CA Himanshu Sharma

The Export of service Rules, 2005 were notified with effect from 15-03-2005 to determine whether a provision of service will be regarded as export of service. Like export of goods, service can also be exported without payment of duty/tax.

So before we move on to export our services outside India, let us understand in brief the basic conditions required to be fulfilled, so that it can be treated as Export of service.

As per clause (1) of rule 6A of service tax rules, any service provided or agreed to be provided shall be treated as export of service if all the below mentioned conditions satisfied cumulatively-

A. The provider of service is located in the taxable territory :-

The first condition to be satisfied is that the service provider must be located in the taxable territory. Under section 65B(52) of the act, the term ‘taxable territory’ means the territory to which the provisions of the act apply. Under section 64(1) of the act, the act extends to the whole of India except the State of Jammu & Kashmir.

From a combined reading of the aforesaid provisions, it is clear that the term ‘taxable territory’ means ‘India’ minus the State of Jammu & Kashmir.

It is also clear that any service provider located in the State of Jammu & Kashmir Cannot be treated as an ‘exporter’.

B. The Recipient of service is located outside India :-

The second condition to be satisfied is that the recipient of service (service receiver) must be located outside India. This means that the service receiver must be located outside the territorial limits of India, including the State of Jammu & Kashmir.

If service provider is located within the State of Jammu & Kashmir, the case will not fall under ‘Export of Service’.

C. The service is not a service specified in section 66D of the Act :-

The third condition to be satisfied is that the service must not be a service specified in the Negative List spelt out in section 66D of the Act.

There are certain changes made in the negative list. Updated Negative list can be checked at following link :-

Exemption of Services –Notification No. 25 dated 20.06.2012 updated till date

D. The place of provision of the service outside India :-

The forth condition to be satisfied is that the place of provision of the service must be outside India. The fulfillment of this condition will have to be determined in accordance with the place of provision of service laid down in Rules 3 to 14 of the PPP Rules which are as follows: .

RulesDescription of serviceExplanationPlace of Provisions
3General Rule.Generally the POP of service is the location of service recipient.However if the location of service reciepient is not available then the location of service provided will be POP
4(a)Performance based serviceIf goods are physically made available to service provided by Service Recipient i.e repairing, reconditioning, storage and warehousing, cargo handling service etc.Location Where the services are actually performed
first proviso to rule 4(a)Services mentioned in 4(a) are provided from a remote location by way of electronic meansLocation where the goods are situated at the time of provision of services
Second proviso to rule 4(a)Services provided in respect of goods that are temporarily imported in to India for repairing, reconditioning etcRule 4(a) will not apply, subject to conditions as may be specified in this regards
4(b)if the physically presence of an individual and the service provider at the time of performance of services i.e cosmetic services, personal security service, health and fitness services, photography services, classroom teaching services, etc.Location Where the services are actually performed
5services related to immovable propertyServices directly related to immovable property:Place where the immovable property is located or intended to be located
Services provided by experts and state agents
Provision of hotel accommodation by a hotel, inn, club or campsite by whatever name called
Grant of rights to use immovable property i.e renting
carrying out or co-ordination of construction work including architects or interior decorators
Services not related with immovable property:
Advice or information relating to land prices or property markets because they do not relate to specific sites
Making a return by a person in respect of rental income from immovable property
Repair and maintenance of machinery which is not permanently installed (this related to goods)
6Services relating to eventsEvents covered are: cultural artistic, sporting, scientific, Educational, entertainment event, conference, fair, exhibition or similar events.[list is exhaustive]except entertainment event [exempt   as per u/s 66D]place where the event is actually held
7Service provided at more than one locationWhere any service referred to in rule 4,5,6 is provided at more than one location , including a location in the taxable territory.Location in the taxable territory where the greatest proportion of the service is provided
8Services where provider and recipient are located in taxable territoryThis rule will override rule 3,4,5 and 6 and not override on 9,10,11or 12. If place of provision of a service falls under both rule 3,4,5 or 6 and rule 8, then rule 8 shall apply due to the application of rule 14.Location of recipient of service
9(a)Specified servicesServices provided by a banking company or financial institution, or NBFC to account holderLocation of Service Provider
9(b)online information, database access or retrieval serviceLocation of Service Provider
9(c)Intermediary service ( intermediary means a broker, an agent or any other person who are ranges or facilitates a provision of service between two or more person, but does not include a person who provides the main service on his account.Location of Service Provider
9(d)service consisting of hiring of means of transport   upto a period of one month( transport goods or person from one place to other)Location of Service Provider
10Transportation of Goods serviceService of transportation of goods other than by way of mail or courier or through GTAPlace of destination of goods
Proviso to Rule 10Services of GTALocation of the person liable to pay tax
11In respect of passenger transportation serviceIt may be pertinent to mention that for flights originating from , or terminating in, the north east region, though the POP will be determined in term of this rule, there is an exemption for air transportation of passengers , embarking from, or terminating in an airport located in state of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura or at Bagdogra located in west BangalPlace where the passenger embarks on the conveyance for a continuous journey
12service on board a conveyance during the course of passenger transport operations, including services intended to be wholly or substantially consumed while on boardFor Example A video game or a movie on demand is provided as on the board entertainment during the Kolkatta- Delhi leg of a Bangkok-Kolkata-Delhi flight. The POP would be Bangkok( outside taxable territory, not liable to tax)First scheduled point of departure of that conveyance for the journey
14order of application of ruleFor Example person X located in Mumbai owns immovable property in Nepal. Mr Y located in Hyderabad visits Nepal for business purpose and stays in the property owned by Mr X in Nepal. He pays rent to Mr X for staying in his property. Now as per Rule 5, POP would be location of immovable property but as per Rule 8 because both the service provider and service recipient are located in taxable territory, POP shall be location of service receiverIt states that where the provision of service is prima facie, determinable in term of more than one rule, it shall be determined i.a.w the rule that occurs later among the rules that merit consideration.

