Dear Friends!! I came across a number of queries in relation to applicability of Service Tax on services performed in India for Service receivers Outside India.
Some of the typical cases were:
1. Service of Recruting staff for employment for a Company outside India
2. Research and Development activity in India for a Company Outside India
Likewise there can be more cases.
So, I have tried to analyse these queries in the light of applicable service tax legislation.
In my opinion the above cases qualify as Export of Service and thus are not taxable under Service Tax
The abstract of my analysis is as below. (I have presented my analysis in the form of questions and answers for ease of reference)
Question 1: What is Export of Services under Service Tax?
Answer: As per Rule 6A of the Service tax Rules, any service provided or agreed to be provided shall be treated as export of services when-
a. the Service Provider is located in Taxable territory.
b. the recipient of service is located outside India.
c. the service is not a service specified in the Negative List in the section 66 of the Act.
d. the place of provision of service is outside India (Note: The most important condition)
e. the payment for such services has been received by the Provider in CFE
f. the provider of service and recipient of service are not mere establishments of a distinct person in accordance with the item (b) of Explanation 3 of clause (44) of section 65B of the Act.
Note:The conditions above are all “and” conditions thus all need to be satisfied in order for a service to be qualified as Export of Service.
Question2: What is taxable territory as mentioned in clause (a) of Rule 6A?
Answer: The term “taxable territory” has been defined in Clause 52 of Section 65B of Finance Act.
It means the territory to which provisions of this Chapter apply;
My Analysis: A reading of Section 64 along with Section 65B says that taxable territory means whole of India except the State of Jammu and Kashmir. Therefore the first condition to be satisfied in case of Export of Services is that the service provider is located in India except for State J&K.
Qusetion3: How to determine that the recipient of service is located outside India.
Answer: As per Rule 2 of Place of Provision Rules, 2012 location of service receiver means-
where the recipient of service has obtained a single registration , whether centralized or otherwise, the premises for which such registration has been obtained;
My Analysis: As First the location of service receiver is sought with respect to its service tax registration whether single or Centralised. His location shall be the one where he is registered.
b. where the recipient of service is not covered under sub –clause (a)
i. the location of his business establishments; or
ii. where services are used at a place other than the business establishment, that is to say, a fixed
iii. Establishment elsewhere, the location of such establishment; or
iv. where services are used at more than one establishments ,the establishment most directly concerned with the use of the service; and
v. in the absence of such places, the usual place of residence of the recipient of service.
My Analysis: A reading of clause( b) brings out that when the receiver of service is unregistered then his location shall be the location of his business establishment. Clause (b) further says that where the services are used at a place other than business establishment, such other place shall be the location of the service receiver.
To add on I would say that just having a business establishment in India, does not mean that the location of service receiver is In India if the services are used at some other place outside India, then that would be the location of the Service recipient (SR) and accordingly SR shall be said to be located outside India.
Question 4: What does that mean “the service is not a service specified in the Negative List in the section 66 of the Act.”
Answer: A Negative list of services has been specified under Section 66D of the Finance Act. The services so specified are not taxable and are outside the purview of service tax. Therefore, if a service provider provides any of such specified services then the question of Export of Service does not arise at all as in the first place to qualify for exports the service should be taxable.
Qusetion 5: What is the validity of this clause “the place of provision of service is outside India”
Answer: This is the most important clause as it determines the main element for taxability of a service.
Place of Provision (POP) of Service Rules, 2012 prescribes specific Rules for determination of place of provision for a number of specific services. However, as per residuary rule 3, of POP Rules, 2012 where a service does not fall under any of the specified rules, then the place of provision shall be as per Rule 3 i.e. is the location of service receiver.
Out of the specific rules, Rule 4 in my opinion requires a little more deliberation.
Rule 4 talks of services performed in respect of goods/individuals and not merely any performance service.
An Overview of rule 4 of POP Rules 2012
As per this Rule, Place of provision shall be the location where the services are actually perfomed.
Rule 4(a) says, where the services are provided in respect to goods that are required to be made available by the Service Receiver to the Service Provider ,the place of provision shall be the place where services are performed.
Eg: typically in case of Warehousing, repair, testing, maintenance
Rule 4(b) relates to services that are provided to an individual who is either the recipient or his representative ,which require the physical presence of the Service Recipient with the Service Provider, the place of provision shall be the place where services are performed.
Eg: typically in case of Health Care, education
To conclude this point we can say that to qualify for exports, the place of provision of a service as determined by the Place of Provision of services Rules shall be outside India.
Question 6: What does that mean “the payment for such services has been received by the Provider in Convertible foreign exchange (CFE)”
Answer: Another condition to be satisfied to qualify for exports is that the payment received for rendering the services shall be received in Convertible foreign Exchange like dollars($),Euros or other specified currencies.
Qusetion 7: What was the intent of Legislature in adding the clause “the provider of service and recipient of service are not mere establishments of a distinct person in accordance with the item (b) of Explanation 3 of clause (44) of section 65B of the Act.”
Answer: The intent of the Legislature is to clear that though as per Explanation 3 clause (44) of Section 65(b) an establishment of a person in the taxable territory and any of his other establishments in a non-taxable territory shall be treated as establishments of distinct persons , any export between them is taxable and not exempted.
Conclusion: A service provided shall be eligible as export of service if all the conditions specified in Rule 6A of Service tax Rules are complied with.
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