GST on Back Office Support Services to Overseas Companies

India as a nation is among the rapidly growing economies with various multinational companies and foreign nationals setting up businesses in the country. With the various benefits arising due to the abundant human resources available in the country, corporations are either setting up units to give support to them in the country or providing contracts to domestic companies to provide necessary supporting and back end services to them.

Such developments occurring in such new avenues of businesses brings up some questions of applicable provisions of law. One such question posed was heard in the case of VSERVGLOBAL PRIVATE LIMITED (AAR MAHARASHTRA)

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What happened in the Advanced Ruling case of Vservglobal Private Limited?

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The Applicant was engaged in the business of back office administrative and accounting services, payroll processing and maintenance of records of employees of overseas companies which were not merely establishments of a distinct person and was wondering whether such services to person outside India would qualify export of services and hence would be zero-rated supply as per IGST Act,2017.

Is Backoffice support service to Overseas Companies an export of service?

Back office support service to be considered a zero-rated supply, it first needs to satisfy all the conditions of export of Services as defined under section 2(6) of IGST Act

All the conditions to be defined as “EXPORT OF SERVICES” was satisfied except for the question whether the place of supply was within India or outside India

Where is the place of Supply for Backoffice support service to Overseas Companies?

To decide the place of supply, it was required to decide whether the service provider was an intermediary or not.

As per section 2(13) of the IGST Act, 2017, an Intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account

To defend their case, Vservglobal Private Limited relied strongly on the decision of Advance ruling authority New Delhi in case of “Godaddy India Web Services Pvt Ltd 2016(46) STR806(AAR) dated 04.03.2016”. After going through the facts of the case and the ruling facts of the present case were decided as different and not similar to facts of M/s. Godaddy. In case of Godaddy the provision of support services was admittedly on principal to principal basis and were provided with sole intention of promoting the brand Godaddy US in India for augmenting its business.

On the examination of the service agreement as a whole along with the other documents and explanations provided by the Applicant, it was decided that Backoffice support services to overseas companies was an intermediary service.

As per section 13 (8) (b) of the IGST Act,2017 the place of supply of intermediary services shall be the location of the supplier of services.

Conclusion

As the place of supply of the services is the location of the supplier of services, i.e, within India, the third condition to be defined as an export of services as per section 2(6) of the IGST Act,2017 is not satisfied. And hence, As the Backoffice support service is not an export of service, it would not be a Zero-rated service as per section 16(1) of the IGST Act, 2017.

Therefore, when any back-office service to overseas companies is provided, the location of the supplier and place of supply both would be the location of the supplier.

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