QUESTION

PQR, Switzerland is the parent company of XYZ(India). The services provided by XYZ(India) to PQR, Switzerland, are mainly in connection with ‘Information Technology assistance services relating to system and knowledge engineering. Further, XYZ also undertakes to provide services in connection with providing infrastructure support for global delivery centre which includes services to other separate legal entities / group companies of XYZ. In this connection, instructions are received by XYZ directly from the group companies and not through PQR. Payment against the same received by XYZ from PQR in foreign currency including for the services supplied to other separate legal entities/ group companies of XYZ. Subsequently, PQR is recovering the amount from the respective group companies against the amount initially paid to XYZ. Is XYZ required to pay GST on the amount recovered from PQR?

ANSWER

FACTS OF THE CASE :
PQR, Switzerland is the parent company of XYZ(India). The services provided by XYZ(India) to PQR, Switzerland, are mainly in connection with ‘Information Technology assistance services relating to system and knowledge engineering. Further, XYZ also undertakes to provide services in connection with providing infrastructure support for global delivery centre which includes services to other separate legal entities/group companies of XYZ. Payment against the same received by XYZ from PQR in foreign currency including for the services supplied to other separate legal entities/ group companies of XYZ.

LAW APPLICABLE :
1. Sub-section (8) of section 13 IGST dictates that ;
"The place of supply of the following services shall be the location of the supplier of services, namely;
(a) services supplied by a banking company, or a financial institution, or a non-banking financial company, to account holders;
(b) intermediary services;
(c) services consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels, up to a period of one month."

2. Section 2(6) of IGST defines Export of Services as follows;
" 'export of services' means the supply of any service when,
 (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; 1[or in Indian rupees wherever permitted by the Reserve Bank of India] 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 "

INTERPRETATION:
From the list of services mentioned in your question, it is insisted that XYZ is providing Intermediary services to PQR, no matter whether receiving instructions from PQR or group Companies.

For any transaction to be considered as Export of service, all the conditions given in Section 2(6) of IGST Act must be fulfilled. The place of Supply is decided as per section 13 subsection (8). Under clause (b) of the said sub-section POS is "location of supplier of service" i.e India.

Clause (iii) of Section 2(6) of IGST requires that POS must be outside India for a supply to be considered as export of service. Since in this case POS is within India therefore this is not an export of service.

Since POS is same as the location of supplier of service therefore CGST+SGST will be applicable.

However as per Bombay High Court in case of Dharmendra M. Jani has declared Section 13(8)(b) as ultra vires. But the petition is still pending in High Court.

CONCLUSION:
As per law the transaction is not considered as Export of Service and thus GST will be leviable on amount recovered from PQR. (Reply dt.03/09/2021)