Export of Service under GST

The Central GST act, 2016 defines EXPORT OF GOODS as goods taking out of India to a place outside India and the payment is received either in Foreign Exchange or in Indian Rupees.

THIRD PARTY EXPORTS are exports made by exporter or manufacturer on behalf of another exporter and export documents i.e. Shipping Bills shall indicate the name of both Manufacturing Exporter / Merchant Exporter.

DEEMED EXPORTS refer to exports where the goods supplied do not leave India and the payment is received either in Free Foreign Exchange or in Indian Rupees.

The supply of any service shall be treated as EXPORT OF SERVICE when,

  1. The supplier of service is located in India,
  2. The recipient of service is located outside India,
  3. The place of supply of service is outside India,
  4. The payment for such service has been received by the supplier of service in convertible foreign exchange, and
  5. The supplier of service and recipient of service are not just establishments of a distinct person.

For example, Perfect Finance consultants in Delhi, India provides business consultancy to Fintech works in Dubai. The payment is received from Fintech works in Dirham (currency of Dubai).

Location of the supplier – India

Location of the recipient – Dubai

Payment for service – It has been received in convertible Foreign Exchange (Dirham)

Relationship between supplier & recipient – Distinct persons

Thus, the above example qualifies as an export of service. The rate of tax on supply is 0%.

CONCEPT OF ZERO RATED SUPPLY UNDER THE GST REGIME

Zero rated supply means of the following supply of goods or services as defined under the IGST Law;

  1. Export of goods or services OR
  2. Supply of goods or services to a SEZ Developer or an SEZ Unit

The supplier of zero rated goods or services can claim credit of input tax irrespective of the fact that such goods or services are notified as Exempted supplies.

It is integral to note that a service is not an export of service under the definition of export of services, and then GST shall be chargeable since there is no exemption as such.

However, in the previous service tax law, a service is said to be non-taxable even if it is not an export of services i.e. in case place of provision of services outside India and therefore no service tax was applicable on such Export of service.

TREATMENT OF EXPORTS UNDER GST

The provisions of IGST law, export of goods and/or services are to be treated as “zero rated supplies” and a registered taxable person exporting goods or services shall be eligible to claim refund under one of the following two options:

  • Export under bond or letter of undertaking while not making payment of Integrated Tax and claim refund of unutilized input tax credit.
  • Export on payment of Integrated Tax and claim refund of the tax so paid on goods and services exported. The aforesaid refunds will be subject to rules, safeguards and procedures as may be prescribed.
  • In relation to GST, following are the concessions / incentives for exports:

(1) Exemption from GST on final products OR

(2) Refund of GST paid on inputs.

  • Export of goods or services or both and supplies of goods or services or both to SEZ unit or SEZ developer will be zero rated supply.
  • Credit of input tax may be availed for making zero-rated supplies, even if such supply is exempted supply.
  • Refund of unutilized input tax credit shall not be allowed in cases where the goods exported out of India are subjected to export duty.
  • Refund of input tax credit shall not be allowed if the supplier of goods or services avails duty drawback of CGST / SGST / UTGST or claims refund of IGST paid on such supplies [Thus, duty drawback of customs portion can be availed].
  • Benefits will be available to ‘Deemed exports’ also. Typically, the benefit will be through refund route and not direct exemption.

This is a major change for service providers under GST. Earlier no service tax was applicable on export of service but under GST IGST (inter-state supply) has to be paid or execute Bond.



Author: CA Parul Gupta
Parul Gupta qualified the CA Exams from the Institute of Chartered Accountants of India. She has dealt with many Startups, companies, partnership and proprietorship firms relating to formation and compliance services.

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