Clarity on Service tax-Some Services-Export or not

CA.Tarun Maheshwari (CA, DISA) (7150 Points)

26 February 2009  

The Central Board of Excise and Customs (CBEC) has, in a far-reaching measure, eased rules regarding export of services.
Using an illustrative list, the CBEC clarified on Tuesday that businesses such as call centres, medical transcripttion services,
Indian agents who undertake marketing in India of goods of a foreign seller, and foreign financial institutions desiring transfer of remittances to India, engaging an Indian organisation to despatch such remittances to the receiver in India -- all these will not have to pay service tax since they are considered to be export of services.
The more than 100 services where tax is currently leviable will benefit from this clarification.
The Export of Services Rule, 2005, categorises the services into three categories:
1. For services (such as an architect, general insurance, construction service, site preparation service) that have some nexus with immovable property, the services rendered would be 'export' if provided in relation to an immovable property abroad;
2. For services (such as rent-a-cab operator, market research agency service, survey and exploration of minerals service, convention service, security agency service, storage and warehousing service) where the place of performance of service can be established, it is provided that provision of such services would be 'export' if they are performed (or even partly performed) outside India.
3. For the remaining services (that would not fall under category 1 or 2), which would generally include knowledge or technique-based services, it has been specified that they would be 'export'
(a)If they are provided in relation to business or commerce to a recipient located outside India; and (b)If they are provided in relation to activities other than business or commerce to a recipient located outside India at the time when such services are provided.
The effect of this clarification is that commission agents who represent foreign companies by soliciting orders for them will no longer have to shell out service tax from the commission that is received by them.
This clarification has tremendous consequences as most of the assesses who provided services to persons/ corporate located outside India were made to pay service tax on the premise that the services provided by them was not used outside India.
It was very difficult for the assessee to prove that the services were indeed utilised outside India.This led to a raft of cases and legitimate claims ended up not being entertained.