Export of service

[Kaustubh Karandikar]

XYZ(India) is supplying ‘Engineering Services’ to PQR (USA) which is a parent company. The services provided are

1) Designs are made by XYZ with the help of a software (Design Engineering) in relation to projects to be executed in India or outside India. If the project is to be executed outside India, the designs are sent by email to PQR for their use. If the project is to be executed in India, the designs are either first sent to PQR or are directly sent to the project site in India. Payment received by XYZ from PQR in foreign currency.

2) It is in relation to coordination of activities of a project. The project may be within India or outside India. Payment received by XYZ from PQR in foreign currency.

3) It is in relation to quality control check carried out by XYZ for the projects carried out in India. Payment received by XYZ from PQR in foreign currency.

4) Employee of XYZ stay/deputed at site in India for service as required at site. Payment received by XYZ from PQR in foreign currency.

5) Employee of XYZ will visit to site as and when called for supervision. Payment received by XYZ from PQR in foreign currency.

6) People are on pay roll of XYZ. For a project of PQR which is outside India, engineering services provided by these people by sitting in India. Amount recovered from PQR for the same with mark up in INR and GST is charged. In relation to invoices raised in INR, XYZ have Vostro account with JP Morgan which then transfers funds to XYZ normal INR account.

Whether XYZ is required to pay GST on the amount received from PQR for the above services?

[SOWMYA CA]

2(6) of the IGST Act, defines Export of Service prescribes five different conditions to be satisfied they being

1) Supplier of service is located in India,

2) the recipient is located outside India

3) the Place of supply of service is outside India

4) consideration in convertible foreign exchange and

5) supplier and recipient are distinct establishments.

In the present case, company XYZ India is supplying service to PQR (USA) a parent company. It is not relevant whether the projects of parent company PQR are within India or outside India. The contract of service is between XYZ India with PQR USA on a principal to principal basis. Therefore it qualifies as a export of service and therefore no GST is leviable.

[Kaustubh Karandikar]

thanks madam for your kind advice.

[Shilpi Jain]

Pls have a look at section 13(6). If location of immovable property is in India, PoS would be in India and the service would not be export.

The above would be applicable if the project is in relation to an immovable property.

[Shilpi Jain]

Also the query has a lot of aspects. So more facts are required and each of these have to be analysed properly to arrive at conclusion.

AI Summary

Export of service: qualifies as export where IGST conditions are met, so GST not leviable; immovable property caveat. Qualification as an Export of Service requires five conditions: supplier in India; recipient outside India; place of supply outside India; payment in convertible foreign exchange; and distinct establishments. Where an Indian supplier contracts directly with a foreign parent on a principal-to-principal basis and consideration is received in convertible foreign exchange, the supply qualifies as export and is not subject to GST. An exception applies if the service relates to immovable property in India, which can render the place of supply in India and defeat export treatment.