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20 July 2021

Whether supply of services by the applicant by way of arranging sales of goods to the recipient located outside the country shall be considered as 'export of services' or not?

In the matter of re Teretex Private Limited ("Applicant"), AAR West Bengal  03/WBAAR/2021-22 order dated 28 June, 2021

  • The Applicant is engaged in supplying services by way of arranging sales of goods for various overseas manufactures/ traders briefly summarized as under:
    1. To locate prospective overseas/Indian buyers and know their requirement of goods;
    2. To arrange sales of the said goods from the foreign manufacturers/ traders to the prospective buyers;
    3. Goods are delivered to the buyers directly by the suppliers located outside the country;
    4. No prior agreement is made by the applicant with the overseas manufacturers/ traders for arranging such sales;
    5. The applicant receives consideration in the form of commission in convertible foreign exchange from the overseas suppliers.
  • The contention of the Applicant is that the services going to be undertaken by him shall be termed as ‘export of services’ as per clause (6) of section 2 of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as, the IGST Act, 2017) and therefore, he has no liability to pay tax on such supply of services.
  • In the present matter the Applicant has sought for Advance Ruling whether the said services to be covered under clause (e) of sub-section (2) of section 97 of the GST Act.

In the present matter, it was ruled that the said services shall not be considered as ‘export of service’ as defined under clause (6) of section 2 of the IGST Act, 2017 on the basis of following submissions:

  • As per clause (6) of section 2 of the IGST Act, 2017, "export of services" means the supply of any service when,—
    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 for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees whether permitted by the Reserve Bank of India; and
    5. 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.
  • Another view can be taken that the said services can fall under the category of services provided by an intermediary which is defined in clause (13) of section 2 of the IGST Act, 2017 which is reproduced as below :

"intermediary" means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account.

  • Further in this regard, the applicant has admitted that he procures purchase order for supply of goods from the buyers located in India and connects them with the supplier situated outside India and he admitted that he is going to undertake the aforesaid business activities without assuming any obligation either on behalf of the supplier or on behalf of the recipient of the goods meaning thereby he doesn’t supply such goods on his own account.
  • Hence, the Applicant satisfies all the conditions to be an intermediary as defined in clause (13) of section 2 of the IGST Act, 2017.
  • In the present case, the applicant is found to be an intermediary and being the supplier of services is located in India and location of recipient is outside India. The place of supply in the said matter is to be determined in accordance with the sub-section 8 of Section 13 of the IGST Act, 2017 which shall be the location of the supplier of services i.e., in West Bengal. As a result, the supply shall be treated as an intra-State supply in terms of sub-section (2) of section 8 of the IGST Act, 2017 and tax will be levied accordingly.