With the intent to make the GST provisions more effective such that they leave no scope for ambiguity, CBIC has issued clarification vide. Circular No. 161/17/2021-GST dated 20.09.2021. The issue addressed through such circular is whether the supply of service by a subsidiary of a foreign company in India to such foreign company will be barred from being considered as “Export of Service” in pursuance of Section 2(6)(v).
Reference has been made to the concerned provisions for understanding purpose:
Relevant legal provisions
Section 2(6) of the IGST Act, 2017
(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; 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;
Explanation 1 of Section 8 of the IGST Act which specifies the conditions subject to which establishments of a person are deemed to be establishments of distinct persons:
For the purposes of this Act, where a person has,–– (i) an establishment in India and any other establishment outside India;
(ii) an establishment in a State or Union territory and any other establishment outside that State or Union territory; or
(iii) an establishment in a State or Union territory and any other establishment being a business vertical registered within that State or Union territory, then such establishments shall be treated as establishments of distinct persons.
Further, as per Explanation 2, A person carrying on a business through a branch or an agency or a representational office in any territory shall be treated as having an establishment in that territory.
Section 2 of the Companies Act, 2013
(20) “company” means a company incorporated under this Act or under any previous company law; (42) “foreign company” means any company or body corporate incorporated outside India which— (a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and (b) conducts any business activity in India in any other manner.
Section 2 of the CGST Act, 2017
(84) “person” includes-
(c) a company;
(h) any body corporate incorporated by or under the laws of a country outside India;
CBIC Clarification on the above issue
As per the CBIC Circular, on the co-joint reading of the aforesaid provisions, the supply of service by a subsidiary/ sister concern/ group concern of a foreign company incorporated in India to the said foreign company or by the company incorporated in India to its subsidiary/ sister concern/ group concern incorporated outside India will be considered as export of service since the two will be not treated as establishments of distinct persons. Rather, the two will be treated as separate persons under the CGST provisions.
