AMBIGUITIES IN EXPORT OF SERVICES

 We are engaged in Export of various Services to our Clients situated outside India. Are there any specific conditions to be adhered to while classifying our Services in the Export Category? 

Export to a layman means any goods or service, which are sent outside the country and remittance being received in lieu of the same. Surprisingly the meaning and scope changes when it comes to Export of Services in light of the Service Tax Rules and Provisions. In terms of the Export of Services Rules 2005, a taxable Service shall be treated as Export of Service if “such Service is provided from India and used outside India”.

However many activities do not satisfy the condition “used outside India”. For instance in the case of Call centres engaged by foreign companies who attend to calls from customers or prospective customers from all around the world including from India. There are instances where the Indian agents who undertake marketing in India of goods of a foreign seller.

Here the agent undertakes all activities within India and receives commission for his services from foreign seller in convertible foreign exchange. Thus, it does not satisfy the condition that the services have been used outside India. Medical transcription Business has been booming since 2004. Here the case history of a patient is dictated by the foreign doctors and the medical transcription centres put the same in a pre-designed format and such typed records are thereafter forwarded back to the concerned doctors or medical centres.

In such cases too, the ambiguity prevails. Department has objected time and again that such activities or services undertaken in India cannot be said to have been used outside India and therefore the benefit  of Export of Services has been denied.

The Ministry vide their Circular dated 24.02.2009 had clarified issues pertaining to applicability of the Provisions of Services. Recently a similar issue pertaining to Tour Operator Services in connection with Haj & Umrah Pilgrimage was examined by the Ministry.

The Government issued clarifications that the amount charged to the pilgrims in India undertaking Haj and Umrah pilgrimage, is for services provided by the Government of Saudi Arabia and the tour takes place outside India. As per the Export of Service Rules, 2005, the Service in respect of tour operator is Export if such Service is performed outside India.

It is also provided therein that where such taxable service is partly performed outside India, it shall be treated as performed outside India. Therefore, it was clarified that Service Tax is not chargeable on the Service provided in respect of tour undertaken for carrying out Haj and Umrah Pilgrimage in Saudi Arabia by Indian pilgrims considering these as Export of Service. 

Unlike the export of goods, in case of Export of Services the same can be broadly classified in three categories. The first Category is for services such as Architect service, General Insurance service, Construction service, Site Preparation services, that have some nexus with immovable property, it is provided that the provision of such service would be ‘export’ if they are provided in relation to an immovable property situated outside India. 

In other words, the benefit of Export of Services can be claimed only if they are provided in relation to an immovable property situated abroad and when a clear nexus between both of them can be established. The second Category is for services such as Rent-a-Cab operator, Market Research Agency service, Survey and Exploration of Minerals services, Convention service, Security Agency services, 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.

In other words even if only a part of the composite service is performed outside India, the Department cannot deny the benefit of Export of Services such as refunds, etc. Lastly, there is a third Category for the remaining services that would not fall under either of the first two categories, which would generally include knowledge or technique based services, which are not linked to an identifiable immovable property or whose location of performance cannot be readily identifiable.

This category will cover Services such as, Banking and Other Financial services, Business Auxiliary services and Telecom services. Here the Department has laid down two conditions and as such , it has been specified that they would be ‘export’.

If they are provided in relation to business or commerce to a recipient located outside India; and 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.

Thus, it is very obvious that the benefits of Export of Services are available if the conditions laid with respect to the said Categories are fulfilled.