central Tax (All)
The Principal Directors General /Directors General (All)
Madam / Sir,
Subject: Clarification relating to export of services – sub-clause (iv) of the Section 2 (6) of the IGST Act 2017–reg.
Various representations have been received requesting for clarification regarding admissibility of export remittances received in Special INR Vostro account, as permitted by RBI, for the purpose of consideration of supply of services to qualify as export of services as per the provisions of clause (6) of section 2 of the Integrated Goods & Services Tax Act, 2017 (herein after referred to as the ‘IGST Act”).
2. The issue has been examined and to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in exercise of its powers conferred by section 168 (1) of the Central Goods & Services Tax Act, 2017(herein after referred to as the ‘CGST Act”), hereby clarifies the issue as under:
3. Relevant legal provisions:
3.1 Export of services has been defined under clause (6) of section 2 of IGST Act. As per the said definition, any supply of services needs to fulfill five conditions for it to qualify as export of services. Clause (6) of section 2 of the IGST Act is reproduced below for reference:
“(6) “export of services” means the supply of any service when, –
(i) the supplier of service is located in India,
(ii) the recipient of service is located outside India,
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India; and
(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;”
3.2 One of the conditions mentioned in sub-clause (iv) of Section 2(6) of the IGST Act is that the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India.
3.3 Reference is invited to RBI’s A.P. (DIR Series) Circular No.10 dated 11th July, 2022 regarding International Trade Settlement in Indian Rupees (INR), vide which it has been clarified that to promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports / imports in INR. Before putting in place this mechanism, AD banks shall require prior approval from the Foreign Exchange Department of Reserve Bank of India, Central Office at Mumbai. Para 3 of the Circular is reproduced below:
“3. In terms of Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, AD banks in India have been permitted to open Rupee Vostro Accounts. Accordingly, for settlement of trade transactions with any country, AD bank in India may open Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country. In order to allow settlement of international trade transactions through this arrangement, it has been decided that:
(a) Indian importers undertaking imports through this mechanism shall make payment in INR which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier.
(b) Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner ‘
3.4 Reference is also invited to Para 2.52 (d) of chapter related to General Provisions Regarding Imports and Exports of the Foreign Trade Policy (FTP) 2023, which has come into force from 01.04.2023, which specifies that:
Para 2.52 (d) Invoicing, payment and settlement of exports and imports is also permissible in INR subject to compliances as under RBI’s A.P. (DIR Series) Circular No.10 dated 11th July, 2022. Accordingly, settlement of trade transactions in INR shall take place through the Special Rupee Vostro Accounts opened by AD banks in India as permitted under Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, in accordance to the following procedures:
(i) Indian importers undertaking imports through this mechanism shall make payment in INR which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier
(ii) Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner
3.5 On perusal of the above, it can be stated that the condition(s) of sub-clause (iv) of Section 2(6) of the IGST Act, 2017, can be considered to be fulfilled when the Indian exporters, undertaking exports of services, are paid the export proceeds in INR from the balances in the designated Special Vostro Account of the correspondent bank of the partner trading country in terms of Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, as mandated by RBI’s A.P. (DIR Series) Circular No.10 dated 11th July, 2022 and reiterated further in Foreign Trade Policy, 2023.
4. Therefore, it is clarified that when the Indian exporters, undertaking export of services, are paid the export proceeds in INR from the Special Rupee Vostro Accounts of correspondent bank(s) of the partner trading country, opened by AD banks, the same shall be considered to be fulfilling the conditions of sub-clause (iv) of clause (6) of section 2 of IGST Act, 2017, subject to the conditions/ restrictions mentioned in Foreign Trade Policy, 2023 & extant RBI Circulars and without prejudice to the permissions / approvals, if any, required under any other law .
5. It is requested that suitable trade notices may be issued to publicize the contents of this Circular. Difficulty, if any, in the implementation of this Circular may be brought to the notice of the Board. Hindi version will follow.
(Sanjay Mangal)
Principal Commissioner(GST)
