Service Tax – Export of Services
On a general note, if services are exported, there is no service tax liability. In other words, as per the principles of Service Tax, it can be levied only if service is provided or received or consumed inIndia.
Meaning of “Export of Taxable Service”
For the purpose of classifying a service as “Export of Service” for the purpose of exemption, taxable services under these rules are classified into the following categories:
- Immovable property is situated abroad
- Service performed outsideIndia
- Recipient is located outsideIndia
- Services which are not treated as “export of services” under any situation.
Payment of Service Tax if there is no export realization
One of the essential condition to treat a service as “Export” is that payment should be realized in foreign exchange. Hence, if payment is not received within time prescribed by RBI (12 months), service tax will be payable on export of services.
Immovable property is situated abroad
- In this case, payment should be received in foreign exchange.
- Construction of (residential) complex, commercial or industrial Construction, Preferential Location Service, Renting of Immovable Property, Site Formation and clearance etc. are the services included in this category.
Service performed outside India
- In this case, if such taxable service is partly performed outsideIndia, it shall be considered to have been provided outsideIndia. Hence part performance of service inIndiais permissible under this category.
For clarity, “perform” means physical performance of the services. For example, sending test report fromIndiato a foreign customer will not be treated as “performance of service”. However, if part of technical testing is done inIndia, it shall be treated as “export of service”.
Recipient is located outside India
In this case, even if the service is provided from India, it will be treated as export of service, if the recipient is located outside India. Hence, location of recipient is important to judge the taxability of service.
Services which are not treated as “export of services” under any situation
The following two services will not be treated as “service provided from outside and received inIndia” under any situation:
- Air transport of passengers for international travel.
- Transport by cruise ships.
Services provided partly outside India and partly within India – Service Tax Provision
It can be made clear through the following illustration.
If a service provider is providing an aggregate value of Rs.13lakhs of taxable services, out of which value of taxable service provided outsideIndia, is Rs.5 Lakhs, then he will be liable to pay tax on the value of service provided inIndia, that is, on Rs.8lakhs.
- It can be understood from the fact that the threshold limit for determining whether a person is liable to get registration and pay tax is dependent on the “Value of Taxable Service Provided” which includes export of services, provided it is a taxable service.
- Hence in the above illustration, since the aggregate value of service amounts to Rs.13 lakhs (exceeding Rs.10lakhs), the assessee is liable to pay tax on value of service provided inIndia(Rs.8 lakhs).
- Moreover, since the aggregate value of taxable service (Rs.13 lakhs) exceeds Rs.9lakhs, he will be liable to service tax registration with the appropriate officer.