Software services to foreign client of Indian company likely to attract GST: AAR


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Companies providing information technology software related services to overseas customers of an Indian company would be required to pay 18% GST, the Advance Rulings Authority (AAR) said.

A company specializing in providing consulting services related to software in Oracle ERP approached the Tamil Nadu bench of AAR to ask if the services provided by it to the overseas client of a TPS-registered IT company, Dean Systems, should be treated as an export of services.

In that case, the original contract was between Dean Systems and the US customer, and part of the service was assigned to the requesting company, which would be paid consultant fees for its services.

The applicant had entered into an agreement with Dean Systems.

The overseas client had to pay a consideration to the Indian IT company and in accordance with the independently agreed contract value, which had no relevance / reference to the contract between Dean Systems and the claimant.

The claimant was of the view that he was providing the service directly to a foreign client and that he was being paid by Dean Systems on behalf of a foreign company.

The AAR, when adopting its decision, stated that there are two sets of contracts – one between the applicant and Dean Systems for the provision of professional and consulting services, and the other between Dean Systems. and its foreign customer for the provision of software support services.

The applicant is not a party to the second contract.

AAR pointed out that the claimant’s claim to be an agent of Dean Systems cannot be substantiated simply because the claimant is in email correspondence with the employees of the Indian company’s foreign clients.

This does not mean that he “carries out the activity of providing services” on behalf of the business, as required by the definition of agent.

The AAR stated that the Applicant was providing services as a “consultant” hired by Dean Systems ”.

“The services provided by the applicant to Dean Systems Pvt Ltd constitute a supply of services under the CGST / TNGST Act and the applicant is required to pay the corresponding tax on such supply,” said the AAR.

AMRG & Associates senior partner Rajat Mohan said the Authority has ruled that taxpayers providing information technology software related services to a foreign client of an Indian company would be required to pay the tax. GST at the rate of 18%.

“The government should consider and pass on a tax neutrality status to the service sector for all indirect exports, as the procedural law has matured and the technology is stable after three years of implementation. With this adjustment, the GST would move to Phase II of ‘Ease of Doing Business’, whereby the overall cost of capital in the IT services industry could be further rationalized, ”Mohan added.

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