The critical issue addressed in this clarification pertains to the admissibility of export remittances received in Special INR Vostro accounts for qualifying as export of services. The RBI’s Circular No. 10 dated 11th July 2022 allows for international trade settlements in Indian Rupees (INR), aiming to promote global trade and support the interest of the global trading community in INR.
The CBIC Board has issued Circular No. 202/14/2023-GST dated 27.10.2023 (read here) in which they have clarified 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.
Read more: Right way to submit the Declaration under GST Circular-183
Key Points from RBI Circular
- Rupee Vostro Accounts: Authorized Dealer (AD) banks in India can open Rupee Vostro accounts for correspondent banks of partner countries to settle trade transactions.
- Payment Mechanism: Indian importers pay in INR, which is credited to the Special Vostro account of the correspondent bank. Conversely, Indian exporters receive export proceeds in INR from these accounts.
The Foreign Trade Policy (FTP) 2023, effective from 1st April 2023, also supports this mechanism, specifying the conditions under which invoicing, payment, and settlement of exports and imports in INR are permissible.
Clarification on Export Remittances in Special INR Vostro Accounts
To ensure uniformity and clear understanding, the Central Board of Indirect Taxes and Customs (CBIC) has clarified that payments received in INR through Special Rupee Vostro accounts meet the conditions set out in sub-clause (iv) of clause (6) of section 2 of the IGST Act. Specifically:
- Fulfillment of Conditions: When Indian exporters receive export proceeds in INR from the Special Rupee Vostro accounts of correspondent banks of partner countries, this arrangement fulfills the requirements for the payment condition of export of services.
- Compliance Requirements: This fulfillment is subject to the conditions and restrictions mentioned in the Foreign Trade Policy, 2023, and current RBI Circulars.
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.
Legal Provisions and Context
The Integrated Goods & Services Tax Act, 2017 (IGST Act) outlines the conditions under which the supply of services qualifies as an export. As per clause (6) of section 2 of the IGST Act, five specific criteria must be met for any service to be deemed an export:
- Supplier Location: The supplier of service must be located in India.
- Recipient Location: The recipient of the service must be located outside India.
- Place of Supply: The place of supply of service must be outside India.
- Payment Receipt: Payment for such service must be received in convertible foreign exchange or in Indian Rupees where permitted by the Reserve Bank of India (RBI).
- Distinct Establishments: The supplier and recipient of the service must not be merely establishments of a distinct person as per Explanation 1 in section 8..
