In terms of para 2.52 of the Indian Foreign Trade Policy (2015-2020) exports proceeds from Nepal and Bhutan can be realized in Indian rupees. However, in GST law, Export of Goods and Export of Services are treated differently
Rupee Exports of Goods to Nepal and Bhutan will be treated at par with export to any other country as definition of ‘export of goods’ under IGST Law attaches no condition other than ‘taking goods out of India to a place outside India’.
Sec 2(5) of IGST Act : “export of goods” with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India;
However in case of export of services, in case export proceeds are received in Indian rupees, it will not qualify as ‘export’ as the definition of ‘export of services’ mandates receipt of payment in ‘convertible foreign exchange’.
Sec 2(6) of IGST Act : “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; 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;
Because of this controversy & confusion over payment realization for service exports, trade is representing for quite some time. For example for export of goods to these countries transport services are provided to Nepal / Bhutan importers by Indian transport companies and also for their exports to India. When these services are being provided to a place outside India from a place in India, a qualifying condition attached to in the definition of Export of Services is realization of payment in freely convertible currency. If the payment is not received in freely convertible currency, then such services will not be treated as exports and in such situations the service provider has to discharge the tax liability. Whereas as per treaty between these countries payments can be made in Indian Rupee.
Exemption on Supply of Services Associated with Transit Cargo to Nepal and Bhutan
To remove the confusion a Notification No. 30 / 2017, Central Tax (Rate), 29th September, 2017 was released to amend the Notification No. 12/2017- Central Tax (Rate), dated the 28th June, 2017 by exempting tax on Supply of services associated with transit cargo to Nepal and Bhutan (landlocked countries). But this notification served limited purpose.
Exemption to Supply of services having place of supply in Nepal and Bhutan, against Payment in Indian Rupees
Further the Central Government vide Notification No. 42/2017- Integrated tax(Rate) dated 27th October, 2017 made the amendment in the Notification No. 9/2017- Integrated Tax (Rate), dated the 28th June, 2017 whereby a new entry have been inserted in the exemption notification, namely, Supply of services having place of supply in Nepal or Bhutan, against payment in Indian Rupees.
Though this great relief was provided to the service providers to these two countries by way of exemption from GST, a missing point is related to availment of Input Tax Credit (ITC). If such services are exempted then ITC cannot be claimed.
Recommendations made by the GST Council in the 23rd meeting at Guwahati on 10th November, 2017
Exports of services to Nepal and Bhutan have already been exempted from GST. It has now been decided that such exporters will also be eligible for claiming Input Tax Credit in respect of goods or services used for effecting such exempt supply of services to Nepal and Bhutan.
This is a welcome measure. The Notification is awaiting.
In a nutshell Service to Nepal / Bhutan shall be treated as Export of Services irrespective of realization of payment in Indian Rupee. Such services are exempt from payment GST and allowed ITC.
Disclaimer : The views and opinions; thoughts and assumptions; analysis and conclusions expressed in this article are those of the authors and do not necessarily reflect any legal standing.
Author : SN Panigrahi, GST Consultant, Practitioner, Corporate Trainer & Author Can be reached @ firstname.lastname@example.org