Refund allowed even when export proceeds received through Paypal.
Numerous business houses exporting services from India receive payments through various intermediaries such as PayPal, Paytm, and Razorpay. This routing is often undertaken to streamline the payment process for foreign customers.
The Hon’ble Madras High Court held that any receipts routed through Paypal, an intermediary who receives export proceeds in convertible foreign exchange and remits the same to the exporter will qualify as export of services and will be eligible for refund.
𝐂𝐚𝐬𝐞 – 𝐌/𝐒. 𝐀𝐟𝐨𝐫𝐭𝐮𝐧𝐞 𝐓𝐫𝐚𝐝𝐢𝐧𝐠 𝐑𝐞𝐬𝐞𝐚𝐫𝐜𝐡 𝐋𝐚𝐛 𝐋𝐋𝐏 [𝐇𝐨𝐧’𝐛𝐥𝐞 𝐌𝐚𝐝𝐫𝐚𝐬 𝐇𝐂]
𝐒𝐲𝐧𝐨𝐩𝐬𝐢𝐬 𝐨𝐟 𝐭𝐡𝐞 𝐜𝐚𝐬𝐞
𝐅𝐚𝐜𝐭𝐬
– The Taxpayer [TP] provides online investment advisory to clients based outside India who avail the services of TP on subscription basis. TP treating its services as export, had applied for refund of unutilised ITC, which was rejected.
– The TP’s appeal before Appellate Authority was also rejected on the grounds that the TP by itself has not received the consideration in convertible foreign exchange, instead its intermediary i.e., Paypal has received the same and remitted to TP in Indian currency.
– The transaction doesn’t align with Circular No. 88/07/2019-GST, dated 01-02-2019, which requires export proceeds to be realized in INR through a free convertible Vostro account as per RBI guidelines. Consequently, it doesn’t qualify as an export of services, leading to the disallowance of the refund.
𝐇𝐂’𝐬 𝐫𝐮𝐥𝐢𝐧𝐠
– The subscription fees of TP is routed through Paypal, the intermediary.
– The export proceeds are first received by Paypal in its account with CITI Bank and later this amount is transferred to TP’s bank account with HDFC, after deducting service charges.
– As per Regulation 3(3) of Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2016 as notified by Notification No: FEMA 14(R)/2016-RB dated 02.05.2016, authorized dealers are permitted to receive export proceeds as per RBI guidelines.
– Mere receipt of export proceeds through an intermediary i.e., Paypal instead of receiving the consideration directly by itself, does not disqualify the transaction from being an export of service. The routing of proceeds through Paypal is in accordance with the aforesaid Regulation 3(3).
– The TP is undoubtedly eligible for refund of unutilised ITC.
