Clarification relating to export of services-condition (v) of section 2(6) of the IGST Act 2017

Circular No.: 161/17/2021-GST
Date of Circular: 20th September 2021
Relevant Sections and Rules:

• IGST Act, 2017:
  • Section 2(6)(v): Condition for export of services
  • Section 8, Explanation 1 & 2: Establishments of distinct persons
• CGST Act, 2017:
  • Section 2(84): Definition of “person”
  • Section 168(1): Power to issue instructions
• Companies Act, 2013:
  • Section 2(20): “Company”
  • Section 2(42): “Foreign company”

Summary of Clarification Provided:

1. Context of the Clarification – Export of Services & Establishments of Distinct Persons:
   Condition (v) of the definition of “export of services” under Section 2(6) of the IGST Act disqualifies services exchanged between establishments of the same person (in India and outside) from being considered as exports.
   Ambiguity existed when Indian subsidiaries or group entities of foreign companies provided services to the foreign parent – whether such supplies were disqualified due to condition (v).
2. Legal Definitions Analyzed:

• “Person” under CGST Act includes both companies incorporated in India and foreign companies (bodies corporate incorporated outside India).
• A company incorporated in India and a foreign company incorporated abroad are treated as separate legal persons.
• Only different establishments of the same person (like a branch/agency of a foreign company) fall under the “establishments of distinct persons” clause.

3. Supplies Between Legally Distinct Entities Are Not Hit by Condition (v):
   Supply of services:

• From an Indian-incorporated subsidiary/sister concern/group concern to its foreign parent company, or
• From an Indian company to its foreign-incorporated related company,
  is not considered as supply between merely establishments of the same person.

Hence, such supplies qualify as “export of services”, provided all other conditions under Section 2(6) of the IGST Act are satisfied (supplier and recipient located in India/outside India respectively, payment in convertible foreign exchange, place of supply outside India, etc.).

4. Services Between a Branch and HO or Agency of Same Company Do Not Qualify as Exports:
   If the supply is made between:

• An Indian branch/office of a foreign company and the foreign HO, or
• An Indian company and its overseas branch/agency (not separately incorporated),
  such supplies are considered between establishments of the same person and therefore do not qualify as exports.

5. Final Clarification and Instruction to Field Formations:
   Such Indian subsidiaries and incorporated group concerns are not barred by condition (v) from claiming their services as exports.
   Field formations are directed to treat these supplies as export of services, subject to fulfillment of other statutory conditions.

Source: Circular No.: 161/17/2021-GST