Firms providing information technology software related services to overseas client of an Indian business would be liable to pay 18 per cent GST, the Authority of Advance Ruling (AAR) has said.
A firm engaged in the business of providing software related consultancy services in Oracle ERP approached the Tamil Nadu bench of the AAR seeking ruling on whether the services provided by it to foreign client of a GST-registered IT company, Doyen Systems, shall be treated as export of services.
In the said case, the original contract was between Doyen Systems and the US client, and a part of the service was contracted to the applicant firm, who would be paid consultancy fee for his services.
The applicant had entered into agreement with Doyen Systems.
The foreign client was to pay consideration to Indian IT company and as per independently agreed upon contract value, which had no relevance/reference to contract between Doyen Systems and the applicant.
Applicant was of the view that he directly rendered the service to foreign client and was paid consideration by Doyen Systems on behalf of foreign company.
The AAR while passing its ruling said there are two sets of contract — one between applicant and Doyen Systems for providing professional and consultancy services, and second between Doyen Systems and its foreign client for providing software support services.
The applicant is not party to the second contract.
AAR observed that applicant’s contention of being an agent to Doyen Systems cannot be substantiated merely because the applicant is in e-mail correspondence with the employees of foreign clients of the Indian company.
It doesn’t mean that he is ‘carrying on the business of supply of services’ on behalf of company as required under definition of agent.
The AAR said that the applicant provides services as a ‘Consultant’ engaged by Doyen Systems’.
“The services provided by the applicant to Doyen Systems Pvt Ltd is a supply of services under CGST/TNGST Act and the applicant is liable to pay relevant tax on such supply,” the AAR said.
AMRG & Associates Senior Partner Rajat Mohan said the Authority has ruled that taxpayers providing information technology software related services to overseas client of an Indian business would be liable to pay GST at the rate of 18 per cent.
“The Government should contemplate and pass on a tax neutral status to services sector for all indirect exports, as the procedural law has matured and technology is stable after three years of implementation. With this tweaking, GST would move to phase II of ‘Ease of Doing Business‘, whereby overall cost of capital in IT services sector could be further rationalised,” Mohan added.