Place of Supply under GST in case Services provided to Foreign Resident in India

There are 5 conditions to be met {Section 2 (6) of IGST Act 2017} for the Services to be considered as Export of Services (thereby becoming Zero Rated Supply).

1. Service Provider should be in India.

2. Service Recipient should be outside India.

3. ‘Place of Supply of Service’ should be outside India.

4. Payment should be in Convertible Foreign Exchange.

5. Supplier and Recipient must not be mere establishments of the same person.

The provisions of law for Export of Services have remained more or less the same under erstwhile Service Tax Law (governed by Finance Act) and now under GST law since July 2017.

There have been numerous cases with the Authorities / Judiciary to decide the ‘Place of Supply of Services’ under Service Tax Law and now under GST regime, but the concerned GST authorities / judiciary have taken adverse view time & again.

GST Act fails to address this critical issue in totality and leaves the scope of deliberation & adverse interpretations by GST Authorities in India. Some such situations have been mentioned here leading to adverse interpretation thus GST @ 18% became applicable.

Section 2 (13) of IGST Act says ‘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’;

Even though a Contract specifies No Commission on Sales, there is still ample scope that GST Authorities may take the view that entity providing Consultancy / Marketing Services in India is soliciting the customers, dealers or distributors for Foreign Resident Customer and the consultancy fee paid (even if not linked to sales) falls under the intermediary services, and hence, liable to GST {Section 13 (8) IGST Act}.

Same view has been taken by Authority for Advance Ruling, Andhra Pradesh in the matter of DKV Enterprises Pvt Ltd on 24.02.2020 (AAR No. 04/AP/GST/2020).

Grace – Singapore engaged DKV Enterprises as its authorized non-exclusive consultant (and provided marketing consultancy services) for sale of its products to  some companies in India. It was held that this is not ‘Export of Service’ but ‘Intermediary Services’ and liable to GST.

One more ruling by AAR – Karnataka dt. 19.09.2019 in the similar matter of McAfee Software (India) Pvt Ltd Advance Ruling No. KAR ADRG 56 / 2019.

McAfee India entered into Marketing Service Agreement with McAfee Singapore to provide market support services. AAR – Karnataka held that Services provided by McAfee India are in the nature of intermediary services and thus liable to pay GST.

A clear cut demarcation by Legislation only can solve this problem.

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April 2021