Export of Services: Why Contract Matters More Than Beneficiary Location
Under Indian tax laws, export of services enjoys several benefits, including zero-rated GST and income tax relief. However, disputes often arise when beneficiaries are located in India. The recent CBDT and court observations make it clear — contractual relationship governs taxability, not where the service is used.
What Qualifies as Export of Services?
As per Section 2(6) of the IGST Act, the following five conditions must be fulfilled:
| Condition | Explanation |
|---|---|
| Supplier is in India | Service provider must be Indian |
| Recipient is outside India | Foreign party contracts the service |
| Place of supply is outside India | As per Section 13 of IGST Act |
| Payment is received in convertible foreign exchange (or INR in permitted cases) | RBI guidelines apply |
| Supplier and recipient are not merely establishments of the same person | No branch/HO relationship |
CBDT & Judicial Stand: Location Is Not the Deciding Factor
Courts and the CBDT consistently uphold that where the service is consumed or who benefits is irrelevant if the contractual relationship is with a foreign entity.
Key Judgments:
- CUB Pvt. Ltd. v. Commissioner of GST & CE (CESTAT Chennai): Service deemed export even though beneficiary was in India, as contract was with a foreign parent.
- M/s Metlife Global v. CCE (CESTAT Delhi): Back-office support to foreign insurer held as export despite data use by Indian customers.
- Bharti Airtel Ltd. v. CST: Call routing services to foreign telecom companies classified as exports.
CBDT Clarification on Income Tax Side
The CBDT Circular No. 21/2023, while discussing Section 9 of the Income Tax Act, clarified that “location of service beneficiary is not the deciding factor” for determining whether income arises in India. It’s the contractual nexus and source of income that matters.
Why This Matters for Businesses
- No Dispute Zone: If your agreement is with a foreign entity and payment is in foreign currency, your service is an export — no matter if beneficiaries sit in India.
- Avoid Unnecessary Litigation: Maintain clean contracts and commercial invoices that clearly show service recipient and payment terms.
- GST & IT Relief: Get the benefit of zero-rated supply under GST and avoid income tax under DTAA/residency rules.
Practical Tip from Experts
✅ Always align service agreements with foreign parties to reflect true commercial intent. Include a clause stating that the service is rendered “on behalf of and under instructions from the foreign entity” to avoid disputes.
Frequently Asked Questions
Q1. If my software support helps Indian users but I bill a US company, is it export of service?
Yes, if your contract and payment are with the US company, and all conditions under Section 2(6) are satisfied.
Q2. Can GST refund be denied if customer is in India but paying entity is foreign?
No, as long as contractual and RBI conditions are met, GST refund should not be denied.
Q3. How can I prove that my service is an export?
Maintain a copy of your contract, proof of foreign inward remittance (FIRC), and invoice in foreign currency.
Final Words: Contractual Clarity is King
Whether you’re offering IT, consultancy, design, or financial services — focus on your contract, not the beneficiary’s location. That’s what courts, tribunals, and CBDT consider most important.
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Summary
Export of services under Indian tax law depends on the contract, not where beneficiaries are located. CBDT and court rulings confirm that the key factor is commercial nexus and payment terms, not service consumption.