Sanjay Dwivedi
(Advocate & Consultant)
(143 Points)
Replied 10 May 2007
1. I could not find any amendment to the ‘Export of Services Rules 2005’ in the present budget. If there is any, please point out the notification vide the same was made. These rules determine whether a transaction amounts to export of service or not. These rules also prescribe that services can be exported without payment of tax.
2. The service rendered by your client is ‘Business Auxiliary Service’. It is performed within India though the client is located out of India. Earlier, services were exempted from tax if the payment was received in convertible currency (vide notification 21/2003-ST). That notification was rescinded vide notification 10/2005-ST, dated 03.03.2005. Now ‘Export of Services Rules 2005’ determines as to what would constitute export. For the purpose of defining ‘export’, the Rule 3 groups the taxable services into following three categories. Each category contains list of certain services.
(a) Certain (listed) Services in relation to Immovable property situated abroad;
(b) Certain (listed) Services performed partly or wholly outside India; and
(c) For most of other services, the requirement is that the recipient should be located outside India.
‘Business Auxiliary Services’ fall under the third category. Therefore, the conditions prescribed for this category should be considered in detail.
3. Services falling under third category are treated as ‘export of service’ even if the same are provided from India. The most prominent requirement is that the recipient of the service should be located outside India. These services could be used
o in or in relation to commerce or industry; or
o other than in or in relation to commerce or industry.
4. If the services are NOT used for commerce or industry, then the only requirement is that the recipient should be located outside India. However, if the use of service is in commerce or industry, there is a further condition viz. the recipient of the service should not have any commercial or industrial establishment or any office relating thereto, in India. The law also provides exception to this condition. If the client has any establishment or office in India, the service rendered would still be considered as export, if following further conditions are fulfilled:
• Client of the service provider (client of your client) should issue order for provision of service from its establishment or office located outside India.
• Service must be delivered outside India
• The service must be used in business outside India; and
• Payment for such service provided is received by the service provider in convertible foreign exchange.
5. To summarise,
- The recipient of the service must be located outside India (irrespective of whether use is in commerce/ industry or not)
- If the service is provided for use in commerce or industry then the recipient should not have any establishment or office in India. If it has any establishment/ office then four conditions stated above should also be fulfilled.
Thanks,
Sanjay Dwivedi
CAclubindia
