Non-compete covenants can be services, but foreign-linked obligations may qualify as export of services while Indian-linked parts stay taxable.

Agreeing not to compete is treated as a supply of services under Schedule II. Where the non-compete obligation was in favour of a recipient outside India, the place of supply was outside India, consideration was received in convertible foreign exchange, and the parties were not merely establishments of the same person; the arrangement therefore qualified as export of services and attracted nil GST. The portion of the non-compete fee linked to entities operating in India had its place of supply in India, did not meet the conditions for export of services, and remained taxable under GST as either inter-State or intra-State supply, depending on the supplier and place of supply.

---

---

Issues: (i) Whether the activity of agreeing not to compete amounted to a supply of service and, in respect of the recipient in the United States, whether the place of supply was outside India and the service qualified as export of service. (ii) Whether the portion of the non-compete fee attributable to activities linked to entities operating in India was liable to GST and, if so, in what manner.

Issue (i): Whether the activity of agreeing not to compete amounted to a supply of service and, in respect of the recipient in the United States, whether the place of supply was outside India and the service qualified as export of service.

Analysis: Agreeing to refrain from an act falls within paragraph 5(e) of Schedule II and is treated as a supply of services. For the non-compete obligation relating to the purchaser located outside India, the recipient was outside India, the place of supply was outside India under section 13(2) of the Integrated Goods and Services Tax Act, 2017, payment was received in convertible foreign exchange, and the parties were not merely establishments of the same person. All statutory conditions for export of services were satisfied.

Conclusion: Yes. The service, to the extent rendered in favour of the purchaser located outside India, constituted export of services and was a zero-rated supply attracting nil GST.

Issue (ii): Whether the portion of the non-compete fee attributable to activities linked to entities operating in India was liable to GST and, if so, in what manner.

Analysis: The non-compete obligation also extended to entities carrying on business in India. That part of the service had its place of supply in India and therefore did not satisfy the requirements of export of services. Depending on the location of supplier and place of supply, the supply would be treated as inter-State or intra-State supply under the IGST Act, 2017 and GST would apply accordingly.

Conclusion: Yes. The portion attributable to the Indian operations was taxable under GST as applicable, with the exact levy depending on whether the supply was inter-State or intra-State.

Final Conclusion: The ruling bifurcates the consideration: the foreign-linked non-compete service is outside the GST net as export of services, while the India-linked portion remains taxable under the applicable GST regime.

Ratio Decidendi: A non-compete covenant is a supply of service, but it is export of service only when the recipient is outside India, the place of supply is outside India, consideration is received in foreign exchange, and the parties are not merely distinct establishments of the same person; the domestic component remains taxable under GST.

---