Establishments of Distinct Persons and the Export Bar

Establishments of Distinct Persons explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

The fifth condition in section 2(6), and the one that cannot be cured by better documentation. Either the two sides are the same legal person or they are not.

Section 2(6)(v) of the IGST Act requires that the supplier and recipient of a service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8. Explanation 1 to s.8 treats an establishment in India and any establishment outside India as establishments of distinct persons. So a supply between two establishments of one legal person — a branch and its head office, a project office and its overseas parent — fails the export test, however the payment is received and wherever the place of supply falls. A supply between two separate legal persons — a subsidiary and its parent — does not.

The line, drawn precisely

The test is legal identity, not economic relationship, not control, not consolidation. A wholly owned subsidiary is a separate person; a branch is the same person.

The two Explanations to section 8, and what each does

Section 8 deals with intra-State supply, and carries two Explanations that do very different work.

Explanation 1 lists the situations in which establishments are treated as establishments of distinct persons — including where a person has an establishment in India and any other establishment outside India. This is the one s.2(6)(v) incorporates.

Explanation 2 provides that a person carrying on a business through a branch or an agency or a representational office in any territory shall be treated as having an establishment in that territory.

Explanation 2 is the reason a foreign company's Indian presence matters so much. Where a foreign company operates in India through a branch, agency or representational office, it is treated as having an establishment in India — and Explanation 1 then makes that establishment and its foreign establishment distinct persons.

Two consequences follow.

For the Indian establishment's own supplies, a supply to its own foreign head office cannot be an export.

For an Indian supplier serving that foreign company, the question becomes which establishment received the service. If it was received by the Indian establishment, the recipient is located in India, and condition (ii) of s.2(6) fails as well — before condition (v) is even reached. Export of services →

Why the domestic mirror matters too

Section 25(4) of the CGST Act does the same thing domestically: a person with more than one registration, whether in one State or more, is treated as distinct persons in respect of each.

And Schedule I entry 2 makes a supply of goods or services between distinct persons taxable even without consideration, when made in the course or furtherance of business.

So the same architecture produces two different problems:

• domestically, it creates the cross charge obligation between branches in different States; Cross charge →
• internationally, it defeats the export of services between establishments of one person.

The valuation position differs too. For domestic distinct persons, Circular No. 199/11/2023-GST treats the value declared in the invoice as the open market value where the recipient is entitled to full input tax credit — which largely neutralises the cross charge. There is no equivalent neutralisation on the international side, because the supply simply is not an export.

What this means for the common structures

A foreign company setting up in India. The choice between a branch and a subsidiary has a direct GST consequence: a subsidiary can export services to the parent; a branch cannot export to its head office. That is a factor alongside the regulatory, tax and commercial considerations, and it is often overlooked at the structuring stage.

A captive service centre. An Indian subsidiary providing services to its foreign group is capable of exporting, subject to the place-of-supply and payment conditions. The same operation run as a branch of the foreign entity is not.

A back office of a foreign bank. Where the Indian presence is a branch, its services to the head office are not exports. The place-of-supply analysis under s.13(2) would put the place of supply outside India, and the payment may well be in foreign exchange — but condition (v) fails regardless.

An Indian company serving a foreign customer that has an Indian branch. The determination turns on which establishment received the service, applying the s.2(14) definition — the establishment most directly concerned with the receipt. Where the Indian branch received it, the recipient is in India and there is no export.

Establishing which establishment received the service

Since the outcome turns on it, the record has to support it:

1. The contract — with which entity, and which establishment, is the contract made? A contract naming the foreign entity's registered address abroad is the starting point.
2. The deliverables — to whom were they delivered, and who used them?
3. The instructions — who gave them, and from where?
4. The payment — from which bank account, in which country?
5. The Indian establishment's role — was it involved at all, and if so, in what capacity?
6. Correspondence — the addresses and signatories on the record.

Where the Indian establishment is genuinely uninvolved, that record establishes it. Where it is involved, the honest position is that the recipient may be in India — and the supply should be treated accordingly rather than defended on a thin record.

And the fixed establishment test is the legal frame: s.2(7) of the IGST Act and s.2(50) of the CGST Act define a fixed establishment as a place other than the registered place of business characterised by a sufficient degree of permanence and a suitable structure in terms of human and technical resources to supply or receive and use services for its own needs.

Key takeaways

• Condition (v) of s.2(6) fails where the supplier and recipient are establishments of one legal person.
• Explanation 1 to s.8 treats an Indian establishment and a foreign establishment of the same person as distinct persons.
• Explanation 2 treats a branch, agency or representational office as an establishment in that territory.
• A branch cannot export to its own head office; a subsidiary can export to its parent.
• The test is legal identity, not control, ownership or consolidation.
• Where a foreign customer has an Indian establishment, the question shifts to which establishment received the service — and condition (ii) may fail first.

Read next

• Export of Services: The Five Conditions in Section 2(6)
• Cross Charge Between Distinct Persons: Schedule I Entry 2
• Section 13(2): The Default Cross-Border Rule
• Section 13(8) After the Intermediary Omission

Disclaimer: Positions stated as on 5 September 2026, based on the IGST Act and the CGST Act as amended to 31 March 2026 (ICAI Bare Law, 12th edition) and Circular No. 199/11/2023-GST.