The Central Board of Indirect Taxes and Customs on 20th September 2021 has issued a clarification on the conditions of export of services. The terms export service is defined under section 2(6) of IGST Act, means supply of any service when 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.
Various representations have been received citing ambiguity caused in the interpretation of Explanation 1 under section 8 of the IGST Act 2017 in relation to condition (v) of export of services. Doubts have been raised whether the supply of service by a subsidiary/ sister concern/ group concern, etc. of a foreign company in India, which is incorporated under the laws in India, to the foreign company incorporated under laws of a country outside India, will hit by condition (v) of subsection (6) of section 2 of IGST Act.
Explanation 1 of Section 8 of the IGST Act provides for the conditions wherein establishments of a person would be treated as establishments of distinct persons.
Through this notification, CBDT has clarified that a company incorporated in India and a body corporate incorporated by or under the laws of a country outside India, which is also referred to as a foreign company under the Companies Act, are separate persons under CGST Act, and thus are separate legal entities. Accordingly, these two separate persons would not be considered as “merely establishments of a distinct person in accordance with Explanation 1 in section 8”
Therefore, supply of services by a subsidiary/ sister concern/ group concern, etc. of a foreign company, which is incorporated in India under the Companies Act, 2013, to the establishments of the said foreign company located outside India (incorporated outside India), would not be barred by the condition (v) of the sub-section (6) of the section 2 of the IGST Act 2017 for being considered as export of services, as it would not be treated as supply between merely establishments of distinct persons under Explanation 1 of section 8 of IGST Act 2017 .
Similarly, the supply from a company incorporated in India to its relat ed establishments outside India, which are incorporated under the laws outside India, would not be treated as supply to merely establishments of distinct person under Explanation 1 of section 8 of IGST Act 2017. Such supplies, therefore, would qualify as ‘export of services’, subject to fulfilment of other conditions as provided under sub-section (6) of section 2 of IGST Act.
