Back office operations will be considered as export of services, rules AAR-Maharashtra

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In an interesting development the Maharashtra Authority for Advance Rulings (AAR-Maha) seems to have held divergent views on taxability (Goods & Services Tax) of back office operation in India. In the matter of NES Global Specialist Engineering Services Private Ltd (NES India), which had proposed to enter into agreement with another subsidiary (NES Abu Dhabi) of its parent (NES UK), the AAR-Maha felt that the transaction was ‘Zero Rated Supply’, and also an export of service under the GST Act  which meant no GST.

However, when a similar issue was raised in the matter involving Vserv (Vserve Global Private Ltd) before the same AAR, the response was quite opposite. In case of NES India, it was proposed that this was to provide services in respect of the foreign business carried by NES Abu Dhabhi. The services would include accounting, sales invoicing, purchase invoicing, cash receipt posting, bank payment entries, other receipt entries, credit control work, support assignment work, payroll assistance, etc.

In other words, the Indian office will provide back office operations. The Indian firm approached AAR with two questions: whether the transaction in question is a Zero Rated Supply or Normal Supply under the GST Act, and if the said supply is Zero Rated Supply, then can the same be considered as an export of service under the GST Act?

The AAR observed that both the applicant and the client are not establishments of the same person, even though they are of group companies. Key management persons are different and neither of them holds shares of each other, which means they do not control each other. The Indian firms will receive charges in the foreign exchange for services. The Bench also observed that there is no relationship like principal and agent. “We find that the applicant is not a person who arranges or facilitate supply of services between two or more persons and therefore the proposed services would not fall to be classified as ‘intermediary services’, the Bench said.

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