Query: Seller is located in India, he wants to sell his designs on online platforms, located outside India, which manufacture and deliver the goods as per the designs as selected by the customer through online mode. The platforms collect the money from the customers for the goods sold, retains the value of material, other manufacturing costs, profit pertains to them and make the balance payment, the value of designs as priced by the seller to him. Now advise him the GST implications on his supplies.
Whether selling designs is the supply of goods or service:
As per Schedule II of CGST Act, No.5 (c), temporary transfer or permitting the use or enjoyment of any intellectual property right is a supply of service. Intellectual property is that is the result of creativity such as patents, copyrights, etc. Designs are the result of creativity thereby qualifies as intellectual property rights and selling the same is a supply of service.
Whether the supply qualifies as Export of Service:
Section 2(6) of IGST Act defines export of service that any supply of 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 for such service is received in convertible foreign exchange or Indian rupees as permitted by RBI
- The supplier and the recipient of service are not establishment of a distinct person
The first two conditions are satisfied by mere reading of the situation. The supplier is located in India and the recipient, the online platform, is located outside India.
Now the answer for the third condition is to be found out. Here comes section 13 of IGST Act for the rescue, accordingly the place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services. Since we don’t find a place for our service among the sub-sections, we can conclude that section 13(2) fits very well for this service, the place of supply of this service is outside India, the location of the recipient of service.
Also, the supplier gets paid for the service (hope so) in convertible foreign exchange, the remaining fifth condition is also well satisfied, they are not establishment of a distinct person and eventually the service qualifies as export of service.
Whether GST Registration is required:
According to section 7(5)(a) of IGST Act, where the supplier is located in India and the place of supply is outside India, such supply is categorized as inter-state supply. In the present case, it is already proved that the place of supply is outside India and the supplier is located in India and this supply is undoubtedly an inter-state supply.
According to section 24 (i) of CGST Act, persons making inter-state supply is required to take GST registration compulsorily. So the supplier is necessarily to take GST registration. However, if the value of turnover doesn’t exceed Rs.20 Lakhs (Rs.10 Lakhs in “special category States”) in a financial year, the supplier of services is exempted from obtaining compulsory registration vide Notification No.10/2017 – Integrated Tax, dated 13th October 2017.
Whether GST is payable on this service:
This supply is zero rated supply according to section 16 (1) (a) of IGST Act as it is export of service, the supplier may supply the services under letter of undertaking without payment of integrated tax and claim refund of unutilized input tax credit or supply on payment of tax and claim refund of such tax paid.
Conclusion: This service falls under the export of services and the supplier needs GST registration. He can supply the services with or without payment of tax. For without payment of tax, he has to apply of Letter of Undertaking (LUT) and issue invoice as bill of supply. He can also opt to pay tax and claim refund.
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Disclaimer: This article is only for the purpose of understanding the provisions of the Act, as known by the author. The author bears no responsibility on decisions taken by the readers whatsoever. E&OE.
Another Disclaimer: The service, the supplier and the recipient are fictitious. Any resemblance to a person living or dead or service itself is purely coincidental.
Author Bio
No Registration is required to be obtained by provider of services, if turnover is below Rs. 20 Lacs, even if the service provided is Inter-state, read notification no. 10/2017 IGST Tax