Export of services is zero-rated under GST, but eligibility hinges on strict statutory conditions, particularly place of supply, foreign currency realisation, and entity separation. Most disputes in IT/ITES exports arise from related-party structures, PoS misinterpretation, non-realisation timelines, and refund documentation gaps.
1. Introduction
IT/ITES exporters deliver services across borders without physical movement of goods. GST relief is available only when all export conditions are cumulatively satisfied and evidenced through contracts, invoices, and FEMA compliance.
In service exports, eligibility is legal—benefit is procedural.
2. Meaning of Export of Services
A service qualifies as export when all five conditions are met:
supplier is in India,
recipient is outside India,
place of supply is outside India,
consideration is received in convertible foreign exchange (or as permitted), and
supplier and recipient are not merely establishments of the same person.
Failure of any condition breaks zero-rating.
3. Place of Supply — IT/ITES Focus
For most IT/ITES services, PoS is the location of the recipient. Errors occur where:
Indian branches serve foreign HO, or
services are linked to immovable property or events in India.
Wrong PoS converts exports into taxable domestic supply.
4. Distinction Between Export of Services and Inter-Establishment Supply
Services between:
Indian entity and foreign subsidiary may qualify as export, but
branches of the same legal entity do not.
Legal identity, not geography, is decisive.
5. Zero-Rated Supply Options
IT/ITES exporters may choose:
LUT Route: Export without IGST and claim ITC refund, or
IGST Route: Pay IGST and claim refund.
LUT is preferred for working-capital efficiency.
6. Letter of Undertaking (LUT) for Service Exporters
Filed annually before exports.
Mandatory declaration on compliance and realisation.
Expired LUT exposes exports to tax.
7. Invoicing for Export of Services
Export invoices must:
mention “Supply meant for export under LUT without payment of IGST” or IGST paid,
state foreign recipient details, and
align with contracts and realisation documents.
Invoice narrative must reflect service nature clearly.
8. Foreign Currency Realisation (FEMA Link)
Export proceeds must be realised within prescribed timelines. Non-realisation leads to:
reversal of benefits, and
GST demand with interest.
Bank realisation certificates are critical evidence.
9. Input Tax Credit (ITC) for IT/ITES Exporters
IT/ITES exporters accumulate ITC on:
rent, manpower, software tools, cloud services, and professional fees.
Eligibility depends on 2B reflection and supplier compliance.
Service export refunds fail due to weak ITC discipline.
10. GST Returns for Service Exporters
GSTR-1: Export invoices (Table 6A).
GSTR-3B: ITC and tax position.
GSTR-9/9C: Annual reconciliation.
Consistency across returns is essential.
11. Refund of Accumulated ITC
Refund requires:
correct turnover computation,
linkage with GSTR-1 and 3B, and
documentation of export and realisation.
Deficiencies usually arise from formula errors and PoS disputes.
12. Related-Party and Group Entity Issues
Common challenges include:
service pricing between group entities,
establishment vs distinct person disputes, and
export eligibility denial.
Transfer pricing alignment supports GST defence.
13. Common GST Issues in IT/ITES Exports
PoS misclassification
“Same person” establishment disputes
Non-realisation within time
Refund rejections due to mismatch
14. Audit & Litigation Perspective
Audits focus on:
contracts and scope of services,
PoS justification,
realisation proof, and
refund computations.
Service exports face legal interpretation scrutiny.
15. Practical Guidance — IT/ITES Exporters
Draft contracts with GST PoS clarity
Track LUT validity and realisation
Maintain export-wise documentation
Reconcile monthly before refunds
16. Practical Guidance — Practitioners
Validate export conditions holistically
Review group structures
Prepare PoS defensible notes
Handle refund and appellate matters
17. CABTA Insight
“In IT/ITES GST exports, eligibility is decided by law—benefit by documentation.”