Analysis of Circular No. 161/17/2021-GST: Clarification Relating to Export of Services-Condition (v) of Section 2(6) of the IGST Act 2017

Question: whether the supply of service by a subsidiary/ sister concern/ group concern, etc. of a foreign company in India, which is incorporated under the laws in India, to the foreign company incorporated under laws of a country outside India, will hit by condition (v) of sub-section (6) of section 2 of IGST Act.

Answer:

I. ANALYSIS OF THE ISSUE:

What is export of service?

1. A company incorporated in India and a foreign company incorporated outside India, are separate “person” under the provisions of CGST Act and accordingly, are separate legal entities. Thus, a subsidiary/ sister concern/ group concern of any foreign company which is incorporated in India, then the said company incorporated in India will be considered as a separate “person” under the provisions of CGST Act and accordingly, would be considered as a separate legal entity than the foreign company.

Accordingly, these two separate persons would not be considered as “merely establishments of a distinct person in accordance with Explanation 1 in section 8” and the service would be treated as export of service.

What is not export of service?

2. Any supply of services by an establishment of a foreign company in India to any other establishment of the said foreign company outside India will not be covered under definition of export of services.

3. Supply of services made by a branch or an agency or representational office of a foreign company, not incorporated in India, to any establishment of the said foreign company outside India, shall be treated as supply between establishments of distinct persons and shall not be considered as “export of services”

4. Any supply of service by a company incorporated in India to its branch or agency or representational office, located in any other country and not incorporated under the laws of the said country, shall also be considered as supply between establishments of distinct persons and cannot be treated as export of services.

II. ANSWER OF THE QUESTION:

1. A company incorporated in India and a body corporate incorporated by or under the laws of a country outside India, which is also referred to as foreign company under Companies Act, are separate persons under CGST Act, and thus are separate legal entities. Accordingly, these two separate persons would not be considered as “merely establishments of a distinct person in accordance with Explanation 1 in section 8”.

Supply of services by a subsidiary/ sister concern/ group concern, etc. of a foreign company, which is incorporated in India under the Companies Act, 2013 (and thus qualifies as a ‘company’ in India as per Companies Act), to the establishments of the said foreign company located outside India (incorporated outside India), would be treated as export of service.

2. The supply from a company incorporated in India to its related establishments outside India, which are incorporated under the laws outside India, would be treated as export of service.

III. PRECAUTION FOR TRADE & INDUSTRY: The instant matter has to be read in conjunction with the issue of ‘intermediary’. It is held in this circular that the supply from a company incorporated in India to its related establishments outside India, which are incorporated under the laws outside India, would be treated as export of service. However, incase the services are sought to be twisted and termed as service of  ‘intermediaries’, then the treatment as export of service would again be under question.

Hence agreement with foreign subsidiary/ sister concern/ group concern, etc. should be so made that both the circulars CIRCULAR NO. 161/17/2021-GST and CIRCULAR NO. 159/15/2021-GST are adequately taken care of.

Field formations also should not adhere to selectively picking up the clauses in the Master Agreement without analysing the agreement as a whole. The same was the view of the CESTAT as envisaged in the case of 2021-VIL-130-CESTAT-BLR-ST: CSG SYSTEMS INTERNATIONAL (INDIA) PVT LTD VS COMMISSIONER OF CENTRAL TAX, BENGALURU SOUTH COMMISSIONERATE. It Has been accepted in CIRCULAR NO. 159/15/2021-GST by citing examples.

Author Bio

Qualification: LL.B / Advocate
Company: Tax Connect Advisory Services LLP
Location: MUMBAI, Maharashtra, India
Member Since: 10 Jan 2019 | Total Posts: 58
Mr. Vivek Jalan is a Fellow Member of the Institute Of Chartered Accountants of India (ICAI) ; a qualified LL.M (Constitutional Law) and LL.B. He is the Chairman of The Core Group on Indirect Taxes of The CII- Economic Affairs and Taxation Committee (ER); He is the Chairman of The Fiscal Affairs Com View Full Profile

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