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Special Focus on Export and Import of Services

Welcome to this wonderful weekend #MCQ_self_challenge !  of GST Export and Import of Services

On the feedback from the members, we have a little change in our MCQ post. On every Friday we shall share 5 MCQs to cover the specific topic in detail. This weekend challenge is on #GST_Export_and_Import_of_Services having 5 MCQs to be self-answered by participants to take self-challenge. The objective of this post is to deliberate on the specific topic in detail and try to conclude the all related confusions based on the interpretation of bare ACT. The detailed answer of these MCQs shall be posted on Monday for the self assessment of the participants. This post shall be of immense use of the participant.

MCQ W1.1: S, located in Dubai raised an invoice on R, located in Mumbai for business development services for R in Singapore based on the quarterly turnover. Which of the following is true?

A) Export of Services for R.
B) Import of Services for R, GST payable on RCM.
C) Import of Services for R not taxable under GST at all.
D) Export of Service for S, GST payable in India.

MCQ W1.2: A, located in USA raised an invoice on B, located in Mumbai for maintenance for his server in Singapore. Which of the following is true?

A) Import of Services for B, GST payable on RCM.
B) Export of Service for A, GST payable in India.
C) Zero rated Services by B.
D) Import of Services for B not taxable under GST.

MCQ W1.3: X, Dubai based architect, hired by Z, located in Mumbai for designing the interior of his Hotel chain in Goa, Singapore, USA, China and Germany for consolidated sum of 10 million AED. Which of the following is true?

A) Z is required to pay GST on whole sum of 10 million AED.
B) X, will have to take GST registration and to pay GST on proportionate amount.
C) Zero rated Services by Z.
D) Import of Services for Z GST to pay on 10 million AED.

MCQ W1.4: X, Dubai based software company, is having a Liaison office in Y in Gurgaon. Y is representing X without providing any commercial services in India at a office of 5000 sq. Feet having 10 employees and 100 vendors . Its monthly expenditure of Rs. 15 crores is reimbursed from X. Which of the following is true?

A) No GST implication on Y.
B) GST paid on the input services form part of cost of X.
C) Y will have to take registration in GST.
D) Y is required to pay GST on the amount of monthly reimbursed.

MCQ W1.5: X, India based software company, is having a branch office in US and Singapore. X in order to facilitate its US and Singapore clients billed from its branch office located there. Indian office is providing back office support to the branch outside India and raising invoice to its branch and getting money paid in foreign currency. Which of the following is true?

A) Zero rated services provided by X to the clients.
B) Export of services by X to its branches.
C) Supply of services by X to its branches and GST payable on forward charge.
D) Export by branches in turn export by X, no GST implications.

Answer to Weekend MCQ Self Challenge

The concept in this weekend MCQ self-challenge is about the  GST export and import of services and taxation thereof under GST law in India:

Some of the important concepts of Indirect Tax in relation to cross-border transactions are as under:

  1. Place of supply provisions under the indirect tax laws determines the right of the State who will enjoy taxes of a particular transaction based on the mutual understanding that the State which consumes the goods and services should get benefit from such transaction.
  2. In case of goods, it is very simple to follow this general rule but in case of services sometimes it becomes very difficult to follow this general rule, therefore certain exceptions to be follow based on international principles of law.
  3. The main objectives behind these rules are also based on anti-avoidance measures and avoid double or no taxation.
  4. Section 13 of the IGST Act determines the POS where either Location of Supplier OR location of the recipient of services is outside India. Therefore, this section applies both for import and export of services and general rule being POS is the location of recipient.
  5. Section 13(3) of IGST Act provides POS of following services shall be the location where services are actually performed:
    a) Services in respect of goods or even if services are performed from remote, the location of goods with an exception of goods which are temporarily imported in India for repair only.
    b) Services supplied to an individual who or anybody representing him is required to be physically present.
  6. Section 13(8)(b) of IGST Act provides POS of “intermediary” services shall be the location of the supplier of services. “intermediary” as defined in clause 13 of Section 2 of IGST Act must have the following ingredients:
    a) Facilitating transactions between 2 or more persons;
    b) Cannot change the basic nature of goods and services supplied between these 2 or more persons;
    c) The consideration of an intermediary’s supply is separately identifiable.
    d) The test of agency must be satisfied for such transaction.
  7. Section 13(4) read with section 13(6) of IGST Act provides that POS of services supplied directly in relation to immovable property including that of architect shall be the place where the property is located and if such services are provided for more than one location, including the location in taxable territory, its POS shall be the location in taxable territory.
  8. As per clause 6 of Section 2 of IGST Act, one of the important conditions to qualify as export of services is “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” which states as where a person has an establishment in India and any other establishment outside India; then such establishments shall be treated as establishments of distinct persons.
  9. Explanation 2 in section 8 also provides “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.”
  10. Notification No. 10/2017 under IGST Act entry no 1, liability under import of services to be paid by the recipient under RCM.
  11. Clear Understanding of law helps us to draft litigation free documents for our clients.

Based on the above understanding of Law, Let us find out the correct answers of our MCQ:

MCQ W1.1: S the service provider located in Dubai providing services to R located in Mumbai of Business development for Singapore Company. This is an import of services transaction between S and R and S seems to be providing services as ‘intermediary’ to R. In view of our explanation as stated in point no 6 above, the POS shall be the location of supplier i.e. Dubai and this transaction is not subject to GST in Indian, therefore, no GST payable on reverse charge. The Correct Answer is (C) Import of Services for R not taxable under GST at all.

MCQ W1.2: A the service provider located in USA providing services to B located in Mumbai for maintenance of server of B located in Singapore. This is an import of services transaction between A and B. In view of our explanation as stated in point no 5 above, the POS shall be the location of goods which is being maintained by A i.e. Singapore and this transaction is not subject to GST in Indian, therefore, no GST payable on reverse charge. The Correct Answer is (D) Import of Services for B not taxable under GST.

MCQ W1.3: X an architect, the service provider located in Dubai providing services to Z located in Mumbai for designing interior of Z hotels located in Goa, Singapore, USA, China, and Germany for a consolidated sum of 10 million AED. This is an import of services transaction between X and X. In view of our explanation, as stated in point no 7 above, the POS shall be the location in taxable territory i.e. Goa and this transaction is subject to GST in India on whole amount therefore GST payable on reverse charge. The Correct Answer is (D) Import of Services for Z GST to pay on 10 million AED.

MCQ W1.4: Y is a liaison office located in Gurgaon of X a software company located in Dubai and not doing any commercial activities in India but receiving services to the tune of 15 crores in getting reimbursed from X. Question is whether Y is deemed to provide services to X, its HO and its taxability in India. In our understanding, this transaction is covered under supply which Y providing to X and does not qualify for export of services as explained in point no. 8 and 9. Therefore the correct answer is D) Y is required to pay GST on the amount of monthly reimbursed.

MCQ W1.5: X providing services of back-office support to its branch located outside India does not qualify for export of services as explained in point no. 8 and 9. Therefore the correct answer is C) Supply of services by X to its branches and GST payable on forwarding charge.

(Disclaimer: The objective of the MCQ post is just to discuss the concept, it may happen, by a change of facts, the answer may be different. Please do not treat this as a professional opinion; you can definitely have your own opinion.)

Regards – CA Sanjay Kumar Agrawal