GST UPDATE ON EXPORT OF SERVICES

GST UPDATE ON EXPORT OF SERVICES

Under GST regime, to be an export of service, the criteria specified in Sec 2(6) of the IGST Act, 2017 has to be satisfied. This section prescribes the following conditions:-

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;

Thus, one condition is that the supplier of service and the recipient thereof are not merely the establishments of distinct person under explanation 1 in section 8. This explanation reads as follows:-

"For the purposes of this Act, where a person has,––

i. an establishment in India and any other establishment outside India;

ii. an establishment in a State or Union territory and any other establishment outside that State or Union territory; or

iii. an establishment in a State or Union territory and any other establishment being a business vertical registered within that State or Union territory,

then such establishments shall be treated as establishments of distinct persons."

Therefore, if the services are being provided by a Indian branch to its foreign head office, then the condition no. (v) of section 2(6) of the IGST Act, 2017 is not satisfied. Therefore, this transaction cannot be termed as export of service for the purpose of IGST Act, 2017.

However, in such a case, the place of supply is normally outside India in view of section 13(2) of IGST Act, 2017. Therefore, this transaction will be outside purview of GST law. Further, section 2(47) of CGST Act, 2017 defines the term exempt supply which includes supplies attracting NIL rate of tax, which are exempted u/s 11 of CGST Act or u/s 6 of IGST Act and non taxable supplies. The term non taxable supplies is defined in section 2(78) of CGST Act which covers the supply of goods which is not leviable to tax under this Act or under IGST Act. Therefore, the transactions which are outside the purview of GST will also be termed as exempt supply.

In view of above referred discussion, in the given case, no tax will be payable by Indian branch while providing the services to Foreign Head Office. Further, since these services are outside the purview of GST, the same will be termed as exempt supplies. Therefore, no input tax credit will be admissible on the same and proportionate reversal shall have to be made on such supplies.

The content of this GST update is for educational purpose only and not intended for solicitation.

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