Full GST under Reverse Charge for Import of
Services to Applicable on Reverse Charge Basis even when only Part Payment is Received in India and Balance Received Outside India
[GST Circular No.
78/52/2018-GST dated 31st December 2018]
Subject:
Clarification on export of services under GST.
Representations
have been received seeking clarification on certain issues relating to export of
services under the GST laws. The same have been examined and the clarifications
on the same are as below:
|
Sl. No. |
Issue |
Clarification |
|
1. |
In case an exporter of services outsources
a portion of the services contract to another person located outside India,
what would be the tax treatment of the said portion of the contract at the
hands of the exporter? There may be instances where the full consideration
for the outsourced services is not received by the exporter in India. |
1. Where an exporter of services located in
India is supplying certain services to a recipient located outside India,
either wholly or partly through any other supplier of services located
outside India, the following two supplies are taking place:- (i) Supply of services from the exporter of
services located in India to the recipient of services located outside India
for the full contract value; (ii) Import of services by the exporter of
services located in India from the supplier of services located outside India
with respect to the outsourced portion of the contract. Thus, the total value of services as agreed
to in the contract between the exporter of services located in India and the
recipient of services located outside India will be considered as export of
services if all the conditions laid down in section 2(6) of the Integrated
Goods and Services Tax Act, 2017 (IGST Act for short) read with section 13(2)
of the IGST Act are satisfied. 2. It is clarified that the supplier of
services located in India would be liable to pay integrated tax on reverse
charge basis on the import of services on that portion of services which has
been provided by the supplier located outside India to the recipient of
services located outside India. Furthermore, the said supplier of services
located in India would be eligible for taking input tax credit of the
integrated tax so paid. 3. Thus, even if the full consideration for
the services as per the contract value is not received in convertible foreign
exchange in India due to the fact that the recipient of services located
outside India has directly paid to the supplier of services located outside
India (for the outsourced part of the services), that portion of the
consideration shall also be treated as receipt of consideration for export of
services in terms of section 2(6)(iv) of the IGST Act, provided the: (i) integrated
tax has been paid by the supplier located in India for import of services on
that portion of the services which has been directly provided by the supplier
located outside India to the recipient of services located outside India; and
(ii) RBI by general instruction or by
specific approval has allowed that a part of the consideration for such
exports can be retained outside India. Illustration: ABC Ltd. India has received an order for
supply of services amounting to $ 5,00,000/- to a US
based client. ABC Ltd. India is unable to supply the entire services from
India and asks XYZ Ltd. Mexico (who is not merely an establishment of a
distinct person viz. ABC Ltd. India, in accordance with the Explanation 1 in
Section 8 of the IGST Act) to supply a part of the services (say 40% of the
total contract value). ABC Ltd. India shall be the exporter of services for
the entire value if the invoice for the entire amount is raised by ABC Ltd.
India. The services provided by XYZ Ltd. Mexico to the US based client shall
be import of services by ABC Ltd. India and it would be liable to pay
integrated tax on the same under reverse charge and also be eligible to take
input tax credit of the integrated tax so paid. Further, if the provisions
contained in section 2(6) of the IGST Act are not fulfilled with respect to
the realization of convertible foreign exchange, say only 60% of the
consideration is received in India and the remaining amount is directly paid
by the US based client to XYZ Ltd. Mexico, even in such a scenario, 100% of
the total contract value shall be taken as consideration for the export of
services by ABC Ltd. India provided integrated tax on import of services has
been paid on the part of the services provided by XYZ Ltd Mexico directly to
the US based client and RBI (by general instruction or by specific approval)
has allowed that a part of the consideration for such exports can be retained
outside India. In other words, in such cases, the export benefit will be
available for the total realization of convertible foreign exchange by ABC
Ltd. India and XYZ Ltd. Mexico. |
2. It is requested that suitable trade notices may be
issued to publicize the contents of this Circular.
3.
Difficulty if any, in the implementation of this Circular may be brought to the
notice of the Board.