A contract manufacturer in India does not make an export of services simply because its customer is overseas. The result depends first on what is supplied—processing of another registered person’s goods, a sale of finished goods, or a mixed arrangement—and then on whether a service satisfies every condition in section 2(6) of the Integrated Goods and Services Tax Act (IGST Act). The contract parties, ownership of inputs, statutory place of supply, payment route and corporate identity can each change the GST treatment.
Start with the correct GST question
“Contract manufacturing” is a commercial description, not a complete GST classification. Before applying export rules, establish whether the Indian business is supplying a service, goods, or a combination of both.
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That distinction matters because job-work provisions, the export-of-services test and goods-export rules answer different questions. A transaction can be job work under the Central Goods and Services Tax Act (CGST Act) without automatically being an export of services. Conversely, an arrangement described as manufacturing may require a goods-supply analysis if the Indian manufacturer owns materials and delivers finished products under a transfer-of-title contract.
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Section 2(68) of the CGST Act defines job work as “any treatment or process undertaken by a person on goods belonging to another registered person.” The registered person whose goods are processed is the principal for the section 143 framework. CBIC Circular No. 38/12/2018-GST, dated 26 March 2018, explains how a principal may send inputs or capital goods to a job worker and how subsequent movement, return, supply or export is handled.
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For a contract manufacturer to rely on that definition, the relevant facts must align: the goods must belong to another registered person, the Indian entity must undertake treatment or processing, and the movement and documentation must fit the statutory job-work procedure. Calling a vendor a “job worker” in an agreement is not enough if ownership, registration or the actual work points elsewhere.
When the arrangement may not be job work
If the Indian manufacturer purchases and owns substantial inputs, assumes title and risk in the finished products, and invoices the foreign customer for those products, the supply may be goods or a composite arrangement rather than pure processing of the principal’s goods. The supplied official materials do not decide every mixed-input or title-transfer case. Review the contract, purchase and sales invoices, title clauses, risk allocation, manufacturing specifications and delivery terms before choosing the GST classification.
| Transaction facts | Likely starting analysis | What must still be tested |
|---|---|---|
| Indian processor treats goods belonging to another registered person | Potential job work under section 2(68) | Section 143 movement, records, destinations and time limits; then the separate export-of-services test if the supply is a service |
| Indian manufacturer buys inputs, owns output and transfers finished goods | Potential goods supply or mixed supply | Title, risk, invoicing, classification and any applicable goods-export provisions |
| Indian service exporter subcontracts part of a service to an overseas supplier | Two supplies may arise: export by the Indian supplier and import of services from the overseas subcontractor | Conditions in Circular No. 78/52/2018-GST, reverse-charge tax, input-tax credit and payment conditions |
The five conditions for an export of services
Section 2(6) of the IGST Act uses a conjunctive test. Every condition must be met; satisfying one or two of them does not establish export status.
- The supplier is located in India. Identify the legal entity that issues the invoice and performs or arranges the service. A foreign customer’s purchase order does not by itself identify the GST supplier.
- The recipient is located outside India. Confirm the contracting and receiving entity, not merely the brand or group name shown on commercial documents.
- The place of supply is outside India. Apply the specific place-of-supply rule that fits the service. Customer location and the destination of the finished goods are not substitutes for that statutory analysis.
- Payment is received in convertible foreign exchange or in Indian rupees where the Reserve Bank of India (RBI) permits it. Trace the actual banking route and retain evidence of realization or permitted retention.
- The supplier and recipient are not merely establishments of a distinct person under the statutory rule. Determine whether they are separate legal persons or establishments of the same entity.
An overseas customer, a foreign-currency invoice, or products eventually shipped abroad therefore does not prove an export of services. The legal supplier, recipient, service characterization, place-of-supply provision and settlement route must be documented independently.
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Why place of supply is often decisive for manufacturing services
For a processing service, the place-of-supply result can depend on the nature of the work and the rule applicable to services involving goods. Do not infer the answer from the customer’s registered address or from the fact that the goods will leave India later. Map the actual operation: where the goods are made available, where the processing occurs, who receives the service and whether a special statutory rule displaces the default rule.
Section 2(6) requires the place of supply to be outside India. If the applicable rule places it in India, the service fails the export definition even when the recipient is a foreign company and payment arrives from abroad. A written place-of-supply memorandum should identify the service description, the relevant IGST provision, the factual assumptions and the evidence supporting those assumptions.
Separate companies, subsidiaries and branches
Corporate identity is a distinct export condition. Official GST Council material reproducing a CBIC clarification states that an Indian-incorporated company and a foreign-incorporated company are separate legal persons, even when one is a subsidiary, sister concern or part of the same group. A supply between those companies is not excluded solely because they are related; the other four export conditions must still be met.
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A branch, agency or representative office can instead be an establishment of the same legal person. In that case, the distinct-person condition may fail. Check the incorporation documents, GST registrations, contracts, invoices, authority to receive the service and the entity that bears contractual obligations. Group branding, common directors or common ownership is not a substitute for this legal-identity analysis.
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Payment routes, including permitted rupee receipts
Foreign exchange
Where consideration is received in convertible foreign exchange, retain the contract, invoice, bank advice and realization records that connect the payment to the exported service. If a third party pays or funds are retained outside India, document the legal basis and the permissions that make that route acceptable.
Indian rupees through an approved route
A 2023 CBIC clarification addresses export proceeds paid in Indian rupees from designated Special Rupee Vostro Accounts of correspondent banks of a partner trading country, opened by authorized dealer (AD) banks. It treats that route as satisfying the payment condition in section 2(6)(iv), subject to the restrictions and conditions in Foreign Trade Policy 2023 and extant RBI circulars, and without prejudice to permissions required under other laws.
