Question

XYZ Pvt Ltd. is an 100% Indian Subsidiary company of ABC LLC, USA. The company provides the Business support services on his own account to the overseas as well as Indian clients of ABC LLC of USA. ABC LLC raises the invoice to his clients to whom service is being rendered by XYZ Pvt. Ltd. XYZ Pvt. Ltd. raises the invoice to ABC LLC for the expenses incurred in providing the services to the clients of ABC LLC after adding markup of fixed percentage on monthly basis.
Issue I: Whether services provided by XYZ Pvt. Ltd. to the overseas clients of ABC LLC, USA is treated as service provided as an Intermediary not?
 Issue II: Whether services provided by XYZ Pvt. Ltd. to the Indian clients of ABC LLC, USA is treated as service provided as an Intermediary not?

Answer
Facts of the Case:
XYZ Pvt. Ltd. an Indian subsidiary of ABC LLC, USA is providing Business support services on his own account to overseas as well as Indian Clients. ABC LLC raises the invoice to his clients. XYZ Pvt. Ltd. raises the invoice to ABC LLC for the expenses incurred in providing the services to the clients of ABC LLC after adding markup of fixed percentage on monthly basis.

Law Applicable:
SECTION 2 of IGST Act
(6) 'export of services' means the supply of any service when,''
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; or in Indian rupees wherever permitted by the Reserve Bank of India and
(v) 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;

SECTION 8 of IGST Act

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

(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.

Interpretation:
When the Indian Company is providing services as per direction given by the Company located outside India. The Place of supply is to be decided as per Section 13 of IGST Act.

In this case the Place of Supply may be in India or may be Outside India depending upon the classification of service.

If the Place of supply is outside India then there is a question whether the same can be treated as export. For this we have to refer section 2(6) of IGST Act which contains definition of Export of service as reproduced above.

Now the next question is whether this transaction will be disqualified to be treated as Export because of the explanation clause containing in section 8 of IGST Act reproduced above. The explanation to section 8 speaks about the establishment of same person.

In your case XYZ and ABC are related party, but they cannot be treated as same person because they are distinct entity. Accordingly the explanation to section 8 as mentioned above will not apply and the supply will not be treated as supply made to merely distinct person. Therefore the transaction will be treated as Export.

Conclusion:
 Find Place of supply as per section 13 of IGST Act. If the Place of supply is outside India and the condition given in section 2(6) are fulfilled the transaction is to be treated as Export. There is no need to pay tax. Alternatively you can take refund of tax.

(Reply dt.10/07/2019)