Advance ruling refused on GST for software exports; share-based foreign consideration u/s2(6)(iv) IGST Act beyond s.97(2)

The AAR declined to rule on the applicant's GST liability on services of customization and licensing of a proprietary software platform supplied to an overseas client. The core issue was whether export proceeds received in the form of preference shares of the foreign entity qualify as "consideration" in convertible foreign exchange under s.2(6)(iv) of the IGST Act, 2017. The AAR held that this primary issue falls outside the scope of s.97(2) of the CGST Act, 2017, which limits the questions on which advance rulings can be given. Consequently, the AAR refused to answer the connected question of GST liability.

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1. ISSUES PRESENTED AND CONSIDERED

(1) Whether an advance ruling can be given on the question whether receipt of consideration in the form of non-voting, irredeemable preference shares satisfies the requirement of "receipt of consideration in convertible foreign exchange" under Section 2(6)(iv) of the IGST Act, 2017.

(2) Consequentially, whether the Authority can determine the liability to pay GST on the supply of services (customization and licensing of a proprietary platform to an overseas client) when such determination is predicated upon the above question of mode of receipt of consideration.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Maintainability of question on mode and form of export consideration under Section 97(2) of the CGST Act, 2017

Interpretation and reasoning

(1) The applicant's core query was whether export proceeds received in the form of non-voting, irredeemable preference shares of a foreign entity would qualify as "receipt of consideration in convertible foreign exchange" as required under Section 2(6)(iv) of the IGST Act, 2017.

(2) The Authority noted that Rule 96A of the CGST Rules, 2017 permits export of services without payment of IGST under bond or Letter of Undertaking, subject to receipt of payment in convertible foreign currency within the prescribed period; failure to receive such payment results in liability to pay tax with interest.

(3) The Authority found that, for purposes of Rule 96A and Section 2(6)(iv) of the IGST Act, the primary question is whether preference shares received from the foreign entity can be treated as the requisite "convertible foreign exchange" consideration for export of services.

(4) The Authority examined Section 97(2) of the CGST Act, 2017, which exhaustively lists the questions on which advance ruling may be sought, namely: (a) classification; (b) applicability of notifications; (c) determination of time and value of supply; (d) admissibility of input tax credit; (e) determination of liability to pay tax; (f) requirement of registration; and (g) whether any activity amounts to supply.

(5) The Authority held that the applicant's primary question, concerning whether preference shares received from a foreign entity constitute "receipt of consideration in convertible foreign exchange" under Section 2(6)(iv) of the IGST Act, does not fall within any of the categories specified in Section 97(2).

(6) The Authority observed that, although the applicant attempted to bring the question within Section 97(2)(e) by framing it as one of determination of liability to pay tax, the true and primary issue remained the characterization of the mode of receipt of export proceeds, which is outside the statutorily permitted scope of advance ruling.

Conclusion

(7) The Authority concluded that it lacks jurisdiction under Section 97(2) of the CGST Act, 2017 to pronounce an advance ruling on whether receipt of non-voting, irredeemable preference shares satisfies the requirement of "receipt of consideration in convertible foreign exchange" under Section 2(6)(iv) of the IGST Act, 2017.

Issue (2): Ability to determine GST liability on export of services when the foundational question is outside Section 97(2)

Interpretation and reasoning

(8) The applicant also sought, as an ancillary aspect, a ruling that if such receipt of preference shares is treated as receipt of consideration under Section 2(6)(iv) of the IGST Act, there would be no liability to pay GST on the export of the said services.

(9) The Authority held that determination of liability to pay GST in this case is contingent upon a prior finding that the receipt of preference shares constitutes the requisite consideration in convertible foreign exchange.

(10) As the primary question on characterization of consideration is itself beyond the scope of Section 97(2) and cannot be answered, the Authority reasoned that it cannot proceed to answer the consequential question on tax liability.

Conclusion

(11) The Authority declined to answer the question regarding liability to pay GST on the supply of services (customization and licensing of the proprietary platform to the overseas client), since it is corollary to and dependent on a primary question that lies outside the statutory scope of questions permissible for advance ruling under Section 97(2) of the CGST Act, 2017.

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