QUESTION

XYZ(India) is supplying ‘Engineering Services’ to PQR (USA) which is a parent company. The services supplied are as given below: Controls Engineering, Design Engineering, Drafting
• Designs are made by XYZ with the help of a software (Design Engineering) in relation to projects to be executed in India or outside India.
• If the project is to be executed outside India, the designs are sent by email to PQR for their use.
• If the project is to be executed in India, the designs are either first sent to PQR or are directly sent to the project site in India.
• Payment received by XYZ from PQR in foreign currency. Projecting
• It is in relation to coordination of activities of a project.
• The project may be within India or outside India.
• Payment received by XYZ from PQR in foreign currency. Vendor Management - QA/QC
• It is in relation to quality control check carried out by XYZ for the projects carried out in India.
• Payment received by XYZ from PQR in foreign currency. Site Service
• Employee of XYZ stay/deputed at site in India for service as required at site.
• Payment received by XYZ from PQR in foreign currency. Site Supervision
• Employee of XYZ will visit to site as and when called for supervision.
• Payment received by XYZ from PQR in foreign currency. Engineering Services in INR
• People are on pay roll of XYZ. For a project of PQR which is outside India, engineering services provided by these people by sitting in India.
• Amount recovered from HO for the same with mark up in INR and GST is charged. In relation to invoices raised in INR, XYZ have Vostro account which then transfers funds to XYZ normal INR account.
Whether XYZ is required to pay GST on the amount received from PQR for the above services?

ANSWER

Facts of the case:

Six services are provided by an Indian registered company to its foriegn registered parent company. To determine whether these can be treated as export of services.

Law Applicable:

1. Export of service in defined u/s 2(6) IGST as follows;

" (6) '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; 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 "

2. Place of supply u/s 13(2)(a) is laid as follows;

" (3) The place of supply of the following services shall be the location where the services are actually performed, namely:'

(a) services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services "

3. Place of supply u/s 13(4) is as follows;

" (4) The place of supply of services supplied directly in relation to an immovable property, including services supplied in this regard by experts and estate agents, supply of accommodation by a hotel, inn, guest house, club or campsite, by whatever name called, grant of rights to use immovable property, services for carrying out or co-ordination of construction work, including that of architects or interior decorators, shall be the place where the immovable property is located or intended to be located. "

Interpretation:

Export of service is defined under section 2(6) of IGST. Upon fulfillment of five conditions therein, a supply can be treated as an export of service.
For services I,II,III,IV,V - clause (i), (ii), (iv) and (v) are fulfilled.
For service VI - clause (i), (ii), (v) are fulfilled.
Place of supply in each case needs to be determined separately and accordingly it can be decided whether a service is export of service or not.
Circular 161/17/2021 clarifies that an Indian registered subsidiary providing service to its parent company registered under foriegn laws shall not be treated as merely establishments of a distinct person in accordance with Explanation 1 in section 8. Therefore clause (v) is fulfilled in all 6 services.

Conclusion:   

So, to answer your questions;
Service I : Controls Engineering, Design Engineering, Drafting
Case 1: If provided in relation to immovable property outside India then place of supply under section 13(4) IGST will be outside India. All other conditions of section 2(6) are fulfilled therefore this is an export of service. Zero Rated Supply will be eligible for refund.

Case 2: If provided in relation to immovable property in India then place of supply under section 13(4) IGST will be in India. Therefore condition u/s 2(6)(v) is not fulfilled. This is not an export of service. Supply will be liable to tax.

Case 3: If not provided in relation to immovable property then place of supply under section 13(2) IGST will be the location of recipient of service that is outside India. All other conditions of section 2(6) are fulfilled therefore this is an export of service. Zero Rated Supply will be eligible for refund.

Service II : Projecting
Case 1: If provided in relation to immovable property outside India then place of supply under section 13(4) IGST will be outside India. All other conditions of section 2(6) are fulfilled therefore this is an export of service. Zero Rated Supply will be eligible for refund.

Case 2: If provided in relation to immovable property in India then place of supply under section 13(4) IGST will be in India. Therefore condition u/s 2(6)(v) is not fulfilled. This is not an export of service. Supply will be liable to tax.

Case 3: If not provided in relation to immovable property then place of supply under section 13(2) IGST will be the location of recipient of service that is outside India. All other conditions of section 2(6) are fulfilled therefore this is an export of service. Zero Rated Supply will be eligible for refund.

Service III: Vendor Management - QA/QC
Case 1: If provided in relation to immovable property in India then place of supply under section 13(4) IGST will be in India. Therefore condition u/s 2(6)(v) is not fulfilled. This is not an export of service. Supply will be liable to tax.

Case 2: If not provided in relation to immovable property then place of supply under section 13(2) IGST will be the location of recipient of service that is outside India. All other conditions of section 2(6) are fulfilled therefore this is an export of service. Zero Rated Supply will be eligible for refund.

Service IV: Site Service
Case 1: If provided in relation to immovable property in India then place of supply under section 13(4) IGST will be in India. Therefore condition u/s 2(6)(v) is not fulfilled. This is not an export of service. Supply will be liable to tax.

Case 2: If not provided in relation to immovable property then place of supply under section 13(2) IGST will be the location of the recipient of service that is outside India. All other conditions of section 2(6) are fulfilled therefore this is an export of service. Zero Rated Supply will be eligible for refund.

Case 3: If provided in respect of goods which are required to be made physically available, then place of supply under section 13(3)(a) IGST would be in India. Therefore condition u/s 2(6)(v) is not fulfilled. This is not an export of service. Supply will be liable to tax.

Service V: Site Supervision
Case 1: If provided in relation to immovable property outside India then place of supply under section 13(4) IGST will be outside India. All other conditions of section 2(6) are fulfilled therefore this is an export of service. Zero Rated Supply will be eligible for refund.

Case 2: If provided in relation to immovable property in India then place of supply under section 13(4) IGST will be in India. Therefore condition u/s 2(6)(v) is not fulfilled. This is not an export of service. Supply will be liable to tax.

Service VI: Engineering Services reimbursed in INR
Case 1: In terms with clause (iv) of section 2(6) IGST, if this payment in INR is permitted by RBI, then this is export of service if POS is outside India. Zero Rated Supply will be eligible for refund.

Case 2: In terms with clause (iv) of section 2(6) IGST, if this payment in INR is permitted by RBI, then this is not an export of service even if POS is outside India. Supply will be liable to tax. (Reply dt. 14/02/2022)