Export of Taxable Services CA.

Rajendra Kumar P, FCA, Chennai Section 93 of the Finance Act, 1994 empowers the Central Government to grant exemption from service tax and section 93A contains powers to grant rebate. The Central Government under Section 94 of the Finance Act, 1994 is also vested with the Powers to make Rules for the purpose of carrying out the provisions of the Finance Act. Section 94(2) (f), (g), (h) and (hh) empowers the Central Government to make rules for the following matters:
(f) provisions for determining export of taxable services;

(g) grant of exemption to, or rebate of service tax paid on, taxable services which are exported out of India; (h) rebate of service tax paid or payable on the taxable services consumed or duties paid or deemed to have been paid on goods used for providing taxable services which are exported out of India; (hh) rebate of service tax paid or payable on the taxable services used as input services in the manufacturing or processing of goods exported out of India under section 93A

Being empowered by the sections referred above Export of Services Rules, 2005 were notified with effect from March 15, 2005 vide Notification No.9/2005 dated 03-03-2005. This notification has been amended number of times since its inception. The content of this paper contains the position as on May 14, 2011. Export of Services Rules contains 5 rules. Rule 3 contains the rules to determine when a taxable service shall be treated as export. Rule 3(1)(i) deals with situation criteria, 3(1)(ii) deals with performance criteria and 3(1)(iii) deals with usage criteria. A taxable service becomes eligible for consideration under these rules only when it is first covered under either rule 3(1)(i), 3(1)(ii) or 3(1)(iii). If the taxable service is not covered in either of these rules it is outside the ambit of these rules.

Situation Criteria As per rule 3(1)(i) in respect of the services listed below the immovable property in relation to which such taxable service is provided should be situated outside India. General Insurance service (d) Mandap Keeper service (m) Architect Services (p) Interior Decorator service (q) Real Estate Agents service (v) Commercial or Industrial Construction service (zzq) Site formation and clearance, excavation and earth moving and demolition service (zza) Dredging service (zzzb) Survey and map making service (zzzc) Construction of Complex service (zzzh) Auctioneers service (zzzr) Mining of mineral, oil or gas service (zzzv) Renting of immovable property service (zzzz) Works contract (zzzza) Legal consultancy service (zzzzm) Preferential location services (zzzzu) Restaurant services (zzzzv) Hotel accommodation service (zzzzw)

Performance Criteria Rule 3(1)(ii) lays down that in respect of the following services the service shall be performed outside India. Stock brokers service (a) Courier (f) Custom House Agent service (h) Steamer Agents service (i) Clearing and Forwarding Agents service (i) Air Travel Agent service (l) Tour Operator service (n) Rent- a- Cab operators service (o) Security Agency service (w) Underwriter services (z) Photography service (zb)

Convention service (zc) Video Production Agencys service (zi) Sound recording service (zj) Port services (zn) Authorised service stations service (zo) Beauty treatment service (zq) Cargo handling service (zr) Dry cleaning service (zt) Event Management service (zu) Fashion designing service (zv) Health and Fitness services (zw) Rail travel agent service (zz) Storage and warehousing service (zza) Commercial training or coaching service (zzc) Erection, commissioning & installation service (zzd) Internet Cafe service (zzf) Management, maintenance or repair service (zzg) Technical inspection and certification service (zzi) Port other than those covered in zn above (zzl) Airport Services (zzm) Business Exhibition services (zzo) Outdoor Catering Service (zzt) Survey and Exploration of Mineral, Oil and Gas service (zzv) Pandal or Shamiana Contractors service (zzw) Travel Agent service (zzx) Forward Contract service (zzv) Cleaning activity service (zzzd) Club or association service (zzze) Packaging activity service (zzzf) Stock Exchange services (zzzzg) Commodity Exchange services (zzzzh) Processing and Clearing house service (zzzzi) Cosmetic or Plastic surgery service (zzzzk) Transport of Coastal goods and goods through National waterways and Inland water services (zzzzl) Health Check-up and treatment services/ clinical establishment services (zzzzo) The first proviso clarifies that when a taxable service is partly performed outside India it shall be treated as performed outside India. The second proviso contains that when management, maintenance or repair service or technical inspection and certification service is

