Export of Services under GST
GST which is the short form used for Goods and Services Tax is an indirect tax that was introduced by the Government of India for replacing all other indirect taxes like Sales Tax, Service Tax, Excise Duty, and so on. GST basically shall be levied on the supply of certain goods and services and is applicable all over the country, 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 be paying GST on the raw materials purchased for production and would then be adding value to product. The service provider will have to pay GST on the product along with value-added by the provider on the same, which when coming to the retailer is also same with regard to the products which they have obtained from the manufacturer or distributor for being sold to the consumers. Finally, the consumer will purchase the goods or avail of the services on which they should be paying the GST as per applicable rates prescribed by the GST Acts in place.
Being a vast country with multiple states, and multiple indirect taxes have made it difficult for the business owners both domestic and foreign entities operating in India, to cope with the same. For ease of such business owners and the consumers who were knowingly or unknowingly paying huge amounts of taxes in different names and even where there was the cascading effect of taxes, GST Law was a saviour for everyone involved in the same.
Export of Service
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 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 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 permission is given by the Reserve Bank of India; 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, 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 but should be permitted by RBI. 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,
- location of one establishment is in one State/UT, while the location of other establishment is other places of business independently registered 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 service provider,
– If the supply is made from 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 other location,
– If supply is received at more than one entity, the location of the establishment is most directly concerned with the receiving of the sale or the service,
– In case there is no such place present, thenthe 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 important that the service recipient should not only be located outside India, and such recipient should not be registered directly or indirectly in India under the GST.
Place of Supply outside India
For service to qualify as export of service under GST, it is important that the place of supply is 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 representing either as the receiver of service or on the 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 would be the dermatological treatment given to a person or a patient.
- Services provided directly to immovable property including expert and estate agent services, accommodation by Hotel, Inn, etc., grant of right to use the immovable property for construction work including architects and decorator services, the place of supply would be the place where the hotel, inn, etc. is located.
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 events 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, other financial institutions, the place of supply will be the location of the supplier of service.
An example will be the service charges charged by banks.
- Intermediary Services, the place of supply is the location of supplier of service, and an example for this can be taken as a service provided by agents.
- Services that are consisting of hiring or taking on rent a means of transport, including yachts but keeping aircraft and vessels out of the ambit, up to one month, the location of supply will be the location of provider of the service.
Say hiring of goods taxi for distribution of goods by a distributor entity.
- Service 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 the one of the best examples for this.
- Services like the Passenger transportation, for which the location of service or the supply will be the place passenger embarks on the conveyance for a journey that is continuous. An example of this would be the airline’s service provided to its consumers.
- Services that arerendered on conveyance on board; the location of sale will be the first scheduled point of the leaving or the departure of such conveyance.
- Service ofDatabase 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 important the nature of the same is to be determined for ensuring if it falls under any of the above-stated situations.
The provider of service and the receiver of service are not merely establishments of a distinct or separate person
As per explanation given to section 8(2), of the GST Act, we can say that a person who is having an establishment inside India and outside India, then such entities shall be treated to be of distinct persons. And due to this same reason if the service provider and receiver are establishments of distinct persons as provided above it cannot be treated as export of services and thereby the same cannot avail any benefits pertaining to the same.
But as per the verdict given by the Gujarat High Court on, Linde Engineering India Pvt. Ltd. & Ors. Vs. Union of India, which stands as, rendering of services by a company which is subsidiary in India to its parent Company located in a foreign country which here is Germany and a company separately registered in non-taxable territory or a foreign country for that matter (Germany) cannot be considered for legal provisions as services provide to merely establishment of distinct persons. Hence, the holding-subsidiary relations can be kept out of the purview of being distinct persons. But if a company outside India has set up a branch office in India rather than a subsidiary then such an entity can only be treated as an establishment of the same entity and thus will not qualify as export of services.