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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.

Please clarify, if supply by way of Export of Services by a registered person under GST to a Related Person outside India (for example Indian subsidiary rendering services to Foreign Holding company) be subject to IGST or it will be treated as "Export" & hence treated as "Zero-rated" supply.

As per Sec 2(6)(v) of the IGST Act, for a service to qualify as export, one of the conditions which needs to be compulsorily satisfied is “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.

Explanation 1, Section 8 - Establishments will be treated as establishment of distinct persons under the following situations:

a. Location of one establishment is in India, location of the other establishment is outside India.
b. Location of one establishment is in a State or Union Territory, location of the other establishment is - outside that State or Union Territory
a. Location of one establishment is in State or Union Territory, location of the other establishment is - business vertical registered in that State or Union Territory.

Therefore, where both the establishments are located in a State/ Union Territory, the establishments will not be considered as distinct persons.

A person carrying on a business through a branch or an agency or a representational office in any territory shall be treated as having an establishment in that territory.

As per the above Sec 2(6)(v) of the IGST Act, “Provision of Services” to overseas branch cannot treated as “ Export of services”. Hence such services will not be “Zero rated”. But they will be treated as inter-state supply considering the fact that location of supplier is in India and place of supply is would be location outside India. Hence IGST will be charged with no refund.

Dear Sir,

Client is an Indian branch office of a company incorporated in USA. Branch office provides software development and maintenance services to its head office located in USA.

Can this be considered as Export of Services and therefore Zero rated supply?

I have a similar question, if you can guide.

Self is a consultant working from home or from personal rented office space and provides services to a company based outside India. The foreign company does not have any office (registered) or establishments in India. Self gets monthly remuneration by way of professional fees / salary in foreign currency converted into INR in my local bank account.

As per your aforesaid reply: “Export of services” means the supply of any service when –

i) supplier of service is located in India; - SELF IS PROVIDING CONSULTATION SERVICES AND BASED IN INDIA.

ii) recipient of service is located outside India; - MY PRINCIPAL (A COMPANY) IS LOCATED OUTSIDE INDIA.

iii) place of supply of service is outside India; - I M PROVIDING CONSULTATION SERVICES TO MY PRINCIPAL BASED OUTSIDE INDIA.

iv) payment for such service is received by supplier of service in
convertible foreign exchange; - YES

v) supplier of service & recipient of service are not merely establishments
of a distinct person - PRINCIPAL IS A COMPANY AND SELF AS AN INDIVIDUAL AND NOT AS A COMPANY.

All these conditions should be fulfilled for a service to qualify as ‘export’. - DO I FULFIL THE DEMAND FOR EXPORT OF SERVICE?

Kindly advise whether self will be entitled to pay for GST?

Pleased to hear

Dear Sunith Sir,

Further to the query raised by you, prima facie it seems that you fulfil all the criteria for export. There is one important concept to be noted which is about the place of supply. In case of international transactions, if the address of the recipient is known, then the place supply is the location of the recipient which is outside India. If the address of the recipient is not known, then the place of supply shall be location of the service provider. In your case, we assume that you are aware of the address of the recipient. Hence you will qualify as an exporter since you satisfy all the conditions. Exports are "zero rated" under GST. You will not charge GST in your export invoice. You may refer our other blogs on "export of services under GST", "concept of bond or LUT under GST" and "Concept of FIRC under GST", "types of invoices under GST". Please feel free to get back to us in case of any further clarifications. Thank you.



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