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Circular on Export of Services View Pdf   

Circular No: 78/49/2018-CT
F. No: CBEC-20/16/04/2018-GST
Circular:  Constitution of Standing Committee
Date: 31-12-2018
 
 
Subject: Clarification on export of services under GST – Reg.
 
           Representations have been received seeking clarification on certain issues relating to export of services under the GST laws. The same have been examined and the clarifications on the same are as below:
 

Sl.

No.

Issue

Clarification

1.

In case an exporter of services outsources a portion of the services contract to another person located outside India, what would be the tax treatment of the said portion of the contract at the hands of the exporter? There may be instances where the full consideration for the outsourced services is not received by the exporter in India.

      1.      Where    an    exporter    of     services located    in    India     is    supplying        certain services     to     a     recipient     located    outside India,    either    wholly   or    partly     through any    other    supplier    of    services    located outside     India,     the    following    two  supplies are    taking     place:-

 

          (i)        Supply     of       services    from    the     exporter      of    services     located    in    India      to    the   recipient   of    services   located outside    India    for   the     full    contract    value;

 

     (ii)    Import     of     services     by     the exporter     of          services       located       in India   from   the       supplier     of       services located  outside  India   with        respect      to       the            outsourced

 

 

portion     of    the    contract.

 

 

Thus, the total value of services as agreed to in the contract between the exporter of services located in India and the recipient of services located outside India will be considered as export of services if all the conditions laid down in section 2(6) of the Integrated Goods and Services Tax Act, 2017 (IGST Act for short) read with section 13(2) of the IGST Act are satisfied.

 

 

    2.     It  is  clarified  that  the  supplier    of services  located  in  India  would   be   liable   to pay  integrated   tax   on    reverse    charge   basis on the import of services on that portion of services which has been provided by the supplier located outside India to the recipient of services located outside India. Furthermore, the said supplier of services located in India would be eligible for taking input tax credit of the integrated tax so paid.

 

 

    3.      Thus,      even    if    the   full consideration   for   the   services   as   per   the contract  value  is  not  received   in   convertible foreign   exchange    in   India    due     to    the fact   that    the   recipient   of    services     located  outside   India    has    directly    paid   to   the  supplier   of   services   located    outside    India   (for  the   outsourced  part of  the   services), that   portion   of   the   consideration   shall   also   be   treated   as   receipt   of     consideration   for    export   of     services    in     terms   of   section   2(6)(iv)   of    the    IGST   Act,   provided    the:

 

 

           (i)     integrated     tax   has   been   paid  by the

 

  

  supplier     located   in    India    for    import    of services    on   that   portion   of    the    services which    has   been   directly    provided    by    the supplier   located   outside    India   to    the recipient    of   services  located   outside     India; and

(ii)   RBI    by   general     instruction    or    by specific   approval   has   allowed    that    a     part of    the    consideration    for    such    exports  can    be    retained    outside     India.

 

 

 

Illustration:   ABC    Ltd.     India    has    received an  order  for  supply   of    services amounting   to     $ 5,00,000/-    to    a     US based    client.    ABC Ltd.   India      is     unable to    supply    the      entire     services     from India   and    asks     XYZ Ltd.     Mexico  (who  is  not   merely   an    establishment    of     a distinct   person   viz.    ABC  Ltd.   India,     in accordance    with     the     Explanation 1  in Section  8    of     the     IGST     Act)    to    supply    a    part    of    the      services   (say 40% of the total contract value).  ABC    Ltd.   India shall    be    the    exporter   of    services   for    the  entire  value   if   the   invoice    for    the entire    amount    is     raised    by     ABC Ltd. India.   The      services   provided    by    XYZ Ltd. Mexico to the US based client shall be import of   services   by    ABC Ltd.   India    and it  would  be   liable   to    pay    integrated    tax on   the   same   under     reverse    charge   and also    be    eligible    to    take    input    tax    credit   of   the  integrated tax   so  paid.    Further, if     the    provisions  contained   in     section 2(6) of the IGST Act are not fulfilled with  respect     to     the     realization  of  convertible

foreign    exchange,    say    only    60%    of the

 

 

consideration   is    received   in     India    and    the    remaining    amount    is   directly    paid     by   the    US    based    client    to     XYZ Ltd. Mexico, even  in  such  a   scenario,    100%  of the total contract  value  shall  be  taken    as consideration   for   the   export    of     services   by ABC Ltd.  India   provided   integrated   tax on import of services has been paid on the part of the services provided by XYZ Ltd Mexico directly  to  the  US  based   client    and   RBI (by general   instruction   or   by   specific approval) has allowed that a part of the consideration for such exports can be retained outside India. In other  words, in such cases, the   export  benefit will  be available  for  the total realization of convertible    foreign    exchange  by    ABC Ltd. India   and    XYZ    Ltd.    Mexico.

2.       It is requested that suitable trade notices may be issued to publicize the contents of this Circular.

3.     Difficulty if any, in the implementation of this Circular may be brought to the notice of the Board. Hindi version will follow.

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