E. The payment of such service has been received by the provider of service in convertible foreign exchange :-

The fifth condition to be satisfied is that the payment for the service in question must have been received by the provider of that service in convertible foreign exchange. The term ‘convertible foreign exchange’ has not been defined in the act or the Rules. Generally, the term is understood to mean ‘foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 and any rules made thereunder’. The service provider must produce evidence of receipt of the payment in convertible foreign exchange in order to claim the benefit of rebate.

In the case of National Engineering Industries v. CCE [2012] 36 STT 753/24 taxmann.com 328 (New Delhi – CESTAT). The assessee, a commission agent, booked business for foreign supplier M/s. GMC for export of goods to Indian Railways. Instead of GMC paying commission in foreign exchange to assessee, Indian Railways paid equivalent rupee value commission to assessee and deducted such amount from payment made to GMC foreign exchange. Assessee contended that service provided by it to foreign supplier was ‘export of service’ and eligible for refund of service tax paid thereon. Department contended that there was no export of service as commission had not been received by assessee in convertible foreign exchange. It was held that instead of foreign exchange going out of India, there was conservation of foreign exchange in India to extent of commission earned by assessee service provider in view of the arrangement made by GMC through Indian Railways. This had fulfilled objective of export of service. Hence, assessee’s claim of refund was allowable.

It is evident from the provisions of Rule 6A of Service Tax Rules that service can be considered as export of service when the amount is received in foreign convertible currency. In case the amount is not received in foreign convertible currency, the service will not be considered as export of service, but service provider also will not be liable to pay service tax. It will be considered as exempt service and therefore he will have to proportionately reverse the credit as provided under rule 6(1) of the cenvat credit rules, 2004.

F. The provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of Explanation 3 of clause (44) of section 65B of the Act :-

This is the sixth and final condition that must be satisfied. This is deeming provision which carves out an exception to the general rule that only services provided by a person to another person are taxable. The fiction created was to ensure that inter se provision of services between such persons, deemed to be separate persons would be taxable. The sixth condition stipulates that the provider of service and recipient of service should not be merely establishments of a distinct person referred to above. In effect, if a person has one establishment in a taxable territory and another establishment in a non-taxable territory, services provided by the former to the latter will not be treated as ‘export of service’.

(The author is a member of ICAI, he can be reached at info@company360.in)

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