India branch services to overseas customers through US parent agreement don't qualify as export under IGST Section 2(6)

AAR Kerala ruled that services provided by India branch to overseas customers under inter-company agreement with US parent company do not qualify as export of services under IGST Act Section 2(6). The legal fiction in Section 8 treats Indian establishment and foreign parent as distinct persons for GST purposes, making the US parent the actual recipient of services. Since supplier and recipient are establishments of the same distinct person, export conditions are not satisfied, making services liable to IGST. However, services became exempt from IGST from July 27, 2018 onwards under notification exemption.

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Issues Involved:
1. Whether the supply of services by the India Branch of M/s. Sutherland Mortgage Services Inc. USA to customers located outside India qualifies as export of services under the IGST Act, 2017.
2. Determination of the recipient of the services provided by the India Branch.
3. Applicability of GST on the services provided by the India Branch to the customers located outside India.

Issue-Wise Detailed Analysis:

1. Whether the supply of services by the India Branch of M/s. Sutherland Mortgage Services Inc. USA to customers located outside India qualifies as export of services under the IGST Act, 2017:

The applicant contended that the services provided by the India Branch to the customers located outside India qualify as export of services, which is considered zero-rated supply under Section 16 of the IGST Act, 2017. They argued that the services are provided directly to the customers outside India, not to their Head Office (SMSI, USA), and thus meet all conditions prescribed in Section 2(6) of the IGST Act, 2017 for export of services.

2. Determination of the recipient of the services provided by the India Branch:

The Authority for Advance Ruling (AAR) initially held that it lacked jurisdiction to decide on the determination of the 'place of supply,' which is crucial in determining if the services qualify as export. However, the Hon'ble High Court of Kerala quashed this decision, stating that the determination of liability to pay tax on any goods or services falls within the ambit of questions the AAR can address.

Upon reevaluation, the AAR focused on the definition of 'recipient' under Section 2(93) of the CGST Act, 2017, and the legal fiction created by explanations to Section 8 of the IGST Act, 2017. These provisions treat the establishment of a person in India and any other establishment of the same person outside India as distinct legal persons for GST purposes. Therefore, despite the applicant's argument that services are provided directly to overseas customers, the AAR concluded that the recipient of the services is SMSI, USA, the Head Office, due to the legal fiction.

3. Applicability of GST on the services provided by the India Branch to the customers located outside India:

Since the recipient of the services is deemed to be SMSI, USA, the services do not qualify as export of services under Section 2(6) of the IGST Act, 2017. Consequently, the services are liable to IGST. However, the AAR noted that from 27.07.2018 onwards, services supplied by an establishment in India to any establishment of the same person outside India are exempt from IGST under entry at SI No. 10F of Notification No. 09/2017 - Integrated Tax (Rate) dated 28.06.2017, as inserted by Notification No. 15/2018 - Integrated Tax (Rate) dated 26.07.2018.

Conclusion:

The AAR ruled that the supply of services by the India Branch of M/s. Sutherland Mortgage Services Inc. USA to customers located outside India is liable to GST for the period from 01.07.2017 to 26.07.2018. From 27.07.2018 onwards, these services are exempt from GST as per the specified notification.

Ruling:

The supply of services by the applicant as per the Inter-Company Agreement with M/s Sutherland Mortgage Services Inc, USA is liable to GST for the period from 01.07.2017 to 26.07.2018 and thereafter is exempted from GST as per entry at SI No. 10F of Notification No. 09/2017 - Integrated Tax (Rate) dated 28.06.2017 as inserted by Notification No. 15/2018 - Integrated Tax (Rate) dated 26.07.2018.

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