CBIC issues clarification relating to Export of Services that Supplier of Service, Recipient of Service are not merely establishments of distinct person [Read Circular]

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On recommendations of the GST Council in the 45th meeting, the Central Board of Indirect Taxes and Customs (CBIC) issued the clarification relating to the export of services that supplier of service, recipient of service are not merely establishments of distinct persons.

“Various representations have been received citing ambiguity caused in the interpretation of the Explanation 1 under section 8 of the IGST Act 2017 in relation to condition (v) of export of services as mentioned in sub-section (6) of section 2 of the IGST Act 2017. Doubts have been raised whether the supply of service by a subsidiary/ sister concern/ group concern, etc. of a foreign company in India, which is incorporated under the laws in India, to the foreign company incorporated under laws of a country outside India, will hit by condition (v) of sub-section (6) of section 2 of IGST Act,” the CBIC said.

The export of services-condition (v) of section 2(6) of the IGST Act 2017 says that “export of services” means the supply of any service when 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.

Explanation 1 of Section 8 of the IGST Act provides for the conditions wherein establishments of a person would be treated as establishments of distinct persons.

It has been 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 a foreign company under the 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”

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 section 2 of the IGST Act 2017 for being considered as export of services, as it would not be treated as supply between mere 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 a distinct person under Explanation 1 of section 8 of IGST Act 2017. Such supplies, therefore, would qualify as ‘export of services, subject to fulfillment of other conditions as provided under sub-section (6) of section 2 of IGST Act.

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