Export of services, Goods and Services Tax - GST

[CA.LALIT MUNOYAT]

An Indian citizen is retained by a company in Italy to explore market potential in India and abroad also. He is paid euro 5000/- per month in convertible foreign exchange. He negotiates with potential customers and if, successful, the company directly supplies the product to the customer. Whether the negotiations are successful or aborted, he will get his remuneration from the company. He is not concerned with the supply or its payment by the customer. He is directly concerned with the Italy company. In a way he is providing services to the company in Italy and getting the consideration from Italy in convertible foreign exchange. Is this a case of export of services? Clarification is highly solicited.

Posts / Replies

[Rajagopalan Ranganathan]

Sir,

If he explores market potential in India, the the place of supply of service is India (taxable territory). Therefore he is liable to pay gst through the consideration for providing the service is received in convertible foreign currency.

As far as exploring market potential abroad the place of supply is outside taxable territory and hence the same will be treated as export of service and will attract zero rate of gst.

[KASTURI SETHI]

As per legal dictionary word, "remuneration" includes salary, bonus etc. The amount of salary is not taxable under GST. However, the activity is "intermediary service", and place of supply is within India. Keeping in view the nature of activity, it is taxable under GST. Exact reply can be given only after going through the terms and conditions of appointment letter/contract.

What appears to me GST in this case is not legally avoidable.

[Ganeshan Kalyani]

If the company has absorbed that person as an employee then there is no GST as this service is exempted. There should be employment agreement to establish the same.

[CA.LALIT MUNOYAT]

Thanks everyone for their valued opinion. I have become more specific in the query which will help the experts in arriving at the right conclusion:

Mr is A located in Italy and carries on his business from Italy. He engages Mr. “B” located in India to explore the market for the product of Mr. A. As per the terms of the engagement Mr. B is not an employee of Mr. A. Mr. B get his payment for services of exploring the market at a fixed rate of Euro 5000 per month, whether or not, the services of Mr. B has resulted in any deal of sale between Mr. A of Italy and any customer in India. If any sale materializes between A and any customer in India, Mr. A in Italy will supply the goods to the Indian customer and the Indian customer will pay for the supply.

There are two supplies involved in the transaction:

1. Between Mr. A and the Indian Customer : This will be a case of Import and taxable under IGST.
2. The services rendered by Mr. B which is in question. Whether as Export of Service ?

The definition of export of services provides as under:-

(6) ” means the supply of any service when,––

1. 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

(i) Mr. B, the supplier of service, is located in India

(ii) The recipient of service is located outside India. Now the definition of Recipient is as under:

(93) “recipient” of supply of goods or services or both, means–

(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;

(b) ……….

(c) …………….

Obviously, it is Mr. A in Italy who pays the consideration to Mr. B in India. Therefore the location of the recipient of service is Italy.

(iii) As per definition The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services: the place of supply of service is therefore outside India i.e Italy

(iv) Mr. B receives the payment for such services in convertible foreign exchange.

Under the above circumstances all the conditions of export of service are satisfied and therefore can we treat the services rendered by Mr. B in India is export of services.?

Treating Mr. B as the employee or Mr. A will avoid the GST but it will land him in higher brackets of Income Tax as he will not be able to claim any expenditure. The incidence of Income tax will be more than the incidence of GST.

However if we look at the query from the view of an intermediary, then the conclusion may perhaps be different. I am just analysing that and will soon revert back.