Export of services under GST Detailed Analysis

Supply of Export of service is very ticklish term under GST. Sometimes a transaction seems to be supply of export of service but according to the provisions of the GST such transaction shall not be treated as export of service. Every supply of service made to a person belonging to the outside India and payment also received in convertible foreign exchange cannot be termed as supply of export of service. Export of service is defined under section 2(6) of the IGST Act which is reproduced as under: –

“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;

The registered person mainly think that a supply of service provided to foreign national person and payment received in convertible foreign exchange shall be treated as supply of export of service. But under the GST provisions this is not the only criteria to establish the export of service. On perusal of the definition clause relating to para (iii) and para (iv) require that place of supply should be outside India and payment of the service has been received in convertible foreign exchange. Para (v) of the definition clause says even there is a case of export of service and terms mentioned in paras (i) to (iv) are being fulfilled even then such transaction shall not be treated as export of service if the supplier and the recipient are distinct persons. Explanation to the distinct person is available in Explanation 1 of Section 8 IGST Act.

Para (iii) of the section 2(6) of the IGST Act says that “the place of supply of service is outside India.” If place of supply of service is not outside India, then that transaction shall not be treated as export of service.

To verify the location of place of supply whether it is in outside India or within India we shall have to read the provisions stated under section 13 of the IGST Act.

Section 13 IGST Act is analysis with examples as under:

The provisions of the section 13 IGST Act shall apply to determine the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India. But under this article only those cases are being covered where location of the Supplier is in India and location of the Recipient is in outside India.

Page Contents

A.  Section 13(2) IGST determines the place of supply of any type of service except the services specified in sub-sections (3) to (13) IGST shall be the location of the recipient of services.

B.  PLACE OF SUPPLY RELATING TO GOODS (Section 13(3)(a) IGST)

C. PLACE OF SUPPLY RELATING TO INDIVIDUAL (Section 13(3)(b) IGST)

D. PLACE OF SUPPLY RELATING TO IMMOVABLE PROPERTY (Section 13(4) IGST)

E.  SECTION 13(5) IGST – Place of Supply in regard to event services.

F.  SECTION 13(8) IGST ACT RELATING TO THREE SERVICES WHOSE PLACE OF SUPPLY SHALL BE LOCATON OF THE SUPPLIER OF SERVICES.

G. “INTERMEDIARY SERVICES” are exempted from GST Tax

H.  SECTION 13(12) IGST ACT RELATING TO ONLINE SERVICES.

I.  SUPPLY OF EXPORT OF SERVICES BETWEEN TWO DISTINCT PERSONS IS EXEMPT FROM GST TAX.

J. Clarification through Circulars issued by the GST in regard to Export of Services.

K.  Clarification through FAQ issued by the GST in regard to Export of Services.

A. Section 13(2) IGST determines the place of supply of any type of service except the services specified in sub-sections (3) to (13) IGST shall be the location of the recipient of services.

Example 1A – Any support services or liaison services, if not covered under sections (3) to (13), given to the person whose location is in outside India, is export of services if other conditions regarding payment received in convertible foreign exchange is fulfilled and both persons (supplier and recipient) are not distinct persons.

B. PLACE OF SUPPLY RELATING TO GOODS (Section 13(3)(a) IGST) –  

According to this section location of the place of supply shall be the location where the goods are available for service.  

Example 1B – A UK national company place an order to the company of Delhi to service air-condition plant working in office of Banglore. Payment is also received from UK company in foreign currency.

Answer –  The goods (AC plant) is situated in Banglore which is to be serviced. Place of supply of service is location of the goods where it is situated i.e. Banglore.

Place of supply is Banglore, therefore, this transaction is not export of service.

Example 2B – In the above example number 1B the supplier services the AC plant working in office situated in UK. Payment was received to the Supplier in Indian Rupees from Recipient’s office in Banglore.

Answer – Condition stated in 2(6)(iv) of the IGST i.e. payment to be received in convertible foreign exchange is not fulfilled, therefore, this transaction shall not be export of service even though the place of supply is outside India.

C. PLACE OF SUPPLY RELATING TO INDIVIDUAL (Section 13(3)(b) IGST) – 

According to this section location of the place of supply shall be the location where the services are provided to the individual, represented either as the recipient of services or a person acting on behalf of the recipient.

