EXPORT & IMPORT OF SERVICES - BIPIN KUMAR VERMA

© Lakshmikumaran & Sridharan, 2011

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EXPORT & IMPORT OF SERVICES

- BIPIN KUMAR VERMA

SESSION VIIISESSION VIII


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COVERAGE

2 IMPORT OF SERVICES

EXPORT OF SERVICES


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SESSION OBJECTIVESESSION OBJECTIVE

BASIC CONCEPTSBASIC CONCEPTS

RELEVANT PROVISIONS OF LAWRELEVANT PROVISIONS OF LAW

CIRCULAR & NOTIFICATIONSCIRCULAR & NOTIFICATIONS

RELEVANT CASE LAWSRELEVANT CASE LAWS


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BASIC CONCEPT

• Why do we need to identify export & imports– Which country to tax the cross border

services– To implement FTPs


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CHARACTERSTICS OF SERVICECHARACTERSTICS OF SERVICE

Intangible Intangible

Transitory and consumed as it is producedTransitory and consumed as it is produced

Incapable of being stored, owned or possessedIncapable of being stored, owned or possessed


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Notification No.2/99-ST 28.2.1999Notification No.2/99-ST 28.2.1999

Notification No.6/99-ST dated 09.04.1999Notification No.6/99-ST dated 09.04.1999

Circular No. ST/5/2003 dated 25.4.2003Circular No. ST/5/2003 dated 25.4.2003

Notification No. 21/2003-ST dated 20.11.2003Notification No. 21/2003-ST dated 20.11.2003

Export of Service Rules, 2005Export of Service Rules, 2005

EVOLUTION OF PROVISIONS FOR EVOLUTION OF PROVISIONS FOR EXPORT OF SERVICESEXPORT OF SERVICES


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NOTIFICATION NO. 6/99-STNOTIFICATION NO. 6/99-ST

Notfn 2/99-ST….payment made in convertible FENotfn 2/99-ST….payment made in convertible FE

Notification No.6/99-ST.- Taxable Services for Notification No.6/99-ST.- Taxable Services for which payment is received in India inconvertible FE which payment is received in India inconvertible FE exempted exempted

Notification No.6/99-ST was rescinded w.e.f. Notification No.6/99-ST was rescinded w.e.f. 01.03.2003. 01.03.2003.

Circular No.ST-56/5/2003 dated 25.04.2003 issued Circular No.ST-56/5/2003 dated 25.04.2003 issued by CBECby CBEC


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Circular No.ST-56/5/2003 dated 25.04.2003 Circular No.ST-56/5/2003 dated 25.04.2003

Service Tax is a destination based consumption taxService Tax is a destination based consumption tax

No Service Tax can be levied when a taxable service No Service Tax can be levied when a taxable service is exportedis exported

This position remained even when a notification like This position remained even when a notification like No.6/99-ST did not existNo.6/99-ST did not exist

Secondary services used in providing primary service Secondary services used in providing primary service exported also need not be subjected to the levyexported also need not be subjected to the levy

Circular No. 56/5/2003Circular No. 56/5/2003


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Notification 21/03-ST dated 20.11.2003 identical Notification 21/03-ST dated 20.11.2003 identical to Notification No.6/99-ST ---upto 14.03.05 to Notification No.6/99-ST ---upto 14.03.05

Export of Services Rules, 2005 w.e.f. Export of Services Rules, 2005 w.e.f. 15.03.2005.15.03.2005.

EOS Rules contain comprehensive provisions EOS Rules contain comprehensive provisions concerning export of taxable services and the concerning export of taxable services and the benefits accruing thereon. benefits accruing thereon.

Notification 21/2003-STNotification 21/2003-ST


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Taxable Services grouped into three categories:-Taxable Services grouped into three categories:-

Category – I: Property based services-architect service, Category – I: Property based services-architect service, real estate agent service, construction services etc.real estate agent service, construction services etc.

Category – II: Performance based services– eg. courier Category – II: Performance based services– eg. courier service, commercial coaching or training service etc.service, commercial coaching or training service etc.

Category – III: Residuary services eg. banking & other Category – III: Residuary services eg. banking & other financial services, management consultant service, etc. financial services, management consultant service, etc.

EOS RULES, 2005EOS RULES, 2005


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CONDITIONS - EOSCONDITIONS - EOS

The conditions to qualify as export of The conditions to qualify as export of service are specified in the sub-rules of service are specified in the sub-rules of rule 3 of the Export Rules.rule 3 of the Export Rules.

Specific conditions for each category Specific conditions for each category

Common conditions Common conditions


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Specific conditionsSpecific conditions

Category – ICategory – I: the service must be provided in : the service must be provided in respect of immovable property situated outside respect of immovable property situated outside India.India.

