CA Gautam Joshi

Surprisingly there is a growing speed of contribution of Services in India’s international portfolio. In contribution to total current account, service portion is almost 40% since last 4 financial years which is almost nearest to developed countries. Statistics also relieve that neither developed nor developing country looks capable of sifting the ratio of goods to 40% and services to 60% yet increase in international bunch of services can nevertheless drive the portfolio of trade in goods.

Scope and Coverage in GATS:

If we simply speak on tariff, market access in services is relatively easy compare to goods as there are no tariff barriers on services. WTO Agreements place only quotas and regulations on services and not the tariff. Annexure 1B of WTO Agreements – General Agreement of Trade in Services (GATS) broadly covers four modes of services in Article I as “Scope and Coverage” as follows:

Sr. No. Mode of Supply Meaning
1 Cross-border Supply from the territory of one Member into the territory of any other Member
2 Consumption Abroad in the territory of one Member to the service consumer of any other Member
3 Commercial Presence by a service supplier of one Member, through commercial presence in the territory of any other Member
4 Movement of Natural Presence by a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member

Modes are defined as per supply, provisioning and consumption of service. For an instance, in case of mode 3 above, commercial presence is must which can be liaison office of a commercial coaching institution or B-school providing distance courses, permanently established bank branch like Barclays, a UK based bank providing retail and commercial banking services in India.

Mode 2 is via mode where service is provided in one country through off-shore establishment but the service is not restricted to only that member country but to other countries as well. Mode 1 includes outsourcing services from one country to other countries like accountant and legal services without moving from the office. While mode 4 is on the contrary includes movement of lawyers from one country to other country for legal and professional services.

Doha Ministerial Conference is coming with issues relating to services in terms of fixing deadlines in fulfilling ongoing commitments made by member countries.

UNPCPC – UN Provisional Central Product Classification

The secretariat of United Nations (UN) on 24th May 1991 announced a provisional sectoral code of services describing the classification of services at international level into 12 categories. Out of it, 11 categories are major services further classified into sub-sectors and last service is a dustbin classification where any other service not covered in rest of the specific 11 services will be covered.

This whole provisional announcement of classification was only a draft which can be modified in the light of further services negotiations resulting in to schedules of commitments.

Following is a list of those 12 services:

Business Services Financial Services
Communication Services Health Related and Social Services
Construction and related Engineering Services Tourism and Travel related Services
Distribution Services Recreational, Cultural and Sporting Services
Educational Services Transport Services
Environmental Services Other Service not included elsewhere

These major heads are further divided into sub-heads and sub-heads into sub-sub-heads. All sub-sub-heads are given unique either 3 or 4 digit numbers. The picture beneath will make it clear:


A. Primary education services 921

B. Secondary education services 922

C. Higher education services 923

D. Adult education 924

E. Other education services 929

WTO Relevance of UNPCPC

UNPCPC is a general CPC for services at the time of negotiations between countries. It makes negotiations relatively very easy while offering and putting on table to another country. For an example, if India wants to put Tourist Guide Services as a part of “Tourism and Travelling Services”, it can put Code 7472 from UNPCPC against any country under negotiation.

If a country desires to put their own subhead which is not there in the general list, they can do so by logical chronological order and that also obviously without violating the treatments of MFN and National Treatment.

These schedules are recognised in the international platform as day-to-day terminology except few minor variations by negotiating countries.

Service Tax Classification in India – Domestic Governance

Classification of Cross-broader services is governed by exclusive rules of Import and Export. This classification is defined both for import and export.

Following is a major category for Cross-border service classification:

Sr. No. Import/Export of Service
A Based on property/Immovable Property
B Based on Performance
C In relation to Business/Commerce (Known as Recipient basis as well)

These major services are further bottom lined as subcategories. For an example, Renting of Immovable property is falling into Category A for both Import and Export while Information Technology Software Service is covered under Category C. Few services are covered in more than one category like Business Support Service will fall under both B & C.

The arrangement is aimed to give preferences and put some conditions on levy while another can be of imparting exemptions. Regime derives sectoral revenue collection datas from such classification which can be found accurate only if the classification at each service provider/receiver (deemed service provider) stage is defined as per prevailing law.

Further rules are also introduced to remove an ambiguity in classification like overlapping. These rules are to be invoked only when a service is not apparently falling in any of already specified sub-category.

White Paper relieved by Empowered Committee of State Finance Ministers on November, 10 2009 has clarified that the classification, valuation, measure of levy and etc. will remain same for both the statutes collecting GST. This emphasises a uniform basis of classification requirement even though the tax structure is comprehensively reformed.


Classification though a procedural law falls into frequent litigation as it effects the rate of duty directly. It enables government to provide easy sectoral and non-sectoral benefits as well as restrictions both at domestic and international platform.


CA Gautam Joshi

M: 98798 67470.


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