Export of Services: the Five Conditions, LUT and Proof

A service sold to a foreign client is not automatically an export. Under GST it is an export only when five conditions are met together, and any one of them can fail. The place of supply may turn out to be India. The money may come in through a route the RBI has not permitted. The Indian supplier and the foreign client may be one person in two places. A supply that fails is a taxable supply, and the tax is usually discovered years later, at refund or in audit. The rule that did most of this damage, on intermediaries, was removed on 30 March 2026. It still governs every earlier period.

This guide covers the five conditions, the intermediary rule and its removal, the “distinct person” condition, the two ways of exporting (under LUT or on payment of IGST), the time limits for realisation, and the proof. Refunds are covered in Refund of Credit on Exports and SEZ Supplies under LUT and Refund of IGST Paid on Exports.

The five conditions

Section 2(6) of the IGST Act defines “export of services” as 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 in convertible foreign exchange or 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;

Location, in (i) and (ii), is defined in sections 2(15) and 2(14). It is the place of business or fixed establishment that makes or receives the supply, and failing that the usual place of residence. A foreign client’s Indian branch that receives the service is a recipient located in India.

Place of supply, in (iii), is fixed by section 13. The default is the recipient’s location, which satisfies the condition. The exceptions move it to India in common cases:

• services on goods the client makes physically available in India, such as testing or repair (section 13(3)(a))
• services needing the client’s physical presence in India (section 13(3)(b))
• services relating to immovable property in India (section 13(4))
• events held in India (section 13(5))

Where any of these applies, the supply is taxable in India however the client pays (Place of Supply).

Payment, in (iv), is covered under realisation below. Distinct persons, in (v), has its own section below.

A supply that meets all five is a “zero rated supply” under section 16 of the IGST Act. Credit on its inputs is available even though no tax is charged on the output.

Intermediaries: the rule until 29 March 2026, and after

Section 2(13) of the IGST Act defines an “intermediary” as “a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account”.

Until 29 March 2026. Section 13(8)(b) placed intermediary services at “the location of the supplier of services”. An Indian agent arranging sales for a foreign principal therefore had a place of supply in India and failed condition (iii), whoever paid it and in whatever currency.

From 30 March 2026. Section 157 of the Finance Act, 2026 (No. 4 of 2026, assented to on 30 March 2026) provides: “In section 13 of the Integrated Goods and Services Tax Act, 2017, in sub-section (8), clause (b) shall be omitted.” Section 1(2) of that Act defers some of its GST provisions to dates to be notified, but section 157 is not among them. So the omission took effect on assent. Intermediary services now follow the default rule in section 13(2), the recipient’s location, and can be exports if the other four conditions are met. The omission is not expressed to be retrospective, and it has no saving clause. CBIC has issued no circular on it.

The 2023 amendment is a different one. The Finance Act, 2023 omitted section 13(9), on transport of goods, from 1 October 2023. It did not touch intermediaries.

Who was an intermediary. For periods before 30 March 2026, the question is still live in refunds and demands. Circular No. 159/15/2021-GST sets out the tests:

• a “minimum of three parties”
• “two distinct supplies”, the main supply and the ancillary arranging or facilitating
• a supplier with “the character of an agent, broker or any other similar person”

It states that “sub-contracting for a service is not an intermediary service”. Its illustrations treat a back-office or customer-care provider serving the foreign company directly as supplying the main service, and so not an intermediary.

Ernst and Young Ltd v Additional Commissioner, CGST Appeals-II (Delhi High Court, 23 March 2023, W.P.© 8600/2022) applied these tests. The petitioner, the Indian branch of a UK company, provided professional services to overseas Ernst & Young group entities under service agreements, invoicing them directly and being paid in foreign exchange. Its refunds for December 2017 to March 2020 were rejected on the footing that it acted on behalf of its head office and so was an intermediary. The Court held that “a person who provides services, as opposed to arranging or facilitating” a supply from another supplier, “is not an intermediary”. The “own account” words in the definition “merely restrict” it and do not control it. The services were exports, and the refunds were to be processed. No appeal outcome was found.

Validity of the old rule. Dharmendra M. Jani v Union of India (Bombay High Court, 18 April 2023, Writ Petition 2031 of 2018) concerned a Mumbai agent who found Indian buyers for foreign sellers and was paid commission in foreign exchange. He had paid CGST and Maharashtra SGST under protest. A Division Bench split in June 2021. The referee judge, G. S. Kulkarni J, held that sections 13(8)(b) and 8(2) were valid “provided that” they are “confined in their operation to the provisions of IGST Act only and the same cannot be made applicable for levy of tax on services under the CGST and MGST Acts”. In his opinion, the Gujarat High Court’s 2020 judgment in Material Recycling Association of India, which had upheld the clause, supported this reading rather than opposing it. For pre-2026 periods, the Bombay judgment is the authority against charging CGST and SGST on intermediary services to foreign principals.

Condition (v): “merely establishments of a distinct person”

Explanation 1 to section 8 of the IGST Act treats an establishment in India and one outside India as establishments of distinct persons. Explanation 2 says a person carrying on business through “a branch or an agency or a representational office” in a territory has an establishment there. Condition (v) excludes supplies between such establishments of one person. A foreign company’s Indian branch serving its head office does not export, and nor does an Indian company serving its own branch abroad.

Circular No. 161/17/2021-GST limits the exclusion to establishments of one legal person. A company incorporated in India and a body corporate incorporated abroad “are separate persons”. Supplies by an Indian subsidiary to its foreign parent, or by an Indian company to its foreign subsidiary, are therefore “not … merely establishments of a distinct person” and can be exports.

