Central Government vide Circular No. 78/52/2018-GST dated31st December, 2018clarified thetax treatment in case where an exporter of services outsources a portion of the services contract to another person located outside India. Hence involve two supplies –
1. Supply of services from the exporter of services located in India to the recipient of services located outside India for the full contract value
2. Import of services by the exporter of services located in India from the supplier of services located outside India with respect to the outsourced portion of the contract.
The total value of services as agreed to in the contract between the exporter of services located in India and the recipient of services located outside India will be considered as export of services if all the conditions laid down in section 2(6) read with section 13(2) of the IGST Act are satisfied.
Further, the supplier of services located in India would be liable to pay IGST on reverse charge basis on the import of services on that portion of services which has been provided by the supplier located outside India to the recipient of services located outside India. And said supplier located in India would be eligible for taking input tax credit of the IGST so paid.
Moreover, even if the full consideration for the services as per the contract value is not received in convertible foreign exchange in India due to the fact that the recipient of services located outside India has directly paid to the supplier of services located outside India (for the outsourced part of the services), that portion of the consideration shall also be treated as receipt of consideration for export of services in terms of section 2(6)(iv) of the IGST Act, provided the IGST has been paid by the supplier located in India for import of services and RBI by general instruction or by specific approval has allowed that a part of the consideration for such exports can be retained outside India.
Comment- Where an exporter of services outsources a portion of the services contract to another person located outside India, full value of consideration will be treated as export of services provided the IGST has been paid on import of services and RBI allow that a part of consideration for such exports can be retained outside India. Care should be taken to maintain correlation between the work outsourced and the export contract in respect of which such outsourcing is involved. It is common to find such arrangements with associated entities where correlation may not be rigorously maintained.