Export of Services

1
Export of Services

• Anusha Balaji
• January 31, 2006

2
The History
3
History of Export Exemption

• Exempted from tax 9.4.99 to 1.3.2003 -all taxable
  services for which payments received in
  convertible foreign exchange
• (Vide Notifications 6/99 dated 9.4.99-providing
  exemption Notification 2/2003 dated
  1.3.2003-rescending exemption)
• Circular clarifying that, exemption shall
  continue for export of services from 1.3.2003 to
  20.11.2003
• (vide circular no. 56/5/2003 dated 25.4.2003)
• Revival of exemption from 20.11.2003 to 14.3.2005
  tax exemption on all taxable services where
  payment received in convertible foreign exchange
• (vide Notification 21/2003 dated 20.11.2003)
• Rescinding of Notification and issue of Export of
  Service Rules wef 15.3.2005
• (vide Notification 9/2005 dated 3.3.2005 and
  rescinding of exemption by Notification 10/2005
  dated 3.3.2005)

4
Analyse the Rules
5
Export Rules
Criteria
Rule 1
Rule 3
Rule 2
Location of Immovable Property
Performance partly/ wholly abroad
Location of Recipient
9 Services
50 Services
Recipient doesn't have office in India
Recipient has office in India
6
Study of Rule 1
taxable services in relation to immovable
property situated outside India
Criteria for Rule 1

• Taxable Service
• In Relation to Immovable Property
• Located Outside India
• Payment received in convertible foreign exchange

7
Categories under Rule 1
Services Falling in this Category In relation to
immovable property

• Construction Industrial Commercial
• Architect
• Interior Decorator
• Real Estate Agent
• General Insurance
• Construction of Complex
• Site Formation, Excavation, Clearance
• Dredging Services
• Survey Map Making Services

8
Study of Rule 2
taxable services means such services as are
performed outside India
Criteria for Rule 2-Where Services are Wholly
rendered outside India
Criteria for Rule 2-Where Services are Partly
rendered outside India

• Taxable Service
• Performed outside India
• Payment received in convertible foreign exchange

• Service are delivered outside India
• Used in business outside India

Ex. Chartered Accountant Services carried out on
a subsidiary in India on behalf of Group Abroad
9
Categories under Rule 2
Some Services Falling in this Category

• Air Travel Agent
• Authorised Service Station
• Chartered Accountancy
• Erection Commission Installation
• Cargo Handling
• Steamer Agency
• Stock Brokers
• Technical Testing/ Inspection
• Technical Inspection/Certification

10
Study of Rule 3
taxable services which are provided used in or
in relation to commerce or industry the
recipient of such services is located outside
India
Criteria for Rule 3-Where no office in India
Criteria for Rule 3-Where office in India

• Order received from outside India
• Service delivered outside India
• Service used for business outside India
• Payment received in convertible foreign exchange

• Taxable Service
• Recipient is outside India
• Does not have a commercial/ industrial
  establishment or any other office relating
  thereto
• Payment received in convertible foreign exchange

11
Categories of Rule 3
Some Services Falling in this Category

• Advertising Agency
• Banking other Financial Services
• Business Auxiliary Services
• Consulting Engineering
• Management Consultant
• Computer Network
• Intellectual Property
• Manpower Recruitment/Supply

12
Rebate Notifications
13
Rebate on Export of Services
14
Rules and its Impact
15
Export of Service Rules and BAS

• Note
• BAS means, any service in relation to- promotion,
  marketing, customer care, procurement of goods or
  services which are inputs for the client,
  -production or processing of goods for or on
  behalf of the client.
• .

Abroad Client
Customer of Client- in India/Abroad
Service Provider
BAS

• Service is rendered in India
• Provided outside India
• Client outside India does not have office
• in India
• Service in/ in relation to commerce/
• industry abroad
• IMPLIES EXPORT OF SERVICE

16
Case Law

• Facts
• India Ltd incorporated in India is a wholly
  owned subsidiary of New York Inc. (incorporated
  abroad).
• India Ltd rendered marketing services to New
  York Inc., for consideration received in foreign
  exchange.
• Marketing Services includes procurement of
  customer orders in India and Abroad.
• Analysis
• Taxable Service- MARKETING SERVICE
• Provided to Recipient abroad- NEWYORK INC BASED
  ABROAD
• Payment received in convertible foreign exchange
• Export of Service if no office of client
  situated in India
• ELSE
• The business of the client situated abroad THE
  SERVICE USED FOR BUSINESS ABROAD
• THEN EXPORT OF SERVICE

17
Case Law- Comment

• Comment
• Such services are taxable services but such
  services shall form part of call centre services
  hence are exempted from Service tax
• (Before going to the definition of export of
  service, the service in question being marketing
  services, vide Notification 8/2003-shall be
  exempt)

18
Specific Observations about the Rules
19
Observation About Rules

• General Insurance Survey and Map Making in
  relation to immovable property falls under Rule
  1.
• Architect, Interior Decorator, Real Estate,
  Commercial/ Industrial Construction, Construction
  of Complex, Site formation, excavation etc.,
  Dredging Services
• In relation to Immovable Property falls under
  Rule 1
• Others falls under Rule 3.
• IMPLIES
• Designing of a lift which is goods for the
  purpose of sale will fall under Rule 3 but
  General Insurance taken for the lift/ lift
  components will not fall under Rule 1/3 hence,
  will not qualify for export.

20
Observation About Rules-Contd

• According to Rule 4-
• any service, which is taxable under Sec
  65(105), MAY BE exported without payment of
  service tax
• According to Rule 5-
• Where any taxable service is exported, the CG
  may, by notification, GRANT REBATE OF SERVICE TAX
  PAID ON SUCH TAXABLE SERVICE .
• IMPLIES
• Where Rule 4 provides for export without payment
  of tax, Rule 5 talks about payment and subsequent
  rebate of taxwhen an exemption is available,
  why will a company pay and claim rebate???

21
Some Points to Ponder
22
Points to Ponder

• Export of Service Rules, 2005 shall apply only to
  taxable services. Hence Rebate applies only to
  Taxable Services implying that, such rebate shall
  be for,
• tax paid on such taxable services and
• tax and / or duty paid on inputs input services
  used for providing such taxable services
• Ex. Software Development/ Information
  Technology Services are excluded.
• Will exempted services that are taxable services
  also be excluded-call centre, medical
  transcription etc.?

23
Points to Ponder Contd

• Only when payments are received in convertible
  foreign exchange.
• Will transactions between Parent Subsidiary/
  Group Companies maintaining running accounts and
  showing the said service income as receivable to
  a running account qualify for exemption?

24
Points to Ponder Contd

• Methodology of Rebate of Tax on input services
  requires declaration prior to export and
  subsequent filing of rebate application
• Alternatively
• Company can charge Service Tax on Output Services
  and remit service tax after adjusting for Input
  Tax Credit Available and followed by a claim for
  Rebate of Service Tax on Taxable Services
  Exported under Notification 11/2005.

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THANK YOU!!