k n v v s k sri kanth
( )
(564 Points)
Replied 30 September 2010
By Abhijit Saha & Dipti Doshi
AS per Rule 4 of the Export of Services Rules, 2005 (ESR) any service which is taxable may be exported without payment of service tax. Hence it is very important to understand what constitutes export of service especially since the services are intangibles. As per ESR the taxable services are classified into three categories to qualify as export. They are as follows:
1. Immovable Property related services – specified services provided in relation to immovable property situated outside India
2. Performance related services – specified services performed either fully or partly, outside India
3. Location of the service receiver – specified services provided to a recipient located outside India
Following conditions needs to be satisfied for all the above categories:
1. Such services are provided from India and used outside India
2. Payment for such services are received in convertible foreign exchange
As regards the third category, Department has clarified vide Circular No. 111/5/2009-ST dated February 24, 2009 that although the activities pertaining to provision of service are undertaken in India like in the case of (i) Call Centre, (ii) Medical Transcripttion, (iii) Indian agents who undertake marketing in India of goods of a foreign seller or (iv) Indian agents dispatching remittance to the receiver in India on behalf of foreign financial institution; it can be said that the use of the service has been outside India. The service may qualify as export even when all the relevant activities take place in India so long as the benefits of these services accrue outside India.
It is an accepted legal principle that the law has to be read harmoniously so as to avoid contradictions within legislation. Keeping this principle in view, the meaning of the term ‘used outside India' has to be understood in the context of the characteristics of a particular category of service as mentioned in ESR.
Hence, it was a settled position that in case of taxable services falling under third category of ESR, the location of service recipient is the determining criteria to qualify as export of services. In other words, even if the relevant activities take place in India but the benefits of these services accrue outside India, it will be regarded as services used outside India and the same will qualify as export of services.
The above settled position has been made unsettled by the decision of Delhi Tribunal in case of M/s Microsoft Corporation (I) Pvt. Ltd. Vs. CST, New Delhi [2009-TIOL-1325-CESTAT-DEL]. In the said case it was held that provision of marketing support services in India on behalf of client outside India not to be regarded as export of service if the said services are consumed in India by the ultimately beneficiary. The said decision held the interpretation of the above circular as contrary to the law based upon the following two major points:
1. Service tax is a destination based consumption tax
2. Ultimate beneficiary is in India
In this respect it may be mentioned that it was nowhere provided in the ESR that the above two points / principles enumerated in the decision are to be fulfilled to qualify as export of service under third category. The question arises as to whether Tribunal can lay down the criteria which are not mentioned in the ESR.
The first principle enumerated in the decision that service tax is a destination based consumption tax , is not correct under present export provisions of service tax legislation. Service tax is origin based tax and not destination based tax. To illustrate, presently, service tax provision does not extend to the State of Jammu and Kashmir. In other words, service tax provisions will not apply to any services provided from Jammu and Kashmir. So, if any taxable service is provided by a service provider from Jammu and Kashmir to service recipient located in Maharashtra, the same is not liable to tax. But if any taxable service is provided from Maharashtra to Jammu and Kashmir, it would attract service tax since the service tax is origin based tax and not destination based tax. This is all the more evident from the fact that if the service is provided from Maharashtra to recipient in England, it is treated as export of service as per ESR and no tax is required to be paid. But if such service is provided to recipient in Jammu and Kashmir, it would not qualify as export of service as per ESR and hence such service is liable to service tax.
Hence, as per our view, presently service tax is not a destination based consumption tax. Under the proposed Goods and Service Tax regime it will be made destination based consumption tax.
The second principle enumerated in the decision is that since the ultimate beneficiary of services is located in India, the services can not be regarded as export of services. In this regard, it is to be mentioned that the ESR does not stipulate that in order to qualify as export, the service has to be consumed outside India by the ultimate beneficiary of services. As per the ESR, services falling under third category are regarded as export of services if the service recipient is located outside India and the service is used outside India by the recipient of service. ESR does not mention any condition about the location of ultimate beneficiary. If the language of law is clear then no other interpretation other than the literal meaning of the law is allowed, otherwise it would tantamount to enactment of new legislation which is not permissible.
In view of the above, the question arises as to whether the tribunal decision can override the legal provisions when the language of law is clear and unambiguous?
(The authors work with Khaitan & Co)
Regards
K.N.V.V.S.K.SRI KANTH
Jeevesh Mehta
(Advocate- Corporate Commercial & Indirect Tax Advisory)
(861 Points)
Replied 30 September 2010
Dear Kotha Sai,
MEdical Trascripttion services are covered under the Business Auxiliary Services. But vide notification No 8 /200/ ST dated 20.6.2003 the above service has been made exempted. There is service tax imposed on such service.
Regards
Ph: 9811617186
Jeevesh Mehta
Madhukar N Hiregange
(Chartered Accountant)
(39034 Points)
Replied 01 October 2010
Am not seeing why it is taxable unless the same is an export of services and monies are recived in CFE.
Jeevesh Mehta
(Advocate- Corporate Commercial & Indirect Tax Advisory)
(861 Points)
Replied 01 October 2010
Oh .. I am Sorry... ommited to type "NO".. in my earlier response
"There is no service tax imposed on such service "
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