EXPORT OF SERVICES

[Dr. Sanjiv Agarwal]

What is Export of Services

According to erstwhile Rule 3 of Export of Services Rules, 2005, three categories of taxable services were 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.

Services provided under [rule 3 (I)(iii)] could be provided either in relation to business or commerce, or other than in relation to business or commerce. If such services are provided in relation to business or commerce, they should be provided to a recipient of services who is located outside India. If such services were provided other than in relation to business or commerce, they could be provided to a recipient who is located outside India at the time of receipt of service and such services should be used outside India.

 Amendment w.e.f. 1.7.2012

W.e.f. 1.7.2012, vide Notification No. 36/2012-St dated 20.6.2012, Rule 6A has been inserted in Service Tax Rules 1994, which stipulates as to what shall comprise export of services. Accordingly, the provision of any service provided or agreed to be provided shall be treated as export 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 65Bof the Act.

 According to Place of Provision of Service Rules, 2012, "location of the service provider" means—

(a)      where the service provider has obtained a single registration, whether centralized or otherwise, the premises for which such registration has been obtained;

(b)     where the service provider is not covered under sub-clause (a):

 (i)      the location of his business establishment; or

(ii)     where the services are provided from a place other than the business establishment, that is to say, a fixed establishment elsewhere, the location of such establishment; or

(iii)    where services are provided from more than one establishment, whether business or fixed, the establishment most directly concerned with the provision of the service; and

(iv)    in the absence of such places, the usual place of residence of the service provider.

 According to Place of Provision of Service Rules, 2012, "location of the service receiver" means:—

(a)    where the recipient of service has obtained a single registration, whether centralized or otherwise, the premises for which such registration has been obtained;

(b)    where the recipient of service is not covered under sub-clause (a):

 (i)    the location of his business establishment; or

(ii)    where services are used at a place other than the business establishment, that is to say, a fixed establishment elsewhere, the location of such establishment; or

(iii)  where services are used at more than one establishment, whether business or fixed, the establishment most directly concerned with the use of the service; and

(iv)   in the absence of such places, the usual place of residence of the recipient of service.

 New Provisions for exports made by Finance Act, 2012 (w.e.f. 1-7-2012)

A negative list approach to taxation of services has been introduced by Finance Act, 2012. To support the negative list approach to taxation of services, place of provision of Services Rules, 2012 have been notified under new section 66C of the Finance Act, 1994 which provides for determination of place from where service are provided or deemed to be provided or deemed to have been agreed to be provided. With Place of Provision of Services Rules, 2012 coming into effect on 1-7-2012, Export of Services Rules, 2005 shall be rescinded. Now, charge of Service Tax is on services provided or agreed to be provided in the taxable territory.

 Taxable and Non Taxable Territory

The terms, ‘taxable territory’, ‘non taxable territory’ and ‘India’ have been defined in section 65B of statutory provisions, as inserted by Finance Act, 2012 and made applicable w.e.f. 1-7-2012.

 India has been defined in clause 27 of section 65B as under:

“India” means,––

(a) the territory of the Union as referred to in clauses (2) and (3) of article 1 of the Constitution;

(b) its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976;

(c) the seabed and the subsoil underlying the territorial waters;

(d) the air space above its territory and territorial waters; and

(e) the installations, structures and vessels located in the continental shelf of India and

 the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof;

 ‘Taxable territory’ (Clause 52 of Section 65B) means the territory to which provisions of Chapter V of the Finance Act, 1994 apply.

 ‘Non-taxable territory’ (Clause 35 of section 65B) means the territory which is outside the taxable territory.

 ‘Territorial waters’ means that portion of sea which is adjacent to the sea shore of country. Territorial water extends upto 12 nautical miles from the base line on the coast of India and includes any bay, gulf, harbour, creek or tidal river.

 ‘Exclusive Economic Zone’ extends to 200 nautical miles from the base line and beyond 200 nautical miles, the area is called ‘high seas’ where all countries have equal rights. ‘Continental shelf’ is a shallow sea bed between shore of a continent and the deeper ocean.

 New Definition of Export of Service (Rule 6A of Service Tax Rules, 1994)

In new regime, a service shall qualify for export when the following requirements are met–

(a) the service provider is located in taxable territory;

(b) service recipient is located outside India;

(c) service provided is a service other than those in the negative list;

(d) the place of provision of the service is outside India; and

(e) the payment of service is received in convertible foreign exchange.

(f) both service provider and service receiver are not merely establishments of distinct person as per section 65B(44).

Point of Taxation in Export of Services

Point of Taxation Rules, 2011 provide for determination of point of taxation in different situations w.e.f. 1.4.2011. These rules determine the point in time when the taxable services shall be deemed to be provided. According to Rule 7, the point of taxation in respect of services covered by rule 3(1) of the Export of Service Rules 2005, shall be the date on which payment is received. In case where the payment is not received within the period specified by the Reserve Bank of India, the point of taxation shall be determined, as if this rule does not exist. Thus, export of services is exempt subject, inter alia, to the condition that the payment should be received in convertible foreign exchange. Until the payment is received, the provision of service, even if all other conditions are met, would not constitute export. In order to remove the hardship that will be caused due to accrual method, the point of taxation has been changed to the date of payment. However, if the payment is not received within the period prescribed by RBI, the point of taxation shall be determined in the absence of this rule.