Zero rating of Export of service where consideration settled by book entry

[Vaishnavi Bubesh]

Dear Experts,

We are having query regarding the scenario where we are supplying service to recipient located outside India & POS is also outside India but we are not receiving the consideration in Foreign Currency due to the reason we have imported some services from the same person.

We are adjusting the amount receivable against the amount payable in our books. Only difference is settled in foreign currency.

Whether we can claim the benefit of zero rating in this case?

Whether this adjustment will fulfill the condition of 'amount of consideration should be received in foreign currency' as specified by Sec 2(6) of IGST Act?

Thanks in advance.

[Padmanathan KV]

(6) “export of services” means the supply of any service when,––

(i) the supplier of service is located in India;

(ii) the recipient of service is located outside India;

(iii) the place of supply of service is outside India;

(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India; and

(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;

Considering the plain and literal meaning of Clause (iv) - the payment for such service has been received in convertible foreign exchange, in my humble opinion book adjustment will not suffice to qualify as export of service.

I am fully open to contrary views.

[Ganeshan Kalyani]

The mode of payment is clearly given. Either convertible foreign exchange or Indian rupees. So it cannot be book adjustment.

[KASTURI SETHI]

GST laws do not permit. I agree with both experts.

[Sadanand Bulbule]

Dear all

Just to add on here-

In terms of the award given by the International Arbitration Centers like SIAC on settlement of dispute, can difference amount payable be adjusted mutually between the exporter and the importer? And whether such adjustment takes care Section 2[6] of the IGST Act? Such cases are prevailing.

Experts to pour fresh thoughts.

[Shilpi Jain]

In the first place, the POS is outside India. In such a case there cannot be a levy of GST itself.

Next, there was an RBI guideline or circular as per which the book adjustment was also regarded as payment. Please consult a FEMA expert who will be a better guide.

AI Summary

Export of services: book entry adjustments generally do not qualify as foreign exchange receipt for zero rating entitlement. Zero-rating depends on receipt of payment in convertible foreign exchange or permitted rupee remittance; ledger or book adjustments offsetting receivables and payables generally do not satisfy the statutory payment requirement for export of services. While the place of supply being outside India negates domestic GST levy, any reliance on central bank guidance or arbitration-based mutual adjustments to characterize book entries as payment must be validated under foreign exchange (FEMA) rules before claiming zero-rating.