Example 1C – A film making company of USA makes an agreement with Mumbai Based company who will provide services to their artists in India at where shooting of the film will be going on. 

Answer – Beauty Salon service will be provided to the individual representing the Recipient of USA. In this case location of place of supply of service will be where such service shall be provided. If such service is provided at Agra where film shooting is going on then location of the place of supply is Agra (Uttar Pradesh).

D. PLACE OF SUPPLY RELATING TO IMMOVABLE PROPERTY (Section 13(4) IGST) – 

According to this section location of the place of supply shall be the location where the immovable property is located or intended to be located.

Example 1D – An immovable property was rented out in Delhi to foreign national of USA. Payment is also received in foreign currency. 

Answer –  Place of supply shall be where immovable property is situated. Therefore, this transaction shall not be export of service because location of the immovable property is in India.

Example 2D – An Architect raises a bill to USA company for providing services towards property to be constructed in Delhi. A bill is raised in foreign currency and payment is also received in foreign currency.

Answer –  Place of supply for such service shall be where immovable property is intended to be located. Such transaction shall not be export of service because place of supply is not outside India.

E. SECTION 13(5) IGST – The place of supply of services supplied by way of admission to, or organisation of a cultural, artistic, sporting, scientific, educational or entertainment event, or a celebration, conference, fair, exhibition or similar events, and of services ancillary to such admission or organisation, shall be the place where the event is actually held. 

Example 1E – A Delhi based company organize an event management for the USA Company in all over the world. Payment also received in foreign exchange. If the event is organized in India, then such supply of service will not be export of service but if the event is organized in outside India, then that supply of service will be treated as export of service.

F. SECTION 13(8) IGST ACT RELATING TO THREE SERVICES WHOSE PLACE OF SUPPLY SHALL BE LOCATON OF THE SUPPLIER OF SERVICES. 

(a) services supplied by a banking company, or a financial institution, or a non-banking financial company, to account holders;

(b) intermediary services;

(c) services consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels, up to a period of one month

Intermediary Services defined in section 2(13) of the IGST Act i.e.

“intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account;

“INTERMEDIARY SERVICES” are exempted from GST Tax 

Entry No.12AA of Notification 9/2017 IGST(RATE)

Heading – 9961

Description of Services – Services provided by an intermediary when location of both supplier and recipient of goods is outside the taxable territory.

Condition – Following documents shall be maintained for a minimum duration of five years:

(1) Copy of Bill of Lading

(2) Copy of executed contract between Supplier/Seller and Receiver/ Buyer of goods

(3) Copy of commission debit note raised by an intermediary service provider in taxable territory from service recipient located in non-taxable territory

(4) Copy of certificate of origin issued by service recipient located in non-taxable territory

(5) Declaration letter from an intermediary service provider in taxable territory on company letter head confirming that commission debit note raised relates to contract when both supplier and receiver of goods are outside the taxable territory.

H. SECTION 13(12) IGST ACT RELATING TO ONLINE SERVICES. 

The place of supply of online information and database access or retrieval services shall be the location of the recipient of services.

Explanation. —For the purposes of this sub-section, person receiving such services shall be deemed to be located in the taxable territory, if any two of the following non-contradictory conditions are satisfied, namely: —

(a)  the location of address presented by the recipient of services through internet is in the taxable territory;

(b) the credit card or debit card or store value card or charge card or smart card or any other card by which the recipient of services settles payment has been issued in the taxable territory;

(c)  the billing address of the recipient of services is in the taxable territory;

(d)  the internet protocol address of the device used by the recipient of services is in the taxable territory;

(e) the bank of the recipient of services in which the account used for payment is maintained is in the taxable territory;

(f)  the country code of the subscriber identity module card used by the recipient of services is of taxable territory;

(g)  the location of the fixed land line through which the service is received by the recipient is in the taxable territory.

 H. SUPPLY OF EXPORT OF SERVICES BETWEEN TWO DISTINCT PERSONS IS EXEMPT FROM GST TAX. 

According to clause 10F of notification 9/2017 IGST (Rate) service made to distinct person shall be exempt from tax provided the place of supply of the service is outside India in accordance with section 13 of Integrated Goods and Services Tax Act, 2017. Therefore, no tax should be charged if other conditions are fulfilled. Para 10F of the Notification 9/2017 is reproduced as under.

