QUESTION

One registered person of Gujarat State had placed the order to foreign supplier to supply certain goods. Due to some beyond control circumstances, the foreign supplier has not supply the goods and therefore the Gujarat dealer has charged Rs. $ 5000 for settlement of agreement. The foreign supplier has agreed with said amount and sent in foreign currency to Gujarat dealer. Would above transaction qualify the transaction of supply of service in view of entry 5(e) of schedule-II to the act? Whether above supply would be regarded as zero rated supply of service as a being supply in the course of export or would be regarded as supply within state in view of section 13(3)(a) of IGST Act?


ANSWER

Facts of the case: Registered person of Gujarat ordered for goods from foreign supplier. The supply could not be fulfilled. The foreign supplier was charged $5000 for settlement.

Law Applicable: SECTION 13 of IGST Act -

Place of supply of services where location of supplier or location of recipient is outside India.

(2) The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services:
Provided that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services.

(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:
Provided that when such services are provided from a remote location by way of electronic means, the place of supply shall be the location where goods are situated at the time of supply of services:

SECTION 2 of IGST Act

(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;

Interpretation: The transaction involved in the given case is not relating to supply of goods. In fact it is supply of tolerating an act or a situation. Thus it is supply of service as per Clause 5(e) of Schedule II.
Further, for determination of POS, Section 13(2) will be applicable as it is not covered elsewhere in section 13. Section 13(3)(a) is for determination of POS in case the goods are to be physically made available for provision of service which is not apt for the present case.
POS as per section 13(2) will be place of recipient of service, i.e., outside India.
Since all the conditions of export of service are fulfilled, therefore it will be zero rated supply.

Conclusion: The supply of service is supply as per clause 5(e) of Schedule II. It will be zero rated supply and not attract GST.(Reply dt. 22-02-2020)