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A company incorporated in India and a foreign company incorporated outside India are separate persons under the Central Goods and Services Tax Act. The supply of services by a subsidiary, sister concern, or group concern of a foreign company incorporated in India to the foreign company establishments located outside India is not barred by condition (v) of sub-section (6) of section 2 of the Integrated Goods and Services Tax Act 2017. Such supplies qualify as export of services when the supplier satisfies the other conditions of section 2(6) of the Integrated Goods and Services Tax Act. This rule also applies to supplies from a company incorporated in India to its related establishments incorporated outside India.
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Circular No. 161/17/2021-GST
F. No. CBIC-20001/8/2021–GST Government of India Ministry of Finance Department of Revenue Central Board of Indirect Taxes and Customs GST Policy Wing
New Delhi, dated the $20^{\text{th}}$ September, 2021
To
The Pr. Chief Commissioners / Chief Commissioners / Principal Commissioners / Commissioners of Central Tax (All) The Principal Directors General / Directors General (All)
Madam / Sir,
Subject: Clarification relating to export of services-condition (v) of section 2(6) of the IGST Act 2017–reg.
Various representations have been received citing ambiguity caused in interpretation of the Explanation 1 under section 8 of the IGST Act 2017 in relation to condition (v) of export of services as mentioned in sub-section (6) of the section 2 of the IGST Act 2017. Doubts have been raised whether the supply of service by a subsidiary/ sister concern/ group concern, etc. of a foreign company in India, which is incorporated under the laws in India, to the foreign company incorporated under laws of a country outside India, will hit by condition (v) of sub-section (6) of section 2 of IGST Act.
Relevant legal provisions:
3.1 The export of services has been defined in sub-section (6) of the section 2 of the IGST Act 2017 as under:
(6) “export of services” means the supply of any service when,—
3.2 Explanation 1 of the Section 8 of the IGST Act provides for the conditions wherein establishments of a person would be treated as establishments of distinct persons, which is reproduced as under:
Explanation 1.—For the purposes of this Act, where a person has,—
As per the above Explanation, an establishment of a person in India and another establishment of the said person outside India are considered as establishments of distinct persons.
3.3 Reference is also invited to the Explanation 2 of Section 8 of IGST Act, which is reproduced below:
“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.”
3.4 Reference is also invited to the definition of “person” as provided under CGST Act 2017, made applicable to IGST Act vide section 2(24) of IGST Act 2017. “Person” has been defined under sub-section (84) of the section 2 of the CGST Act 2017, as under:
(84) “person” includes—
3.5. The definitions of company and foreign company have been provided under section 2 of Companies Act 2013, as under:
(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—
Analysis of the issue:
4.1 Clause (v) of sub-section (6) of section 2 of IGST Act, which defines “export of services”, places a condition that the services provided by one establishment of a person to another establishment of the same person, considered as establishments of distinct persons as per Explanation 1 of section 8 of IGST Act, cannot be treated as export. In other words, any supply of services by an establishment of a foreign company in India to any other establishment of the said foreign company outside India will not be covered under definition of export of services.
4.2 Further, perusal of the Explanation 2 to section 8 of the IGST Act suggests that if a foreign company is conducting business in India through a branch or an agency or a representational office, then the said branch or agency or representational office of the foreign company, located in India, shall be treated as establishment of the said foreign company in India. Similarly, if any company incorporated in India, is operating through a branch or an agency or a representational office in any country outside India, then that branch or agency or representational office shall be treated as the establishment of the said company in the said country.
4.3. In view of the above, it can be stated that supply of services made by a branch or an agency or representational office of a foreign company, not incorporated in India, to any establishment of the said foreign company outside India, shall be treated as supply between establishments of distinct persons and shall not be considered as “export of services” in view of condition (v) of sub-section (6) of section 2 of IGST Act. Similarly, any supply of service by a company incorporated in India to its branch or agency or representational office, located in any other country and not incorporated under the laws of the said country, shall also be considered as supply between establishments of distinct persons and cannot be treated as export of services.
4.4 From the perusal of the definition of “person” under sub-section (84) of section 2 of the CGST Act, 2017 and the definitions of “company” and “foreign company” under Section 2 of the Companies Act, 2013, it is observed that a company incorporated in India and a foreign company incorporated outside India, are separate “person” under the provisions of CGST Act and accordingly, are separate legal entities. Thus, a subsidiary/ sister concern/ group concern of any foreign company which is incorporated in India, then the said company incorporated in India will be considered as a separate “person” under the provisions of CGST Act and accordingly, would be considered as a separate legal entity than the foreign company.
