GST and Service Tax applicability

[Kaustubh Karandikar]

 1) XYZ(India) supplied services to PQR (U.K.) which is a related party / associated enterprise but not charged GST being an export of service. Subsequently, PQR denied to make the payment and therefore XYZ had written off the amount from books. Is XYZ required to pay GST even if consideration is not received since the services are supplied to related party?

2) During Service Tax regime, XYZ (India) supplied services to PQR (U.K.) which is a related party / associated enterprise but not charged service tax being an export of service. Subsequently i.e. in GST regime, PQR denied to make the payment and therefore XYZ had written off the amount from books. Is XYZ required to pay service tax even if consideration is not received since the services are supplied to related party?

[Amit Agrawal]

1) XYZ(India) supplied services to PQR (U.K.) which is a related party / associated enterprise but not charged GST being an export of service. Subsequently, PQR denied to make the payment and therefore XYZ had written off the amount from books. Is XYZ required to pay GST even if consideration is not received since the services are supplied to related party?

Answer: On plain reading of applicable provisions, XYZ required to pay GST as consideration in convertible foreign exchange is not received (irrespective of the fact that PQR is a related party). Questions / arguments relating to constitutional validity relating to Section 7 (5) (a) of the IGST Act, 2017 etc. in given circumstances, are ignored.

P.S. Personally, I have my doubts about constitutional validity relating to charging IGST in given circumstances. But, issue involved in very complex in nature and only Apex Court will eventually settle them one way or the other.

2) During Service Tax regime, XYZ (India) supplied services to PQR (U.K.) which is a related party / associated enterprise but not charged service tax being an export of service. Subsequently i.e. in GST regime, PQR denied to make the payment and therefore XYZ had written off the amount from books. Is XYZ required to pay service tax even if consideration is not received since the services are supplied to related party?

Answer: XYZ is NOT required to pay GST as services were not provided in the taxable territory & levy under Section 66B of the Finance Act, 1994 (32 of 1994) does not come into picture (irrespective of the fact that PQR is a related party). But, XYZ will not be eligible to avail Cenvat Credit against goods / services used for subject services provided to PQR.

In both cases, it is presumed that place of supply / place of provision of services rendered lies outside India.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

*Please read answer to Question No. 2, in my above post, as follows:

Answer: XYZ is NOT required to pay Service Tax as services were not provided in the taxable territory & levy under Section 66B of the Finance Act, 1994 (32 of 1994) does not come into picture (irrespective of the fact that PQR is a related party). But, XYZ will not be eligible to avail Cenvat Credit against goods / services used for subject services provided to PQR.

[Kaustubh Karandikar]

thanks amit ji for your valuable guidance

AI Summary

Export of services GST liability may arise when foreign consideration is not received for supplies to a related enterprise. For supplies of services by an Indian supplier to a related foreign enterprise where the place of supply is outside India, GST under IGST is treated as exigible if consideration in convertible foreign exchange is not received; constitutional challenges to that charging provision are noted but not resolved. Under the prior Service Tax regime, such outward supplies were not taxable in India, but the supplier cannot claim Cenvat credit for inputs or input services used for those supplies.