GST, which stands for Goods and Services Tax, is an indirect tax introduced by the Government of India to replace various other indirect taxes, including Sales Tax, Service Tax, Excise Duty, and others. GST is basically levied on the supply of certain goods and services and is applicable throughout India.
In the tax regime, we can say that all the players of the market, ranging from the manufacturer to the consumer, should pay GST when they undertake the supply of goods or services on which the same is applicable. The manufacturer will pay GST on the raw materials purchased for production and then add value to the product. The service provider will have to pay GST on the product, along with any value added by the provider. This is also the case for the retailer, who will pay GST on the products they obtain from the manufacturer or distributor for sale to consumers. Finally, the consumer will purchase the goods or avail of the services on which they should be paying the GST as per the applicable rates prescribed by the GST Acts in place.
Being a vast country with multiple states and various indirect taxes, it has made it difficult for business owners, both domestic and foreign entities operating in India, to cope with these complexities. For the ease of business owners and consumers who were unknowingly or knowingly paying vast amounts of taxes under different names, and even where there was a cascading effect of taxes, the GST Law was a saviour for everyone involved.
Export of Services
Export of services arises when an assessee supplies services to a person belonging to a place or country which is not India and the payment for which is received in terms of convertible foreign exchange or Indian rupees, wherever permitted by the RBI (Reserve Bank of India). But every supply of service to a person located outside India cannot be termed as an export of service.
Section 2(6) of the GST Act defines export of service as:
A supply of any service when —
(i) the supplier of the service is located in India;
(ii) the person receiving the service is located in a foreign country;
(iii) the place of supply of the rendered service is located outside or in a foreign country;
(iv) the payment for such service has been received by the distributor or provider of the service in convertible foreign exchange or Indian rupees, wherever the Reserve Bank of India gives permission; and
(v) the provider of the service and the person who is receiving the service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;
Hence, we can say that as per the provisions of the GST Act, for a supply of service to be an export of service under GST, the place of supply and the recipient of supply should be outside India, while the supplier should be in the country. And the payment for such service need not be necessarily received only in convertible foreign exchange, but can also be received in Indian Rupees, provided the RBI permits it. And referring to para (v), I is stating that despite all the above terms or paras which are starting from (i) and ending at (iv), being satisfied also the same shall not be treated as the exporting of service if the provider of service and recipient are different and distinct assessee’s.
And as per this explanation, two establishments shall be considered as distinct persons if;
- location of one establishment is in India, while the location of another establishment is outside India.
- location of one establishment is in a State or UT, while the location of another establishment is outside that State or UT The
- location of one establishment is in one State/UT. In contrast, the location of another establishment refers to an independently registered place of business in that State/UT.
Service Provider is Located in Taxable Territory
Section 2(71) of the CGST Act, which provides that the location of the supplier will be;
– The registered place of business of the service provider,
– If the supply is made from a location other than the place of business, then such other location,
– If supply is made from more than one establishment, the location of the establishment most directly concerned with the provisions of the supply,
– In case of an absence of any such place, then the usual place of residence of the service provider shall be the location.
Hence, we can say that the service provider should be located and registered in India.
The recipient is Located Outside India.
Section 2(71) of the CGST Act defines the location of the recipient, and the same as per the section, the location of the recipient will be;
– The premise or principal place of business of the receiver of the service as registered,
– If the supply is received at a place other than the place of business, that different location,
– If supply is received at more than one entity, the location of the establishment is most directly concerned with the receipt of the sale or the service.
– In case there is no such place present, then the location of the usual place where the recipient of the service is residing shall be taken.
Therefore, it is to be noted that for the availing of any benefit pertaining to the export of services under GST, it is essential that the service recipient should not only be located outside India, but also should not be registered directly or indirectly in India under the GST.
Place of Supply outside India
For a service to qualify as an export of service under GST, the place of supply must be outside India. Section 13 of the GST Act is to be relied upon for the same, and according to this, the place of supply shall be as follows:
- Services provided in respect of goods which are required to be made available to the supplier for performing such services including services provided by electronic means but excluding repair of goods are temporarily imported into India and exported without put to use in India, the place of supply shall be where the services are performed and in case of services provided using electronic means than the place where the goods are actually located.
An example of this would be the servicing of machinery or equipment.
- Services provided to an individual, either as the receiver of service or on behalf of the recipient himself, which requires the physical presence of such person or individual, the place of providing or rendering of service shall be the place where the services were actually performed.
An example of this is the dermatological treatment given to a person or patient.
- Services provided directly to immovable property, including expert and estate agent services, accommodation by a Hotel, Inn, etc., the grant of rights to use the immovable property for construction work, including architect and decorator services, the place of supply would be the location of the hotel, inn, etc.
An example shall be the renovation services provided to the client with respect to the building or such other immovable property.
- Services provided by way of admission to a cultural, artistic, sporting, or any other entertainment event or amusement park, and services ancillary to it, so the place of supply will be the one where the event is actually held or the location of the park.
An example would be the entry to a museum in a country or place.
- Services provided by banks and other financial institutions will have the place of supply as the location of the supplier of the service.
An example will be the service charges charged by banks.
- Intermediary Services: The place of supply is the location of the service supplier. An example of this can be seen in the services provided by agents.
- Services that consist of hiring or renting a means of transport, including yachts, but excluding aircraft and vessels, for up to one month, with the location of supply being the location of the service provider.
Say hiring of goods taxi for the distribution of goods by a distributor entity.
- For services of transporting the goods other than by way of mail or courier service, the location of supply will be the location of destination of such goods. The hiring of vessels would be one of the best examples of this.
- Services like the Passenger transportation, for which the location of service or the supply will be the place where the passenger embarks on the conveyance for a journey that is continuous. An example of this is the airline’s service provided to its customers.
- Services that are rendered on conveyance on board; the location of sale will be the first scheduled point of the leaving or the departure of such conveyance.
- Service of Database Access or Retrieval and Online Information service, the location of sale shall be the location of the receiver of the service. Say services provided by Google as a search engine.
Hence, for determining the place of supply of a particular transaction, it is essential that the nature of the same is to be chosen to ensure if it falls under any of the above-stated situations.
