CircularNo. 202/14/2023-GST, Dated 27th October, 2023
Various representations have been received requesting for clarification regarding admissibility of export remittances received in Special INR Vostro account, as permitted by RBI, for the purpose of consideration of supply of services to qualify as export of services as per the provisions of clause(6) of section 2 of the Integrated Goods & Services Tax Act, 2017 (herein after referred to as the ‘IGST Act”).
The issue has been examined and to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in exercise of its powers conferred by section 168 (1) of the Central Goods & Services Tax Act, 2017 (herein after referred to as the ‘CGST Act”), hereby clarifies the issue as under Relevant legal provisions
Export of services has been defined under clause (6) of section 2 of IGST Act. As per the said definition, any supply of services needs to fulfill five conditions for it to qualify as export of services.Clause (6) of section 2 of the IGST Act is reproduced below for reference:
“export of services” means the supply of any service when, –
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service inconvertible foreign exchangeor in Indian rupees wherever permitted by the Reserve Bank of India; and
(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;”
One of the conditions mentioned in sub-clause(iv) of Section 2(6) of the IGST Act is that the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India.
Reference is invited toRBI’sA.P. (DIR Series) Circular No.10 dated 11th July, 2022 regarding International Trade Settlement in Indian Rupees (INR), vide which it has been clarified that to promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports / imports in INR. Before putting in place this mechanism, AD banks shall require prior approval from the Foreign Exchange Department of Reserve Bank of India, Central Office at Mumbai.Para 3 of the Circular is reproduced below:
In terms of Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, AD banks in India have been permitted to open Rupee Vostro Accounts.Accordingly, for settlement of trade transactions with any country, AD bank in India may open Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country. In order to allow settlement of international trade transactions through this arrangement, it has been decided that
(a) Indian importers undertaking imports through this mechanism shall make payment in INR which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier
(b) Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country.”
Reference is also invited toPara 2.52 (d) of chapter related to General Provisions Regarding Imports and Exports of the Foreign Trade Policy (FTP) 2023, which has come into force from 01.04.2023, which specifies that:
Para 2.52 (d)Invoicing, payment and settlement of exports and imports is also permissible in INR subject to compliances as under RBI’s A.P. (DIR Series) Circular No.10 dated 11th July, 2022. Accordingly, settlement of trade transactions in INR shall take place through the Special Rupee Vostro Accounts opened by AD banks in India as permitted under Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, in accordance to the following procedures:
(i) Indian importers undertaking imports through this mechanism shall make payment in INR which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier
(ii) Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country.
On perusal of the above, it can be stated that the condition(s)of sub-clause (iv) of Section 2(6) of the IGST Act, 2017, can be considered to be fulfilled when theIndian exporters, undertaking exports of services, are paid the export proceeds in INR from the balances in the designated Special Vostro Account of the correspondent bank of the partner trading country in terms of Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, as mandated by RBI’s A.P. (DIR Series) Circular No.10 dated 11th July, 2022and reiterated further in Foreign Trade Policy, 2023.
Therefore, it is clarified that when the Indian exporters, undertaking export of services, are paid the export proceeds in INR from the Special Rupee Vostro Accounts of correspondent bank(s)of the partner trading country, opened by AD banks, the same shall be considered to be fulfilling the conditions of sub-clause (iv) of clause (6) of section 2 of IGST Act, 2017, subject to the conditions/ restrictions mentioned in Foreign Trade Policy,2023 &extant RBI Circulars and without prejudice to the permissions / approvals, if any, required under any other law
It is requested that suitable trade notices may be issued to publicize the contents of this Circular. Difficulty, if any, in the implementation of this Circular may be brought to the notice of the Board.
Brief of Circular:
This circular addresses the issue of whether export remittances received in Special INR Vostro accounts, as permitted by the Reserve Bank of India (RBI), qualify as export of services under the Integrated Goods & Services Tax Act, 2017 (IGST Act).
Background: Under the IGST Act, for a supply of services to be considered as an export of services, five conditions need to be fulfilled. One of these conditions, as per sub-clause (iv) of Section 2(6) of the IGST Act, is that the payment for such service must be received by the supplier of the service in convertible foreign exchange or in Indian rupees wherever permitted by the RBI.
RBI’s Circular: The Reserve Bank of India, in its A.P. (DIR Series) Circular No. 10 dated July 11, 2022, clarified that to promote global trade, exports and imports could be settled in Indian Rupees (INR) under certain conditions. This arrangement allows Indian importers to make payments in INR, which are credited to the Special Vostro accounts of the correspondent bank of the partner country. Similarly, Indian exporters are paid their export proceeds in INR from the balances in designated Special Vostro accounts of the correspondent bank of the partner country.
Foreign Trade Policy (FTP) 2023: The FTP 2023, effective from April 1, 2023, also allows invoicing, payment, and settlement of exports and imports in INR, following the conditions specified in RBI’s Circular.
Clarification: Based on the above, this circular clarifies that the condition (iv) of Section 2(6) of the IGST Act is considered fulfilled when Indian exporters of services are paid in INR from the Special Rupee Vostro Accounts of correspondent banks of the partner trading country, as mandated by RBI’s circular and the FTP 2023.
In summary, when Indian exporters of services receive payment in INR from these designated accounts, it fulfills the conditions for considering the supply of services as an export of services, as per the IGST Act, subject to the conditions and restrictions mentioned in the FTP 2023 and RBI circulars, without prejudice to any other legal permissions or approvals required.
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