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Export to Nepal or Bhutan will tax at NIL GST rate

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Ministry of Finance issued Notification no. 42/2017-Integrated Tax (Rate): Dated 27 October 2017 on Supply of services to Nepal/ Bhutan.

Background

Section 2(6) of CGST Act stipulates that for any service to categorized as “export of services” the payment for such service must be received by the supplier of service in convertible foreign exchange. This condition (receipt of convertible foreign currency) is inexistent in context with “Export of Goods”.

Thereby for any Export of services to Nepal/Bhutan where the payment for such service is not received in convertible foreign exchange, GST was applicable, even though place of supply was outside India. In such cases corporates were in fix whether GST Law has extra territorial jurisdiction also. This basically means India has started exporting taxes which could never be the intention of Indian trade policy.

There was also a major issue that in such cases while filing of GST return what should be the place of supply and resultant appropriation of taxes between State and Centre could be a challenge.

Government has addressed this issue by way of a notification whereby “Supply of services having place of supply in Nepal or Bhutan, against payment in Indian Rupees” would be taxed at NIL rate.

This would be effective from 27 October, 2017.