provided in relation to any good or material or in relation to any immovable property which is situated outside India at the time of provision of service through internet or an electronic network including computer network or by any other means (telephone, video conf etc..) then the said taxable service shall be treated as taxable service performed outside India whether or not the same is performed outside India. Usage Criteria In respect of the taxable services listed in this category, when the service is provided in relation to business or commerce then the recipient of the service should be located outside India. However, if the service that is provided is not in relation to business or commerce then the recipient of the said service shall be located outside India at the time of provision of the said service. The first proviso to this sub rule lays down that if the recipient of the service has any commercial establishment or any office relating to his business in India then the taxable service so provided shall be treated as export only when the order for providing the service is made by the recipient from any of his commercial establishment or office which is located outside India. The second proviso contains that in respect of the taxable service supply of tangible goods the said service shall be treated as export only if the tangible goods supplied for use are located outside India during the period of use of such tangible goods by the recipient of the service. The following are the taxable services covered under this category: Advertising agency (e) Assets management service (zzzzc) Auction service (other than immovable property- related services) (zzzr) Automated teller machine operation , management, maintenance service (zzzk) Banking and other financial service (zm) Broadcasting service (zk) Business auxiliary service (zzb) Business support service (zzzq)

 Cable Operators service (zs) Chartered Accountant service (s) Commercial use or exploitation of any event (zzzzr) Company secretary services (u) Computer network services (zh) Consulting Engineer services (g) Copyright services (zzzzt) Cost Accountant (t) Credit/debit/charge card or other payment card related services (zzzw) Credit Rating agency (x) Design Services (zzzzd) Development and supply of contents services in telecom services etc (zzzzb) Electricity exchanges' services (zzzzs) Franchise services (zze) General Insurance service (other than immovable propertyrelated services) (d) Information technology software services (zzzze) Insurance auxiliary service (zl) Intellectual Property Service (zzr) Internet Telecommunication services (zzzu) Legal Consultancy service (other than immovable property related services) (zzzzm) Life Insurance service (zx) Mailing list compilation and mailing (zzzg) Management Consultant (r) Management of Investment in ULIP services (zzzzf) Manpower Recruitment or supply Agency's service (k) Market Research agency (y) Medial records maintenance services (zzzzp) Opinion Poll Service (zzs) Programme Producer's service (zzu) Promotion of 'brand' of goods, services, events, business entity etc (zzzzq) Promotion, marketing or organising of games of chance, including lottery (zzzzn) Public Relations Management service (zzzs) Recovery Agent's service (zzzl) Registrar to an Issue's service (zzzi) Sale of space for advertisement (zzzm) Scientific and technical consultancy (za) Share transfer agent(zzzj)

 Ship management (zzzt) Sponsorship services (zzzn) Supply of tangible goods services (zzzzj) Survey and map making services (other than immovable property related services) (zzzc) Technical testing and analysis services (zzh) Telecommunication service (zzzx) Transport of goods by Air (zzn) Transport of goods by Road (zzp) Transport of goods by Rail (zzzp) Transport of goods other than water through pipeline or other conduit (zzz) In respect of the following services which are covered under 3(1)(i) when the said services are not in relation to immovable property they will merit consideration under this sub rule. General Insurance service (d) Survey and map making service (zzzc) Auction service (zzzr) Legal service (zzzzm)

Services which are not covered under these Rules Passenger embarking in India for domestic journey or international journey service (zzzo) Tour on Cruise ship service (zzzv) Export A taxable service which is covered in any one of the above criterion will be considered as export only if the condition specified in Rule 3(2) is satisfied. Rule 3(2) lays down that a taxable service shall be treated as export of service only when the payment for such service is received by the service provider in convertible foreign exchange. Export without payment of service tax Rule 4 lays down that any taxable service may be exported without payment of service tax. Rebate

Rule 5 provides that the Central Government by way of a notification can grant rebate of service tax paid on export of taxable service or service tax paid on input services or duty paid on inputs which are used in providing such taxable service. The rebate shall be granted subject to fulfillment of conditions and procedure as maybe specified in the said notification. Empowered by this rule the Central Government has by Notification No.11/2005-ST dated 19-04-2005 and 12/2005-ST dated 19-04-2005 prescribed the Form and procedure for claim of rebate. Conclusion From the times we have known taxes in the Indian context we have been fed that realization in convertible foreign exchange is not taxable. Service Tax law makes us to unlearn and relearn. The above provisions contained in the Export of Services Rules make it amply clear that mere realization of money in convertible foreign exchange will not suffice to avail the exemption from payment of service tax. It is true that Exports should not be burdened with taxes but if the activity begins in India and ends in India then such transaction cannot be clothed as export, the Export of Service Tax Rules teach us this principle.