From all your valuable inputs, I have come to the conclusion that in order to claim exemption from service tax under export of service rules, the following conditions must be fulfilled:
(a) the provider of service is located in the taxable territory
(b) the recipient of service is located outside India
(c) the service is not a service specified in the section 66D of the Act
(d) the place of provision of the service is outside India
(e) the payment for such service has been received by the provider of service in convertible foreign exchange and
(f) the provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of Explanation 2 of clause (44) of section 65B of the Act
Now my client (providing services from India- taxable territory) provides services entirely to US based clients (service recipients residing in non taxable territory). The services provided are not mentioned in section 66D of the Act. There is ambiguity in respect of point (d) i.e. place of provision of service. As stated by Mr. Jainendra & Mr. Ronak --Rule 9 : The place of provision of following services shall be the location of the service provider:- (a) Services provided by a banking company, or a financial institution, or a non-banking financial company, to account holders; (b) Online information and database access or retrieval services; (c) Intermediary services; (d) Service consisting of hiring of means of transport, upto a period of one month.
Now there is a scope that my client gets covered under point (b) of rule 9 as mentioned above and hence becomes liable to pay service tax. However, I researched extensively and came across a discussion wherein I found this apt explanation ---->
Para (l) of Section 2, titled Definitions, of Place of Provision Rules 2012 defines the phrase “online information and database access or retrieval services” as “providing data or information, retrievable or otherwise, to any person, in electronic form through a computer network;”
This definition makes reference to ‘data and information’ and not to Information Technology or Software. Therefore it is important to understand the meaning of the two nouns ‘data’ and ‘information’. As these words have not been defined in The Act, we shall go by the dictionary meaning. I have referred to the Microsoft Computer dictionary Fifth Edition available from:
www. assaabloyamericasuniversity.com/Other/AssaAbloyAmericasUniv/Library/Reference%20Docs/Computer%20Dictionary.pdf
data n. Plural of the Latin datum, meaning an item of information. In practice, data is often used for the singular as well as the plural form of the noun. See also datum. Compare information.
information n. The meaning of data as it is intended to be interpreted by people. Data consists of facts, which become information when they are seen in context and convey meaning to people. Computers process data without any understanding of what the data represents.
In simple words, ‘data’ is the Fact and what emerges after processing ‘data’ is ‘information’. Possible examples are i) website of stock exchange provides data on current stock prices ii) website of an Education Board provides a student’s mark sheet iii) website of Indian Railway provides information on reservation status or many other commercial databases which can be accessed only after paying a subscripttion.
Processing is done with the aid of software (and computers). A freelancer’s activity is concerned with this software tool used in processing while data and information falls in the domain of owner of the website.
Conclusion: Providing ‘data and information’ is outside the reach of an average freelancer. If an Indian business man earns revenue by providing ‘data and information’, he can not shield himself from the rigors of Service Tax by saying that all the end user of his service are located in non-taxable territory.
Now my client says this about the nature of services provided by him---->
"My work on a daily basis involves providing my expertise as a software
developer and system administrator to clients to build new software,
maintain existing software, and to deploy and debug applications on servers."
After linking all htis info, I can conclude that my client (software developer/ consultant/ freelancer) is covered under export of service rules and hence exempted from service tax. Although I may like to add that this is what I could infer as per my understanding. I am still open to other's views, as there is a lot of ambiguity in service tax.
Now my only question is that although my client is exempted from service tax by means of getting covered under export of service rules, should he get himself registered under the act or not?? Since ideally, exemption from something can be claimed only if you are registred under that act. Or can the exemption be claimed even from getting registered for service tax?? He crossed 10Lacs limit in the FY 2013-14.
Please help.
Thanks in advance
CAclubindia
