CA Gautam Joshi
This article is written to set 5 principal steps for calling a service falling under export of services.
Notification No. 9/2005 dated 03-03-2005 introduced “Export of Service Rules, 2005” effective from 15-03-2005. The rules contain definitions, categories of exports, conditions category wise and payment options. The above 5 steps are further elaborated based on “Export of Service Rules, 2005”.
1. Is it a service?
To fall under service tax, the transaction must be a service and shall not be of goods whether trading or manufacturing. Finance Act, 1994 does not define what a service is. Service is to be interpreted from case-to-case basis and as per the General Clauses Act.
2. Is it a taxable service?
Rules of Export of services covers only taxable services i.e. services defined under Section 65(105) of Finance Act, 1994. If service defined as per point number 1 falls under any of sub-clauses of 65(105) of Finance Act, 1994 it is considered as taxable services and then it gets an entry in Export of Services if the same is exported.
If the service is not a taxable service, all benefits available for export of services will not be granted.
3. Under which criteria of “export of services” the service is falling?
Once the service is a taxable service, the taxable service gets entry in export of services. There are three categories in export of services:
|Export of Service|
|Based on property/Immovable Property|
|Based on Performance|
|In relation to Business/Commerce (Known as Recipient basis as well)|
The arrangement is aimed to give preferences and put some restrictions at time while another can be of granting exemptions. One must check under which head (i.e. A, B or C) the service is falling to further decide what conditions should be fulfilled to call it an export of service.
4. Is the payment received in Foreign Currency?
Service tax is a destination based consumption tax. Any service consumed within India and covered in service tax attracts tax.
Considering the destination as main focus, services provided/used/benefited outside India are called export of services in general. However, the aim of granting export incentives is to attract foreign currencies in India and looking in to it the general condition of any of the criteria (i.e. A, B or C) is the payment must be received in foreign currency.
If payment is not received in foreign currency, there is no need to see specific criteria as listed in point 5 are fulfilled or not.
5. Are other conditions fulfilled as per the criteria of “Export of Services?
Apart from general conditions, there are some specific conditions.
For example, to call supply of tangible goods service as an export of service, the tangible goods supplied for use are located outside India during the period of use of such tangible goods.
The above 5 steps are in general. It is a best practice to read all facts on case-to-case basis and then take a decision when a service can be called as exported.