The question addressed by department was “Whether the supply of services by a subsidiary, sister or group company etc. of a foreign company in India, registered under Indian Law, to its foreign registered establishment, will qualify as export of service or not?”
Firstly understand the legal provision, which are as under:
Definition of export of services: As per section 2(6) of IGST Act, export of service will be considered when below mentioned all conditions are met:
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 of such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees where ever permitted by RBI.
5. the supplier and recipient of service are not merely establishment of a distinct person in accordance with explanation 1 of section 8.
As per explanation 1 of section 8, an establishment of a person in India and another establishment of the said person outside India are considered as establishment of same(distinct) person.
Analysis:
As mentioned in condition 5 of export of service, then export of services to foreign establishment will not be considered as export of service.
Further as per explanation 2 of section 8 suggest that if foreign company is carrying business in India through branch or an agency or a representational office, then the said branch will be treated as establishment of said foreign company in India.
Similarly Indian company operating in foreign through a branch or an agency will be considered as establishment of Indian Company and benefit of export will not be available.
However if Company is obtaining the registration as per foreign law and incorporating a separate legal entity, then said company will be treated as a separate “person” and is separate from Indian Company.
Hence, two separate person would not be considered as a merely establishment of same person and benefit of export of service will not be disallowed.
Therefore supply of services to subsidiary, sister, parent or group company registered in foreign country by the Indian Company will not be treated merely establishment of distinct/same person and said supply will be treated as export of service.
But point to be noted that, if supply of service to a branch or an agency or a representational office, which is not registered as a separate legal entity in foreign, by Indian company will be treated as supply between same person and will not be treated as export of service.
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