Business · India Bureau
GST Council eyes export status for overseas contract manufacturing
India's GST Council is considering a proposal to grant export treatment to contract manufacturing work performed for foreign companies, even when the finished goods remain within Indian territory. The move aims to resolve longstanding place-of-supply complications in the goods and services tax framework.
LSN India ·
The proposal under consideration would allow Indian manufacturers undertaking contract work for overseas entities to avail of export benefits under the Goods and Services Tax regime. Currently, such arrangements face complications due to ambiguities in determining the place of supply when manufacturing services are rendered within India but for foreign principals.
Under existing GST norms, contract manufacturing services are typically classified based on where the service recipient is located. The anomaly arises when goods produced in India for overseas clients remain physically within the country, creating uncertainty about applicable tax treatment and eligibility for export concessions.
The proposed amendment seeks to clarify that contract manufacturing services provided to non-resident entities should receive export treatment irrespective of whether the finished products are stored, warehoused, or further processed in India. This would align the tax treatment with the economic reality of such transactions and encourage Indian manufacturers to engage in overseas contract manufacturing arrangements.
Industry stakeholders have flagged the place-of-supply issue as a compliance burden that affects competitiveness in global supply chains. If approved by the GST Council, the change would simplify procedures for exporters and manufacturers engaged in international contract work, potentially boosting India's position in overseas manufacturing contracts.