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The determination of transaction as export of service is required satisfaction of all the conditions prescribed in section 2(6) of the IGST Act, 2017. However, at times, there is a situation where the activity is not considered as export as the consideration is not received in convertible foreign exchange, particularly in case of services wherein the principal is located in India. The present update seeks to discuss this situation which was considered recently by the AAR, Tamil Nadu in the case of RAJESH RAMA VARMA, wherein the applicant has provided services to foreign-based clients of principal located in India and has sought whether the transaction should be considered as export of service. 

The applicant is engaged in providing IT software related consulting services in the area of Oracle ERP w.r.t. Oracle Financials. The applicant entered into a contract with GST registered IT company in India providing similar Oracle services to provide services to US clients. The original contract was between the Principal and the US client and a part of the service was contracted to the applicant. As per the terms of the contract, the consultancy fees to be paid to the applicant was decided to be billed on an hourly basis in US dollars but the payment was to be made to the applicant in Indian rupees by the principal contractor situated in India. There is no doubt that the transaction between the principal and the US client is export of service but the question arises is whether the services provided by the applicant is to be treated as export of service or not. 

Taxability of service provided to foreign client of principal located in India

The applicant contended that since they are providing services directly to the US based client and the consideration is agreed in dollars which is approved by the US based client and the payment is routed through Indian IT company, they are also to be considered as exporters. It is contended that the recipient of service is the US based client as consideration is payable by it. Reliance was placed on the decision given in the case of National Engineering Industries Ltd. Vs Commissioner of C.E. Jaipur and Support.com India Pvt. Ltd. in order to substantiate that the consideration received by the applicant is to be considered as receipt in convertible foreign exchange. 

The AAR held that since there is no agreement between the applicant and the foreign client, theapplicant is providing services to Indian IT company. It was also held that since the ultimate liability to pay consideration to the applicant is on Indian IT company, the recipient of service is the Indian IT company and not the foreign client. Therefore, the services provided by the applicant to Indian IT company is a supply of services under CGST/SGST act and the applicant is liable to pay relevant tax on such supply.

As regards the question regarding whether such transaction is to be considered as export of service, it was stated that the issue is beyond the scope of Advance Ruling under section 97(2) and so the same cannot be commented upon. 


The above decision depicts that the transaction cannot be treated as export of service merely because the ultimate beneficiary of the service is situated abroad. In order to consider a transaction as export of service, the conditions as prescribed in section 2(6) of IGST Act, 2017 needs to be satisfied. 

When the AAR has ordered for payment of GST on this transaction then it can be said that it cannot be termed as export of services. Although they have not commented on the same yet when it is clearly said that it is services provided by applicant to Indian IT company, then it is not export of service. For export of service, the provider should be in India and recipient outside India. But when they have clearly said that recipient is Indian company then it is clear that it will not be termed as export of service.



Published by

Pradeep Jain
Category GST   Report

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