REFUND OF ITC AND EXPORT OF SERVICES UNDER GST, Goods and Services Tax - GST

[Kush Kalra]

Hello sir, the query is pertaining to export of services in gst...

Our client is a private limited company incorporated in India engaged in software development with name ABC Private Limited, the said company is providing software development services only to another company ABC INC incorporated in USA for which they have a service agreement, The company ABC private Limited has 2 directors living in India, while the company ABC INC has there son as director living in USA.. Now under export of services rules, 5th condition, the supplier and recipient should not be merely establishment of distinct person read with explanation 1 to section 8 for qualification as export... All the 4 other conditions for export are being qualified...

The following questions arise:

1) Will these services provided by Indian company be treated as export of services..

2)Will both the establishment in India and outside India be considered as establishment of same person and these 2 entities be considered as distinct person under explanation 1 to section 8 and accordingly will not be considered as export..

3) Will the entities be treated as related parties or same person as initial names of both are same ABC Private Limited and ABC INC..if so what will the impact on categorization as export of services

4) The Indian company is also paying consultancy charges to son living in USA on which TDS is being deducted, does this impact the export of services ....

5) Can the Indian company apply for GST Refund for export under LUT, if these are categorized as export of services ...

Posts / Replies

[Padmanathan Kollengode]

Kindly refer to Circular 161/17/2021-GST.

5.1 In view of the above, it is clarified that a company incorporated in India and a body corporate incorporated by or under the laws of a country outside India, which is also referred to as foreign company under Companies Act, are separate persons under CGST Act, and thus are separate legal entities. Accordingly, these two separate persons would not be considered as “merely establishments of a distinct person in accordance with Explanation 1 in section 8”.

5.2 Therefore, supply of services by a subsidiary/ sister concern/ group concern, etc. of a foreign company, which is incorporated in India under the Companies Act, 2013 (and thus qualifies as a ‘company’ in India as per Companies Act), to the establishments of the said foreign company located outside India (incorporated outside India), would not be barred by the condition (v) of the sub-section (6) of the section 2 of the IGST Act 2017 for being considered as export of services, as it would not be treated as supply between merely establishments of distinct persons under Explanation 1 of section 8 of IGST Act 2017 . Similarly, the supply from a company incorporated in India to its related establishments outside India, which are incorporated under the laws outside India, would not be treated as supply to merely establishments of distinct person under Explanation 1 of section 8 of IGST Act 2017. Such supplies, therefore, would qualify as ‘export of services’, subject to fulfilment of other conditions as provided under sub-section (6) of section 2 of IGST Act.

Accourdingly,

1) Will these services provided by Indian company be treated as export of services..

Ans: Yes

2) Will both the establishment in India and outside India be considered as establishment of same person and these 2 entities be considered as distinct person under explanation 1 to section 8 and accordingly will not be considered as export..

Ans: No, they are separate entities, if foreign entity is registered there.

3) Will the entities be treated as related parties or same person as initial names of both are same ABC Private Limited and ABC INC..if so what will the impact on categorization as export of services

Ans: It will not be relevant.

4) The Indian company is also paying consultancy charges to son living in USA on which TDS is being deducted, does this impact the export of services ....

Ans: It is again not relevant

5) Can the Indian company apply for GST Refund for export under LUT, if these are categorized as export of services ...

And: Yes.

[Kush Kalra]

Thank you sir for your valuable response..

[V Rajalakshmi]

Mr Kush Karla

I agree with Mr. Padmanathan Kollengode, just ensure whether RCM if any applicable for the payment that you have mentioned in 4th point if yes remit the same and apply for a refund.