Indian company providing back office support services to overseas client cannot be treated as ‘export of service’ : AAR Maharashtra

Categories: Advance Ruling
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Facts:  Vserv Global (P.) Ltd. (“the Applicant” or “the Service Provider”) is an Indian Company incorporated to provide back office support services to overseas companies engaged in Trading of Chemicals and other products in International Trade. The orders for supply of said services are received in its Mumbai office and also services are executed from its office situated in Mumbai. M/s Vikudha Overseas Corporation Limited was operating in India through its Branch, namely, M/s Vikudha India Trading Limited (“the Service Recipient”).

Issues Involved: The Applicant approached the Authority to decide on the following questions:

  • Whether the activity of arranging or facilitating supply of goods or services or both between overseas client and customers of overseas client would fall in the ambit of definition of ‘intermediary’ as per Section 2 (13) of the IGST Act?
  • Whether place of supply in case of services provided by Applicant being intermediary would be location of supplier of services in terms of Section 13 (8) of IGST Act?
  • Whether place of supply of service not being outside India, services rendered by the Applicant would not be considered as export of services under Section 2 (6) and does not constitute a zero-rated supply under Section 16 (1) of the IGST Act?

Held: The Hon’ble AAR of Maharashtra vide its Advance Ruling No. GST-ARA-03/2018-19/B-59 dated July 7, 2018 observed that the nature of services can be gauged from the agreement between the parties. The agreement reflects that Service Provider was rendering services to the Service Recipient which is a branch office of an overseas client. It could be seen that all services were provided to M/s Vikudha India Trading Limited or the Service Recipient having registered office in India by the Applicant. Therefore, location of recipient of service was in India. Further, from the bank account of the Applicant it could be concluded that payment service provided was received by the Service Provider in Indian currency.

For a transaction of supply of services to qualify as export of services the following five ingredients have to be satisfied as per Section 2(6) of the IGST Act:

(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; 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.

The present transaction did not satisfy condition no. (iii) of the above definition. Therefore, the services proposed to be rendered by the Applicant does not qualify as ‘export of services’ as defined under Section 2(6) and thus not a ‘zero rated supply’ as per Section 16(1) of the IGST Act, 2017.

Citation: [2018] 99 taxmann.com 253 (AAR – MAHARASHTRA)

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