Category – IICategory – II: the service must be performed : the service must be performed either fully or partly outside Indiaeither fully or partly outside India

RULE 3 EOSRULE 3 EOS


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Unique conditionUnique condition

Category – IIICategory – III::

(a) if in relation to business or commerce -the recipient must (a) if in relation to business or commerce -the recipient must be located outside Indiabe located outside India

(b) Other than in relation to business or commerce - recipient (b) Other than in relation to business or commerce - recipient must be located outside India at the time of provision of must be located outside India at the time of provision of service service

(c) if the recipient has any commercial establishment/office (c) if the recipient has any commercial establishment/office in India then the order for the service must be made by the in India then the order for the service must be made by the commercial establishment/office of the recipient located commercial establishment/office of the recipient located outside Indiaoutside India

RULE 3 …RULE 3 …


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Common Conditions

– delivered and used outside India (upto delivered and used outside India (upto 01.03.2007) 01.03.2007)

– provided from India and used outside Indiaprovided from India and used outside India[deleted w.e.f. [deleted w.e.f.

27.02.2010]27.02.2010]

‘‘Used outside India’Used outside India’

Circular No 111/05/2009-ST dated 24.02.2009Circular No 111/05/2009-ST dated 24.02.2009Circular No 141/10/2011-TRU dated 13.05.2011Circular No 141/10/2011-TRU dated 13.05.2011Microsoft Corp 15 STR 680, 16 STR 545Microsoft Corp 15 STR 680, 16 STR 545

Rule 3 …Rule 3 …


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CONDITIONS

(b) payment is received by the service (b) payment is received by the service provider in convertible FEprovider in convertible FE

National Engineering 2008 11 STR 156 (Tri Del)National Engineering 2008 11 STR 156 (Tri Del) CCE, Rajkot Vs Shelpan Exports CCE, Rajkot Vs Shelpan Exports

2010-TIOL-1037-CESTAT-AHM. Nipuna Services Ltd. v. Commissioner — 2009 (14)

S.T.R. 706 (Tribunal)

payment received from Indian exporter who has received payment received from Indian exporter who has received in foreign in foreign exchange - sufficientexchange - sufficient


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BENEFITS- EOS RULESBENEFITS- EOS RULES

Rule 4Rule 4 – taxable service can be exported without – taxable service can be exported without payment of Service Tax.payment of Service Tax.

Rule 5Rule 5 – –

(a) Rebate of Service Tax + Cess paid on taxable (a) Rebate of Service Tax + Cess paid on taxable service exportedservice exported

(b) Rebate of duty paid on inputs and Service Tax (b) Rebate of duty paid on inputs and Service Tax paid on input services used in providing the taxable paid on input services used in providing the taxable service exportedservice exported


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NOTIFICATIONS UNDER NOTIFICATIONS UNDER RULE 5 OF EOS RULE 5 OF EOS

(a) Notification No.11/05-ST dated 19.04.2005 – (a) Notification No.11/05-ST dated 19.04.2005 –

for granting rebate of Service Tax + Cess paid for granting rebate of Service Tax + Cess paid

on taxable service exported.on taxable service exported.

(b) Notification No.12/05 dated 19.04.05 – for (b) Notification No.12/05 dated 19.04.05 – for

granting rebate on duty/tax paid on inputs and granting rebate on duty/tax paid on inputs and

input services used in providing taxable input services used in providing taxable

services exportedservices exported


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Rule 5 of Cenvat Credit Rules,

Kbace Tech Pvt Ltd Vs CCE , BangaloreSection 37(2) of Central Excise Act and Section 94(2)

of Finance Act, 1994 provide for Government to make rules for allowing credit of service tax and rebate of service tax on taxable services which are consumed for providing output services for export,

Rule making power to be exercised by the Government within this mandate only

Rules cannot provide for credit and rebate of service tax in respect of services which are not consumed for providing output services.


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RULE 5 OF CENVAT CREDIT RULES

Credit of inputs and input services used in Credit of inputs and input services used in

providing taxable output services which are providing taxable output services which are

exported can be availedexported can be availed

Credit can be utilized for discharging domestic Credit can be utilized for discharging domestic

liabilityliability

If no adjustment possible, refund allowedIf no adjustment possible, refund allowed

Notification 5/2006 CX NT dt. 14.3.06Notification 5/2006 CX NT dt. 14.3.06


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CONCEPT & LEGAL PROVISIONSCONCEPT & LEGAL PROVISIONS

IMPORT OF SERVICES


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OBJECTIVESOBJECTIVES

How is import of taxable service dealt How is import of taxable service dealt with in Service tax law ?with in Service tax law ?

How changes were made in Service Tax How changes were made in Service Tax law from time to time to handle import law from time to time to handle import

of services ?of services ?

What is the current position What is the current position in Service Tax law vis-à-vis imports ?in Service Tax law vis-à-vis imports ?


