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At present, taxable services provided for which payments are received in convertible foreign exchange are fully exempt from payment of service tax. However, there is no separate provision defining ‘export of services”. There has been a demand to define “export of services” for the purpose of levy of service tax and extend all facilities and relief available to export of goods to export of services.
In budget 2004, amendment had been made in the Finance (No.2) Act, 2004, enabling the Government to make rules for defining export of service and providing exemption from service tax to such exports and rebate of tax paid on input services or duty paid on inputs used in such export of services.
Export of service cannot be defined in the same way as export of goods since unlike goods services are not tangible. Services are treated as export if they are ordered by a person outside the country and delivered outside the country. In other words, the recipient of service who is the principal beneficiary of the service should be outside the country. Taking into account the international practices of treatment of service for the purpose of export of service and other material facts, the Central Government notified Export of Services Rules, 2005 today which shall be effective from 15th March 2005.
The salient features of the rules are as follows:
A) Four specified taxable services namely real estate consultancy, architect, interior decorator and construction that are provided in relation to an immoveable property are treated as export, if the said immoveable property is located outside India. General Insurance service provided in relation to an immoveable property located outside India is also covered under this category.
B) Specified taxable services such as air transport of goods, commercial coaching, dry cleaning, which involve physical performance, are treated as export if such service is partly or wholly performed outside India.
C) Remaining taxable services such as management consultancy, telephone, banking and other financial services, are treated as export subject to the following criterion:
· Service provided to an industrial or commercial establishment, which is located outside India, for use in commerce or industry, shall be treated as export. However, if such industrial or commercial establishment also has an industrial or commercial establishment or office in India, then in such cases the services shall be considered as export only if,-
(i) the order for provision of service is made from outside India;
(ii) such services are delivered outside India; and
(iii) payment for such service is received in convertible foreign exchange.
· Taxable services provided to a recipient and used other than in industry or commerce shall be treated as export only if the recipient is outside India at the time when such services are received.
Taxable services are allowed to be exported without payment of service tax. If services are exported, after payment of service tax, the rebate of service tax paid on such taxable services would be available. Provisions for rebate of service tax paid on input services and excise duty paid on input goods have also been made.
Exemption from service tax on taxable services for which payments are received in convertible foreign exchange is rescinded. Consequential changes have also been made in the CENVAT Credit rules, 2004 and shall be effective from 15th March, 2005.
BSC/BY/GN-55/05
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