Prior to Finance Act, 2012, i.e., 1-7-2012, taxable services provided in India were taxable. The provisions of Chapter V of the Finance Act, 1994 did not apply to the State of Jammu & Kashmir. Also, Export of Service Rules, 2005 granted exemption to provision of taxable services provided from India and used outside India (export of service) and the taxable services provided from outside India and received in India (import of services) were taxed under reverse charge. This concept of taxation has been changed by Finance Act, 2012 w.e.f. 1-7-2012 by bringing in scope of taxation of services based on place of provision of services.
To support the negative list approach to taxation of services, section 66 C has been introduced by the Finance Act, 2012 w.e.f. 1-7-2012 to provide for 'determination of place of provision of service'. The place of provision of service for the purpose of service tax shall be determined in accordance with the place of Provision of Services Rules 2012, as notified under section 66 C.
Thus, place of provision of services shall be governed by and determined by -
Accordingly, with aforesaid provisions coming into force w.e.f. 1-7-2012, following rules stand rescinded -
- Export of Service Rules, 2005
Export of Services (Rule 6A of Service Tax Rules, 1994 as amended)
(1) The provision of any service provided or agreed to be provided shall be treated asexport of service when,—
(a) the provider of service is located in the taxable territory,
(b) the recipient of service is located outside India,
(c) the service is not a service specified in the section 66D of the Act,
(d) the place of provision of the service is outside India,
(e) the payment for such service has been received by the provider of service in convertible foreign exchange, and
(f) the provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of Explanation 2 of clause (44) of section 65B of the Act
(2) Where any service is exported, the Central Government may, by notification, grant rebate of service tax or duty paid on input services or inputs, as the case may be, used in providing such service and the rebate shall be allowed subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification.
Judicial Pronouncements
- In Burmah Shell Oil Storage and Distributing Co. of India Ltd. and Another v. Commercial Tax Officer and Others 1960 (9) TMI 70 - SUPREME COURT OF INDIA, it was held that in respect of export of goods, all exports involve taking out of the country. Such principle equally applies to taxable service provided following principle of equivalence. Just like the test that the goods must have a foreign destination where they can be said to be imported, taxable service provided in India should also satisfy such basic test to say that such service was exported from India. Crucial fact is sending of the service to a foreign destination where they would be received as imports.
- In State of Kerala v. Cochin Coal Company Ltd. 1960 (10) TMI 57 - SUPREME COURT OF INDIA, it has been held that the concept of 'export' in Article 286(1)(b) of the Constitution postulated the existence of two termini as those between which the goods were intended to move or between which they were intended to be transported and not a mere movement of goods out of the country without any intention of their being landed in specie in some foreign port. It, therefore, follows that there are two termini between which the services are intended to move or between which they were intended to travel and applying principle of equivalence, the termini of the sales promotion service in India as well as outside India when the benefits of such activities comes from principal abroad to India. The dominant object of sales promotion and marketing of services is to promote the sales of SSIPL and such activities has been done on behalf of SSIPL, therefore, the ultimate benefits of the services of Noticee goes to SSIPL which is situated in Singapore and also the benefit of these services (say, payment) came from SSIPL, Singapore to EBPL, India in foreign currency.
- In Priyanka Overseas Pvt Ltd v. Union of India 1990 (11) TMI 145 - SUPREME COURT OF INDIA, it was held that as per Halsbury's Laws of England, delivery means voluntary transfer of possession from one person to another. It would include symbolic delivery and is not restricted to physical transfer of goods itself but also covers transfer of possession of documents of title to the goods.
- In All India Federation of Tax Practitioners v. Union of India – 2007 (8) TMI 1 - Supreme Court, it has been held that services fall into two categories, namely, property based services and performance based services. Such fundamental concept brings the service performed in India under the fold of service tax under the provisions of Finance Act, 1994. Therefore, place of origin and termination of service is also decisive to determine the nature of service whether export and provision of taxable service as well as consumption thereof equally contribute to determine incidence of levy (Para 7 of judgment).
- In GVK Industries Ltd v. ITO (2011) 332 ITR 330 (SC) ,it was held that the Parliament may make laws for the whole or any part of the territory of India. Parliament has no power to make laws "for" any territory outside India. Thus, if parliamentary law relates to aspects or causes that have no nexus with India are ultra vires Article 245(1) and void, however, if law is made for the territory of India and it incidentally deals with matters occurring outside India but having some nexus with India, then, it not be invalid, in view of provisions of Article 245(2).
- In WNS Global Services Pvt. Ltd v CST 2011 (3) TMI 805 - CESTAT, MUMBAI, it was held that exemption from payment of service tax would not be available to export of taxable services where the consideration received in foreign exchange for services was subsequently repatriated.
- In Paul Merchants Ltd v. CCE, Chandigarh 2012 (12) TMI 424 - CESTAT, DELHI (LB),since assessees were working as agents / sub-agents of Western Union and were delivering money sent by foreign senders from abroad to recipients in India and assessees received commission from Western Union for services so provided, it was held that services have been exported in terms of rule 3(1) (iii) of Export of Services Rules, 2005 as assesse’s services had been used by money sender located abroad. Hence, delivery of money into India and actual performance of services by assessees in India was not relevant. Further, definition of export for purposes of 'export of goods' and judgments in relation thereto were not relevant fordetermining export of service. Further, promotional activities carried out by assessee for promotion of business of Western Union were also business auxiliary services and also amounted to export of service.
- In Amalgamations Repco Ltd. v. CCE Chennai 2011 (10) TMI 508 - CESTAT, CHENNAI, it was held that "it is the undisputed policy of the Government not to burden the export goods with domestic taxes as has been noted in various decisions of the Tribunal. The reasons are obvious. We do not want to make domestically produced goods, when exported to the foreign market, to become uncompetitive. Secondly, no country wants to export the domestic taxes meant to be levied on domestic consumption of goods and services. Each country either exempts such taxes in respect of export goods, including taxes relating to inputs used in the export goods, or there are alternative schemes for providing rebate, drawback of duties suffered by export goods. India is no exception as we also have similar schemes. There are also schemes making available duty-free goods and services for export production." In the instant case, credit of Service Tax paid on the customs house agent services in respect of export consignments was allowed so that the exporter would be compensated either by utilization of such credit for payment of other taxes or by taking refund when such utilization is not possible.
