This Tax Alert summarizes a recent judgement of the Madras High Court (HC)[1]. The issue involved was whether the transaction would be treated as export of service where the proceeds are received in Indian Rupees by the petitioner through an intermediary.
The petitioner is providing services to overseas customers through online
portal. Export proceeds are received from customers in convertible foreign
exchange by an intermediary (payment gateway service provider) and then the
intermediary credits the amount in Indian Rupees to petitioner’s bank account.
The key observations of the HC are:
- Routing
of payment by intermediary from its account to petitioner’s account in
Indian Rupees is in accordance with the provisions of the Foreign Exchange
Management (Manner of Receipt and Payment) Regulations, 2016 (FEMA
Regulations).
- Regulation
3(2) of FEMA Regulations makes it clear that in respect of an export from
India, receipt shall be made in currency appropriate to the place of final
destination as mentioned in the declaration form.
- Merely
because the receipts are routed through intermediary and received in
Indian currency ipso facto would not mean that the petitioner has not
exported services within the meaning of Section 2(6) of the Integrated
Goods and Services Tax Act, 2017 (IGST Act).
- Receipt
of payment by an intermediary for and on behalf of the petitioner will
qualify as payment received by petitioner.
Basis above, HC held that the transaction will qualify as export of services and the petitioner is entitled to claim refund on account of zero-rated supplies.
Comments: - The
ruling is likely to settle the long drawn litigation on the issue and
benefit the businesses where the export proceeds are received in INR
through payment gateway service providers.
- It
is relevant to note that this judgement pertains to the period prior to
amendment in export definition allowing remittances in Indian rupees as
per FEMA regulations.
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