Examined Export of services under gst – 2019
Meaning of Export of Service
Section 2(6) of IGST Act states as follows –
“Export of services” means the supply of any service when-
(a) the supplier of service is located in India
(b) the recipient of service is located outside India
(c) the place of supply of service is outside India
(d) the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by RBI, [The words in italics inserted vide IGST (Amendment) Act, 2018, w.e.f. 1-2-2019 and
(e) the supplier of service and recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 of section 8 of IGST Act [what is meant is that branch and HO of same taxable person shall not be treated as two distinct persons for this provision. Thus, there cannot be export of service to own branch office outside India].
*Place of supply is relevant for export of service
Place of supply of services
The place of supply of services except the services specified in sub-sections (3) to (13) of Section 13 of IGST Act shall be the location of the recipient of services. However where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services.
Effect if supply is not ‘export of services’ as per definition
If supply of services is not ‘export of services’ as per definition, the supply will not be ‘zero rated supply’ [e.g. service exported but payment in foreign exchange not received]. In that case, the supply will be ‘inter-state supply’ and IGST will be payable.
If place of supply is location of supplier in India, CGST and SGST payable (This would be so even if customer is out of India) [e.g. supply of intermediary service by Indian taxable person to person out of India].
Should I charge GST on export of service
No, in case of exports tax should not be exported. You can export the services under LUT without paying any tax or pay the tax from your own pocket and claim the refund of same later.
Export benefits under GST
In relation to GST, following are the concessions/incentives for exports :
(1) Exemption from GST on final products or
(2) Refund of GST paid on inputs.
Zero rated supply
“Zero rated supply” means any of the following supplies of goods or services or both, namely:—
(a) export of goods or services or both; or
(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
Credit of input tax may be availed for making zero-rated supplies even if such supply may be an exempt supply.
A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely:—
(a) he may supply goods or services or both under bond or Letter of Undertaking without payment of integrated tax and claim refund of unutilised input tax credit; or
(b) he may supply goods or services or both with payment of integrated tax and claim refund of such tax paid on goods or services or both supplied
Distinction between exempted supply and zero rated supply
|Exempted supply||Zero rated supply|
|“Exempt supply” means supply of any goods or services or both which attracts Nil rate of tax or which may be wholly exempt from tax.||“Zero-rated supply” means export of goods or services or both and supplies of goods or services or both to SEZ unit or SEZ developer.|
|Value of exempt supplies will be considered for apportionment of GST on common inputs and common input services||Value of zero rated supply will be added in value of taxable supplies for apportionment of GST on common inputs and common input services|
|Person dealing exclusively in exempted supply need not register||Person making zero rated supply requires GST registration (except in case of service providers having turnover less than Rs 20 lakhs)|
|ITC available if exempt supplies are exported (they are considered as zero rated).||ITC available if exempt supplies are exported|
|Registered person shall issue Bill of Supply||Person making zero rated supply has to issue normal tax invoice with specified extra markings|
Service supplied by establishment of person in India to own establishment out of India exempt –
Service supplied by establishment of person in India to own establishment out of India is exempt, if place of supply is out of India – Sr. No. 10E of Notification No. 9/2017-IT (Rate) both dated 28-6-2017 as inserted w.e.f. 27-7-2018.
Export of service when part of service is outsourced to a person out of India –
Exporter of service [say A] may receive order from B from out of India for supply of service. The exporter (A) may not be able to provide all service from India. He may outsource part of service to a person out of India (not to its own establishment outside India) [say C]. In that case, C will bill to A in foreign exchange. A will pay IGST under reverse charge and take ITC. Later, A will raise invoice for whole amount on B in foreign exchange. The entire amount will be treated as export by B for purpose of refund on export of services. B will pay full amount to A in foreign exchange but A will pay C directly out of the amount paid by B and only bring balance amount in India. This is permissible as per RBI directions. Hence, A will be entitled to export benefit on total value of services – CBI&C circular No. 78/52/2018-GST dated 31-12-2018.
If payment for export of services is not received in specified period
One of the conditions for ‘export of service’ is that payment should be received in convertible foreign exchange. If such payment is not received, the supply is not ‘export of service’. Consequently, it will not be zero rated supply.
When the supplier is located in India and the place of supply is outside India, the supply of goods or services or both shall be treated to be a supply in course of inter State trade or commerce. Section 5(1) of IGST Act levies IGST on all inter-state supplies of goods or services or both.
Thus, if payment is not received within prescribed period, IGST will become payable. Mere reversal of input tax credit will not be sufficient.