Circular No. 78/52/2018-GST was issued to clarify the issue on 31st December,2018.
1. Where a service exporter located in India is supplying certain services to a recipient located outside India, either fully or partly through any other supplier of services located outside India, the two supplies are taking place which are mention below: –
- For the full contract value, supply of services from the exporter of services present in India to the recipient of services situated outside India.
- Import of services by the exporter of services situated in India from the supplier of services situated outside India w.r.t. the outsourced portion of the contract.
Hence, the total value of services as agreed to in the contract between the exporter of services located in India and the recipient of services located outside India will be counted as export of services if all the conditions put down in section 2(6) of the IGST Act, 2017.
2. It is clearly stated that the service supplier located in India would be responsible to pay integrated tax on reverse charge basis on the import of services for that part of services which has been aviled by the supplier located outside India to the recipient of services located outside India. Further, the said supplier of services located in India would be eligible for taking ITC of the integrated tax so paid.
Full consideration towards export of services may not be received in India because of these reasons:
- Part payment made directly by the service recipient to the foreign outsourced party
- Part payment retained overseas in accordance with the guidelines of the Reserve Bank of India
Clarifications Provided by CBIC
The CBIC has clarified the following:
There are two services transactions taking place:
- Export of services by the exporter to service recipient outside India for the full contract value
- Import of services by the exporter from service provider situated outside India with respect to the outsourced portion of the contract.
The value of import of services by the exporter would be subject to payment of IGST under reverse charge mechanism also known as RCM on the value of outsourced portion of the contract. Under RCM, the amount of IGST paid would be eligible for taking Input Tax Credit.
According to the contract value, if the full consideration for services is not received in convertible foreign exchange that portion of the consideration will also be treated as receipt of consideration for export of services in terms of section 2(6)(iv) of the IGST Act, if:
The Indian exporter paid IGST under reverse charge mechanism for import of services on the foreign outsourced contract value; and
Through general instruction or through specific approval, RBI has permitted to retain part consideration for exports outside India.