INDIA FOR EXPORT AND IMPORT OF SERVICES

[Dr. Sanjiv Agarwal]

Export Rules

According to Rule 3 of Export of Services Rules, 2005, three categories of taxable services have been specified for qualifying as export of service i.e., taxable services relation to immovable property, taxable services performed out of India and certain taxable services used out of India and provided from India, subject to some conditions.

Definition of term export of services provides that once goods are taken out of country, export is deemed to have taken place. Proviso to rule 3 states that even if part of export is done outside India, it shall be considered to have been performed outside India [TNT India Pvt. Ltd. v. CST, Bangalore [2007 -TMI - 1448 - CESTAT,BANGALORE]

India for the purpose of exports will include the designated areas in the continental shelf and exclusive economic zone of India as notified by Ministry of External Affairs. Thus, the area outside India will not include Indian land mass, designated areas in continental shelf and exclusive economic zones. These will be treated within Indian territory.

India also includes territorial waters of India i.e., area upto 12 nautical miles from Indian land mass.

Notification No 25/2009-ST dated 19.8.2009 has substituted an explanation in rule 3 as to what would 'India' include. Accordingly, w.e.f. 19.8.2009, 'India' shall include the installations, structures, and vessels in the continental shelf of India and the exclusive economic zone of India. Prior to 19.8.2009, 'India' included designated areas in the continental shelf and exclusive economic zones as declared by Government. Thus, services provided to installations, structures and vessel in the continental shelf and exclusive economic zones shall be deemed to be the service provided in India  and not the exports for the purpose of Export of Service Rules, 2005.

Import Rules

Rule 2(e) defines 'India' to include designated areas in the continental shelf and exclusive economic zones of India declared vide notifications issued under Ministry of External Affairs S.O. 429(E) dated 18.07.1986 and S. O. 643(E) dated 19.09.1996.

Change in Territorial  Jurisdiction

Vide Notification No 21/2009- ST dated 7.7.2009, amendment in Notification No 1/2002-ST dated 1.3.2002 has been made to substitute 'designated areas in the continental shelf' by 'installations structures and vessels in the continental shelf  of India and the exclusive economic zone of India'  (Refer Annexure 19.1) . Thus, the scope of Notification No 1/2002 has been enlarged by extending the applicability of service tax provisions to the

            - installations,

            - structures, and

            - vessels

in the entire continental shelf of India and Exclusive Economic Zone (EEZ) of India. Effectively, w.e.f. 7.7.2009, all taxable services provided from or to the installation, structures and vessels in continental shelf and EEZ would be covered for the purpose of service tax.

This amendment is the out come of judicial pronouncement is Indian National Ship Owners Association v Union of India [2009 -TMI - 32747 - BOMBAY HIGH COURT], wherein it was held that services rendered in continental  shelf, exclusive economic zones and territorial water of India were taxable under Notification No 1/2002-ST but it does not have effect of levying service tax on service recipients and any demand from members of association in relation to service received by them to their vessels  and ships outside India  was without authority of law.

In view of the amendment, various services in relation to shipping industry such as custom house agents, steamer services, cargo handling services, general insurance, manpower supply, stevedoring and port services etc shall get covered under service tax for vessels, installations and structures in continental shelf and exclusive economic zones Not only this , the amendment will also have the effect of having two meanings of India- one for import of services and other for export of services.

 The service tax rules Export of Service Rules (Notification No. 9/2005-ST) and the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 (Notification No. 11/2006-ST) also defines India as constituting the designated areas under Continental Shelf and Exclusive Economic Zone of India (Prior to amendment).

The definition of India appearing in Import of Service Rules has been amended vide Notification No. 22/09 dated 07.07.2009 on similar lines of Notification No.21/2009 i.e., as constituting "installations, structures and vessels in the continental shelf of India and the exclusive economic zone of India". However the definition of 'India' appearing in Export of Service Rules (Notification No. 9/2005-ST) has amended only w.e.f. 19.8.2009 vide Notification No 25/2009-ST. prior .

Import of Services-(e) "India" includes the installations, structures and vessels in the continental shelf of India and the exclusive economic zone of India (w.e.f. 7.7.2009)

Export Service- Explanation - For the purposes of this rule "India" includes the designated areas in the continental shelf and Exclusive Economic Zone of India as declared by the notifications of the Government of India in the Ministry of External Affairs numbers S.O. 429(E), dated the 18th July, 1986 and S.O. 643(E), dated the 19th September, 1996. (Prior to 19.8.2009).

w.e.f. 19.8.2009, 'India' has same meaning for both , export and imports under respective rules.