J. Clarification through Circulars issued by the GST in regard to Export of Services. 

Circular No. 78/52/2018-GST dated 31-12-2018 

Issue – In case an exporter of services outsources a portion of the services contract to another person located outside India, what would be the tax

treatment of the said portion of the contract at the hands of the exporter?

There may be instances where the full consideration for the outsourced services is not received by the exporter in India.

Clarification – 1. Where an exporter of services located in India is supplying certain services to a recipient located outside India, either wholly or partly through any other supplier of services located outside India, the following two supplies are taking place: –

(i) Supply of services from the exporter of services located in India to the recipient of services located outside India for the full contract value;

(ii) Import of services by the exporter of services located in India from the supplier of services located outside India with respect to the outsourced portion of the contract.

Thus, the total value of services as agreed to in the contract between the exporter of services located in India and the recipient of services located outside India will be considered as export of services if all the conditions laid down in section 2(6) of the Integrated Goods and Services Tax Act, 2017 (IGST Act for short) read with section 13(2) of the IGST Act are satisfied.

2. It is clarified that the supplier of services located in India would be liable to pay integrated tax on reverse charge basis on the import of services on that portion of services which has been provided by the supplier located outside India to the recipient of services located outside India. Furthermore, the said supplier of services located in India would be eligible for taking input tax credit of the integrated tax so paid.

3. Thus, even if the full consideration for the services as per the contract value is not received in convertible foreign exchange in India due to the fact that the recipient of services located outside India has directly paid to the supplier of services located outside India (for the outsourced part of the services), that portion of the consideration shall also be treated as receipt of consideration for export of services in terms of section 2(6)(iv) of the IGST Act, provided the:

(i) integrated tax has been paid by the supplier located in India for import of services on that portion of the services which has been directly provided by the supplier located outside India to the recipient of services located outside India; and

(ii) RBI by general instruction or by specific approval has allowed that a part of the consideration for such exports can be retained outside India.

The reader may refer to the circular for illustration in regard to the aforesaid clarification.

Circular No. 107/26/2019-GST dated 18-07-2019

Clarification given on doubts related to supply of Information Technology enabled Services (ITeS services).

Intermediary Services are not export of services but the supplier of services would not be treated as „intermediary‟ even where the supplier of services qualifies to be „an agent/ broker or any other person‟ if he is involved in the supply of services on his own account.

Under this circular the Principal Commissioner (GST) tries to clarify, while considering various possible scenarios, between services be treated as intermediary services and services supplied by the person in his own account.

K. Clarification through FAQ issued by the GST in regard to Export of Services. 

FAQ 3^rd EDITION DATED 15-12-2018 

Q 32. How is condition 5 viz 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 of the IGST Act, 2017 impacts the taxability?

Ans. Explanation I in section 8(2) of the IGST Act, 2017 states that where a person has an establishment in India and any other establishment outside India then such establishments shall be treated as establishment of distinct persons. Where the Indian arm is set up as a liaison office or a branch they would be treated as establishments of the same entity and hence the supply inter se shall not qualify as export of services.

However, if the Indian arm is set up as a wholly owned subsidiary company incorporated under the Indian laws, the foreign company and the Indian subsidiary would not be governed by the provisions of distinct person or related person as both are separate legal entities.

Q 33.  Whether supply of services to Nepal and Bhutan in Indian rupees are liable to GST?

Ans. No. Supply of services where place of supply is Nepal & Bhutan against payment in Indian Rupees are exempted from GST vide Sr.No.10D of notification no.09/2017-Integrated Tax (Rate) dated 28.06.2017 as amended by Notification 42/2017-Integrated Tax (Rate) dated 27.10.2017.

Further, requirement of remittance in foreign exchange has been relaxed by amendment in the definition of “export of services” in section 2(6) of the IGST Act, 2017 vide the IGST (Amendment) Act, 2018. The payment for such service can now be received by the supplier of service in Indian rupees wherever permitted by the Reserve Bank of India.

To reach to me for any suggestion, rectification, amendment and/or further clarification in regard of this article my email address is [email protected].