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Supply of Service by an Indian Consultant to its Foreign Principal whose customers who are located in India.

July 3, 2017

Question. Our valuable client is a professional services engineer based in India. He provides professional services to a company based outside India. But the services are provided mostly within India to the clients of the foreign company present in India. The foreign company has a representative office at Bangalore ( not a registered office). The office is taken on rent by the foreign company and just serves the address of communication for its Indian clients. Our client gets a monthly remuneration by way of professional fees based on the invoice raised by him in India in INR. The foreign company credits our client’s bank account every month with the professional fee amount  which is converted by our client’s bank in India currency. Additionally our client also provides professional services to other Asia Pacific nations on behalf of the same foreign company.

Will this be considered as export of services by our Indian client and will he able to claim the benefit of “Zero rated supply” under the present GST regime? 

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Export of services under the GST regime

“Export of services” means the supply of any service when –

i) supplier of service is located in India;
ii) recipient of service is located outside India;
iii) place of supply of service is outside India;
iv) payment for such service is received by supplier of service in
convertible foreign exchange;
v) supplier of service & recipient of service are not merely establishments
of a distinct person
All these conditions should be fulfilled for a service to qualify as ‘export’.

In case a transaction does not satisfy any one of the conditions for export, the same should be liable to GST. The supply will be treated as inter-state supply and will be subject to IGST.

Supplies outside India which do not constitute export of goods or services

• Supply of service to a person located outside India where place of supply of service is in India. For example – 1. A property rented out in Mumbai to a person residing in Dubai;

• Supply of services where consideration is received in Indian currency or a currency other than convertible currency. For example supply of consultancy service by an Indian consulting firm to an overseas entity, payment for which is made in Indian rupees by Indian branch of overseas entity.

• Services provided to overseas branch would not be eligible as export of services due to specific exclusion for such transactions in the definition of “export of service”. This could entail reversal of input credits as such supply would be treated as non-taxable and not as zero rated.

Place of supply in case of International Transactions

International transactions are the ones where either of the service recipient or the provider is outside India.

General Rule

The place of supply for services treated in international transactions shall be:
• The location of service recipient
• In case where the location of service recipient is not available, the
place of supply shall be location of the supplier.

Generally, GST is destination based tax i.e. consumption tax, which means tax will be levied where goods and services are consumed and will accrue to that place.

REPLY TO THE QUERY RAISED BY OUR CLIENT SPECIFICALLY:

Further to the query raised by you, the professional services provided by you to the foreign company will not amount to export of services due to the following reasons:

i) Recipient of service is located mostly inside India and sometimes
outside India ( in Asia Pacific countries) as confirmed by you.
ii) Place of supply of service is mostly in India and sometimes outside
India;
iii) The service provided to Asia Pacific countries shall be treated as
export.

Hence you will be liable to IGST for your professional services provided to the foreign company.



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