QUESTION

ABC do certain jobs for overseas agents wherein they pick up cargo from the factory, transport to port, customs clearance and freight by sea to overseas agent. They pay GST to transporter, clearing agent, shipping line on THC, B/L charges, VGM but not on ocean freight as it is exempt from GST. When they bill to overseas agent GST can not be charged as tax can not be exported and the overseas agent does not have a GST number anyway. so how do they recover this GST.

ANSWER

FACTS OF THE CASE:

Business support services were delivered to an overseas agent in the process of which certain taxes were paid in India.

LAW APPLICABLE:

1. Export of service has been defined under section 2(6) of 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; 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 "

2. Subsection (3) of section 54 CGST is laid as under;

" (3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:

Provided that no refund of unutilised input tax credit shall be allowed in cases other than

(i) zero rated supplies made without payment of tax;

(ii) 'where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council "

INTERPRETATION:

Since the business support services rendered to the overseas agent qualifies all the conditions as laid under section 2(6) IGST, therefore the supply made is an "export of service" which constitutes a "Zero Rated Supply" under section 16 IGST.
All the taxes paid under GST Laws on input services in relation to this supply are eligible for refund as per section 54(3) CGST.
The GST paid on input services should not be recovered from the overseas agent as this is a zero rated supply. Rather a refund of input tax credit shall be claimed.

CONCLUSION:

Since the supply of business support service to overseas agent is an export of service, if foreign currency is earned, therefore refund of input taxes shall be claimed. (Reply dt. 25/05/2022 )