XYZ Ltd is an 'EOU' registered with 'STPI' and is engaged in exporting information technology software services to entities located overseas. It entered into an Inter-company Service Agreement with its US holding company for export of information technology services on being remunerated. It applies for export refund. Department proposed to reject XYZ Ltd 's application for refund of IGST on ground that it did not satisfy condition of section 2(6)(v) of IGST Act for reason that XYZ Ltd. and its holding company are establishments of a single person and, therefore, services provided by XYZ Ltd. to its holding company did not constitute as export of services within meaning of section 2(6) of IGST Act. Is it the valid view?
Services rendered by a subsidiary of a foreign company to its holding are not covered under section 2(6)(v) which says that for being an export of services 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 (inter-alia).
Explanation I to Section 8 of the IGST Act, which is reproduced below:
"Explanation 1.—For the purposes of this Act, where a person has,—
(i) an establishment in India and any other establishment outside India;
(ii) an establishment in a State or Union territory and any other establishment outside that State or Union territory; or
(iii) an establishment in a State or Union territory and any other establishment registered within that State or Union territory, then such establishments shall be treated as establishments of distinct persons."
In unambiguous terms, it clarifies that a company incorporated in India and a body corporate incorporated outside India (foreign company) are separate persons under CGST Act, which would not be considered as 'merely establishments of a distinct person in accordance with Explanation I in section 8. Therefore, supply of services by a subsidiary/ sister concern/ group concern, etc. of a foreign company, which is incorporated in India to establishments of said foreign company would not be barred by section 2(6)(v) of IGST Act 2017 for being considered as export of services. Therefore, the refund could not be denied based on this argument.