PayPal valid mode for Receipt of Foreign Export Proceeds under FEMA for GST Purposes: Madras HC [Read Order]

A Single Bench of the Madras High Court has held that PayPal is a valid mode for receipt of foreign export proceeds under Foreign Exchange Management Act and Goods and Services Tax Act. The Goods and Services Tax – GST Appellate Authority under the provisions of the respective GST enactments had rejected the appeals filed by the petitioner against eight separate orders. The petitioner, engaged in the business of providing opinions on equity and futures market, trading stocks, options based on stock and share markets. The petitioner had also remitted Goods and Service Tax (GST) for the services rendered to its clients/customers. According to the petitioner, predominantly all the clients/customers of the petitioners are from the U.S and the neighboring countries

. The petitioner has treated the above supply of services rendered to its clients/customers as “export of service” within the meaning of Section 2(6) of the Integrated Goods and Services Tax Act, 2017. Section 2(6) of the Integrated Goods and Services Tax Act, the export of service effected by the petitioner to its clients/customers also qualifies as “zero rated supply” within the meaning of Section 16 of the Integrated Goods and Services Tax Act, 2017 and therefore the petitioner filed application under Section 54 of the IGST Act read with Rule 89(2) of the Central Good and Services Tax Rules, 2017 for refund. It was also submitted that the petitioner has complied with all the requirements of the aforesaid provision as there was an export of service within the meaning of Section 2(6) of the Integrated Goods and Services Tax Act, 2017. The petitioner further submitted that, “The petitioner is a startup company and is in the process of expanding and growing its business.

In such circumstances, the petitioner is relying on the tax refund as one of the sources of recycling funds in the business. With the limited capital, the petitioner intricately manages its finances.” It was also submitted that the petitioner has proven beyond reasonable doubt that the service recipient is outside the country and that the money was in fact received in foreign exchange. In any event, mere technical breaches assuming without admitting did exist cannot be the reason for denial of the claim. It was noted by the Bench that, “Issue that arises for consideration is whether the petitioner is entitled for refund of the tax borne on input and final service exported to its overseas customers.” The Single Bench also remarked that, “As per Section 16(2) of the Integrated Goods and Services Act, 2017, a supplier effecting ‘zero rated supply’ is entitled to avail Input Tax Credit notwithstanding such supply are exempt from payment of tax. Reason for such refund is to reduce the burden of tax on exports to make exports competitive.” It was noted that,

“There is no dispute that the petitioner is providing services of its clients through its online portal to customers/client. The payments for the services provided by the petitioner are routed through an intermediary namely Paypal with whom the petitioner has an arrangement.” The Bench further observed, “As an intermediary, Paypal directly credits the amounts received in Indian currency directly into the petitioner’s account. As far as export proceeds, the amounts are received in convertible foreign exchange by the said intermediary namely Paypal. The amounts are first credited into its account with CITI Bank of the said intermediary namely Paypal. Thereafter, amounts in Indian currency are transferred from the intermediary’s CITI Bank account to the petitioner’s account with HDFC Bank after deduction of its service charges.” Further observing, “Thus, if payments are routed through an intermediary to person like petitioner, the intermediary should be an authorised person to receive such payment in convertible foreign exchange. As an intermediary, the petitioner is required to only credit the amounts in convertible foreign exchange into Reserve Bank of India”, the Single Bench of Justice C Saravanan held that, “without doubt, the petitioner is entitled for refund”. It was held inter alia that, “Regulation 3(3) of the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2016 makes it clear that the authorized dealers have been permitted to allow receipts for export of goods / software to be received from a Third Party (a party other than the buyer) as per the guidelines issued by the Reserve Bank.”

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