The GST Council has recommended amendments to the Integrated Goods and Services Tax (IGST) Act, 2017, aimed at expanding access to export-related benefits for Indian service providers and providing certainty for manufacturers supplying goods to overseas buyers through Special Economic Zones (SEZs) and Free Trade Warehousing Zones (FTWZs).
The recommendations cover removal of a restriction on services supplied to foreign establishments of the same person, changes to place-of-supply rules for services involving goods physically made available by recipients, clarification on export payments, and express recognition of specified deliveries to SEZs or FTWZs for zero-rating purposes.
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Export Benefits Proposed for Services Supplied to Foreign Offices and Branches
The Council recommended omission of Section 2(6)(v) of the IGST Act, which requires the supplier and recipient of services to not merely be establishments of a distinct person under Explanation 1 to Section 8.
This condition has restricted export treatment for services supplied between an Indian establishment and an overseas establishment of the same legal person. Official GST Council material explains that services supplied by an Indian establishment to another establishment of the same company outside India fall within this restriction. Goods and Services Tax Council
The proposed deletion would remove this specific barrier, facilitating export treatment and access to refunds for Indian service providers supplying services to or through their foreign offices and branches.
However, removal of this condition would not automatically make every such transaction an export. The remaining requirements governing export of services, including the location of the recipient, place of supply and receipt of payment, would continue to be relevant.
Clarification on Export Payments in Foreign Exchange and Indian Rupees
The Council also recommended issuance of a circular to clarify various issues relating to receipt of payment for exports of goods and services in foreign exchange or Indian rupees, wherever permissible.
The clarification is intended to provide greater certainty on payment-related requirements for export transactions, including transactions settled in Indian rupees through permitted arrangements.
The proposal does not provide unrestricted acceptance of rupee payments for all exports. Eligibility would depend on the applicable permissions and the terms of the proposed circular.
Recipient’s Location to Govern Certain Services Involving Physical Goods
Another recommendation concerns omission of Section 13(3)(a) of the IGST Act, which deals with services in respect of goods required to be physically made available by the recipient to the supplier.
The Council proposed that the place of supply for these services should instead be determined under the default rule in Section 13(2), which generally follows the location of the recipient.
The change could facilitate access to export-related GST benefits for Indian businesses providing services to foreign recipients where the goods are physically made available in India. Depending on the nature of the transaction, this could be relevant to activities such as repair, testing or processing.
Export eligibility would nevertheless remain subject to satisfaction of the other applicable statutory conditions. The proposed change addresses the place-of-supply barrier rather than granting an unconditional exemption to all services involving goods belonging to foreign customers.
Zero-Rating Certainty for Overseas Buyers Taking Delivery in SEZs and FTWZs
The Council recommended insertion of an explanation to Section 16(1) of the IGST Act to expressly cover goods supplied to an overseas buyer where delivery is made to that buyer in an SEZ or FTWZ.
Under the proposed explanation, such transactions would be deemed supplies of goods to an SEZ or FTWZ where payment is received in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India.
The recommendation seeks to provide certainty regarding zero-rating benefits for Indian manufacturers whose overseas customers take delivery of goods in these zones for warehousing or further processing.
It addresses a commercial arrangement in which the buyer is located overseas, while the goods are delivered within an SEZ or FTWZ in India.
Implementation Requires Amendments and Clarification
Taken together, the recommendations seek to reduce statutory barriers and uncertainty affecting cross-border services and supplies routed through SEZs and FTWZs.
The measures remain GST Council recommendations. Their legal operation will depend on the relevant amendments being enacted and brought into force, along with issuance of the proposed payment-related circular. Businesses should assess eligibility against the final provisions and their effective dates.
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