This is not a blanket approval for every rupee receipt. Verify the account designation, the AD-bank trail, the partner-country arrangement, the applicable Foreign Trade Policy conditions and current RBI permissions before treating the amount as export consideration.
When an overseas subcontractor performs part of the service
CBIC Circular No. 78/52/2018-GST, dated 31 December 2018, addresses an Indian exporter that has a service contract with an overseas recipient but outsources part of the work to a supplier outside India. The circular describes two supplies:
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- The Indian exporter supplies the contracted service to the overseas recipient for the full contract value.
- The Indian exporter imports services from the overseas subcontractor for the outsourced portion.
According to the circular, the total contract value can be treated as export of services when the conditions in section 2(6) and section 13(2) of the IGST Act are satisfied. The Indian exporter pays integrated tax under reverse charge on the imported service and may claim input-tax credit of that tax, subject to the normal requirements.
If the overseas customer directly pays the overseas subcontractor, the circular says that portion may still count as receipt of consideration for the Indian exporter’s export when the Indian supplier pays reverse-charge IGST on the imported service and RBI has permitted the relevant consideration to be retained outside India. Those are specific conditions for the fact pattern addressed by the circular. They should not be generalized to every third-party payment, to customer-owned goods processed in India or to a factory’s own goods supply.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.A practical decision process for an Indian manufacturer
- Map every party. Name the Indian supplier, overseas customer, principal, job worker, material supplier and any overseas subcontractor. Record each party’s incorporation status and whether an office or branch is involved.
- Trace ownership and risk. List who owns inputs at each stage, who owns work-in-progress and finished goods, who bears loss or damage, and who has authority to sell or export the output.
- Describe the promise in the contract. Separate processing instructions, manufacturing obligations, delivery of goods, tooling, design, testing, logistics and warranty obligations. Match each charge to the promised activity.
- Choose the supply characterization provisionally. If another registered person’s goods are treated or processed, assess job work and section 143. If title to goods passes from the Indian manufacturer, assess goods or composite-supply treatment. Record unresolved facts rather than assuming the answer.
- If it is a service, test all five export conditions separately. Prepare a file for supplier location, recipient location, place of supply, payment route and distinct-person status. A failure of any one condition prevents export-of-services treatment.
- Validate payment evidence. Match invoices to bank credits, foreign-exchange realization, approved rupee receipts or any direct-payment arrangement. For Special Rupee Vostro receipts, confirm AD-bank and policy conditions.
- If job work applies, maintain section 143 controls. Use challans and movement records, track where processed goods go, and monitor the applicable return, supply or export time limits.
- If work is outsourced overseas, run two tax ledgers. Record the Indian export supply separately from the imported subcontract service, calculate reverse-charge IGST, assess input-tax-credit eligibility and preserve evidence for any direct-payment treatment.
Documents that support the position
- Executed manufacturing, job-work or service agreement, including amendments and purchase orders.
- GST registrations and incorporation records for the Indian supplier, principal and overseas recipient.
- Clauses showing title, custody, risk, specifications, rejection rights and responsibility for inputs and finished goods.
- Job-work challans, e-way or transport records where applicable, goods-receipt notes and return or onward-supply records.
- Tax invoices that distinguish processing charges, goods, tooling, testing and reimbursed costs.
- Evidence of the actual place where processing and any other service activity occurs.
- Bank statements, foreign-inward-remittance records, AD-bank confirmations and documentation for permitted rupee settlement.
- For overseas subcontracting, the subcontract agreement, imported-service invoice, reverse-charge payment proof, input-tax-credit records and evidence of RBI permission for any retained or directly paid consideration.
Common errors and how to correct them
“The customer is foreign, so the invoice is an export.”
Correct the analysis by testing recipient identity and statutory place of supply. Customer location is only one condition.
“Job work automatically means export of services.”
Job work describes a treatment or process on another registered person’s goods. Export status still requires all five section 2(6) conditions, while section 143 compliance is a separate workstream.
“Our Indian subsidiary and foreign parent are the same person.”
Separate incorporation generally means separate legal persons for the distinct-person condition. Recheck the contracts and registrations; do not apply the branch analysis to a subsidiary.
“Any rupee payment qualifies.”
Only a permitted route qualifies. A Special Rupee Vostro arrangement must satisfy the stated Foreign Trade Policy and RBI conditions, and other legal approvals may still be required.
“The overseas customer paid the subcontractor, so we received no export consideration.”
That conclusion may be too quick where Circular No. 78/52/2018-GST applies, but the reverse-charge and RBI conditions must be met and evidenced. The clarification concerns an Indian exporter’s outsourced service contract, not every manufacturing transaction.
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Using the framework for a live contract
For a transaction-specific position, obtain the current CGST and IGST Acts, applicable notifications and circulars, Foreign Trade Policy provisions and RBI directions in force on the relevant date. The official clarifications discussed here provide the framework, but they do not resolve ownership, mixed-input, place-of-supply or payment facts that are absent from a contract. A written opinion should state those facts, identify assumptions and explain the evidence supporting each export condition.
The safest approach is therefore sequential: characterize the supply, determine whether job-work rules apply, identify the legal parties, apply the correct place-of-supply rule, validate the payment route and document every movement and subcontract. Only after all five statutory conditions are satisfied should an Indian contract manufacturer treat a service invoice as an export of services.
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