In Vuram Technology Solutions Pvt Ltd v Additional Commissioner of GST (Appeals) (Madras High Court, 10 April 2024, W.P.(MD) No. 15092 of 2022), an Indian company’s refund for software services to its Australian subsidiary had been rejected. The appellate authority held the two were “merely distinct persons” because of their business connection. The Court held that the petitioner and its subsidiary “are two distinct entities”, applied the circular, and directed the refund with interest. The Ernst and Young facts show the other side of the line. There the Indian branch’s head office was in the UK, and the recipients were other group companies, so condition (v) was not in issue.

Realisation: currency, route and time

Condition (iv) requires payment “in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India”. Two circulars apply it:

• Rupee settlement. Circular No. 202/14/2023-GST: export proceeds paid in rupees from a Special Rupee Vostro Account of a correspondent bank of the partner country, under RBI’s A.P. (DIR Series) Circular No. 10 of 11 July 2022, satisfy condition (iv). This is subject to the Foreign Trade Policy 2023 and RBI conditions.
• Part retained abroad. Circular No. 78/52/2018-GST: where a foreign subcontractor is paid directly by the client for its share of the work, the full contract value still counts as received, provided the Indian exporter has paid IGST on that share as an import (GST on Import of Services) and the RBI has allowed that part to be retained abroad.

Time. For a supply under LUT, rule 96A(1)(b), as substituted from 10 July 2024, requires the tax with interest to be paid within fifteen days after one year from the invoice, or the FEMA period “including any extension of such period as permitted by the Reserve Bank of India, whichever is later”, or any further period the Commissioner allows, if payment has not been received “in convertible foreign exchange or in Indian rupees, wherever permitted”. A refund already received is recovered under rule 96B if the proceeds are not realised within the FEMA period.

Two ways to export: LUT, or IGST paid and refunded

Under LUT. Under section 16(3)(a) of the IGST Act, the exporter supplies without IGST “under bond or Letter of Undertaking” and claims refund of unutilised credit. Rule 96A(1) requires the LUT in FORM GST RFD-11 “prior to export”. Notification No. 37/2017-Central Tax allows a LUT to anyone not prosecuted for evasion above Rs 250 lakh, “for a financial year”. Circular No. 8/8/2017-GST states that it “shall be valid for the whole financial year in which it is tendered”. It therefore has to be filed again for each year before the first export of that year. The portal steps are in the LUT guide.

On payment of IGST. Section 16(4) allows the IGST-paid route only for notified cases. Notification No. 01/2023-Integrated Tax, as amended by No. 05/2023-Integrated Tax, notifies all services. The exporter charges IGST, pays it, and claims a refund of that IGST in RFD-01 (Refund of IGST Paid on Exports).

Under either route, the export invoice carries the endorsement that rule 46 prescribes: “SUPPLY MEANT FOR EXPORT/SUPPLY TO SEZ UNIT OR SEZ DEVELOPER FOR AUTHORISED OPERATIONS UNDER BOND OR LETTER OF UNDERTAKING WITHOUT PAYMENT OF INTEGRATED TAX”, or the same words ending “ON PAYMENT OF INTEGRATED TAX”. In place of the recipient details required for a domestic invoice, it gives the recipient’s name and address, the address of delivery and the country of destination. The invoice is reported in table 6A of GSTR-1 as an export of services, with or without payment.

What to have ready

Item	Where it comes from
Contract showing the recipient, where the service is delivered and whether the supplier acts on its own account	Legal files
Place of supply analysis under section 13, including any goods, property or events in India	Working papers
Corporate status of the recipient: separate company, or the supplier’s own branch or head office	Group records
LUT acknowledgement (ARN) for the financial year	Portal
Export invoices with the rule 46 endorsement	Books
FIRC, BRC or bank advice for each receipt, including Vostro credits	Authorised dealer bank
RBI permission for any part retained abroad, and IGST paid on the matching import	Bank; GSTR-3B

Consequences, and what can be put right

• A condition fails. The supply is taxable. Where the place of supply is India and the supplier is in the same State, it is CGST and SGST; otherwise IGST. The tax is recovered under section 73, 74 or 74A with interest. A refund already paid is recovered too.
• Payment not received in time under LUT. IGST with interest is payable under rule 96A, and the LUT facility is withdrawn until it is paid. Circular No. 197/09/2023-GST allows a refund of the IGST so paid, but “no refund of the interest”, once payment is later received.
• Intermediary treatment before 30 March 2026. A demand or refund rejection can be contested on the facts, applying Circular No. 159/15/2021-GST and the case law above. In the Bombay jurisdiction, Dharmendra M. Jani is also relevant on CGST and SGST.
• LUT not filed in time. Circular No. 125/44/2019-GST para 44 allows acceptance “on ex post facto basis”.

The procedure in order

1. Confirm the supplier is located in India and the recipient outside India, by establishment.
2. Fix the place of supply under section 13, and confirm it is outside India.
3. For supplies before 30 March 2026, test whether the service was intermediary.
4. Confirm the recipient is a separate legal person, not the supplier’s own branch or head office.
5. File the LUT for the financial year before the first export, or charge IGST.
6. Issue the export invoice with the rule 46 endorsement and report it in table 6A of GSTR-1.
7. Realise payment in foreign exchange or permitted rupees within the time in rule 96A, and keep the bank evidence.
8. Claim the refund under the LUT route or the IGST route.

The next guide covers real estate developers: the rates and conditions in Notification No. 11/2017-Central Tax (Rate), the 80 per cent rule, and reverse charge on shortfalls.