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SECTION 64 (1) OF THE ACTSECTION 64 (1) OF THE ACT

Section 64 (1) – This Chapter extends to Section 64 (1) – This Chapter extends to the whole of India except the State of the whole of India except the State of Jammu & Kashmir.Jammu & Kashmir.

““India” includes territorial waters (12 NM)India” includes territorial waters (12 NM)


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CHARGE OF SERVICE TAXCHARGE OF SERVICE TAX

Section 66Section 66 –There shall be levied a tax –There shall be levied a tax (hereinafter referred to as the service tax) at the (hereinafter referred to as the service tax) at the rate of twelve per cent of the value of the rate of twelve per cent of the value of the taxable services referred to in sub-clauses (a), taxable services referred to in sub-clauses (a), (b), (c), (d), (e), (f), (g), (h), (i), .... (zzzs), (zzzt), (b), (c), (d), (e), (f), (g), (h), (i), .... (zzzs), (zzzt), (zzzu), (zzzv), (zzzw), (zzzx), (zzzy), (zzzz), (zzzu), (zzzv), (zzzw), (zzzx), (zzzy), (zzzz), (zzzza), (zzzzb), (zzzzc) and (zzzzd) of clause (zzzza), (zzzzb), (zzzzc) and (zzzzd) of clause (105) of section 65 and collected in such (105) of section 65 and collected in such manner as may be prescribed. `manner as may be prescribed. `


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PAYMENT OF SERVICE TAXPAYMENT OF SERVICE TAX

Section 68 (1)Section 68 (1) Every person providing taxable service Every person providing taxable service to any person shall pay service tax at the rate specified to any person shall pay service tax at the rate specified in Section 66 in such manner and within such period as in Section 66 in such manner and within such period as may be prescribed.may be prescribed.

Section 68 (2)Section 68 (2) Notwithstanding anything contained in Notwithstanding anything contained in sub-section (1), in respect of any taxable service notified sub-section (1), in respect of any taxable service notified by the Central Government in the Official Gazette, the by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified such manner as may be prescribed at the rate specified in section 66 and all the provisions of this Chapter shall in section 66 and all the provisions of this Chapter shall apply to such person as if he is the person liable for apply to such person as if he is the person liable for paying the service tax in relation to such service.paying the service tax in relation to such service.


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PERSON LIABLE TO PAY PERSON LIABLE TO PAY

Rule 2 (1) (d) (iv) – in relation to any taxable Rule 2 (1) (d) (iv) – in relation to any taxable service provided by a person who is a non-service provided by a person who is a non-resident or is from outside India, does not have resident or is from outside India, does not have any office in India, the person receiving taxable any office in India, the person receiving taxable service in India.service in India.

w.e.f. 16.08.2002.w.e.f. 16.08.2002.


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NOTIFICATION NO. 36/2004 dated NOTIFICATION NO. 36/2004 dated 31.12.2004 – u/s 68(2) OF THE ACT31.12.2004 – u/s 68(2) OF THE ACT

For the first time notified – “any taxable service For the first time notified – “any taxable service provided by a person who is a non-resident or is provided by a person who is a non-resident or is from outside India and does not have an office from outside India and does not have an office in India”in India”

-Effective from 01.01.2005-Effective from 01.01.2005


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EXPLANATION TO SECTION 65 EXPLANATION TO SECTION 65 (105)(105)

““For removal of doubts, it is hereby declared that where For removal of doubts, it is hereby declared that where any service provided or to be provided by a person, who any service provided or to be provided by a person, who has established a business or has a fixed establishment has established a business or has a fixed establishment from which the service is provided or to be provided, or from which the service is provided or to be provided, or has his permanent address or usual place of residence, has his permanent address or usual place of residence, in a country other than India and such service is in a country other than India and such service is received or to be received by a person who has his received or to be received by a person who has his place of business, fixed establishment, permanent place of business, fixed establishment, permanent address, or as the case may be, usual place of address, or as the case may be, usual place of residence, in India, such service shall be deemed to be residence, in India, such service shall be deemed to be taxable service for the purpose of this clause”.taxable service for the purpose of this clause”.

-Effective from 16.06.2005.-Effective from 16.06.2005.


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SECTION 66A– w.e.f. 18.4.2006SECTION 66A– w.e.f. 18.4.2006

66A (1) Where any service specified in clause (105) of section 65 is, 66A (1) Where any service specified in clause (105) of section 65 is, ——

(a) provided or to be provided by a person who has established (a) provided or to be provided by a person who has established a business or has a fixed establishment from which the service a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, andusual place of residence, in a country other than India, and

(b) received by a person (hereinafter referred to as the recipient) (b) received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent who has his place of business, fixed establishment, permanent address or usual place of residence, in India,address or usual place of residence, in India,

such service shall, for the purposes of this section, be taxable such service shall, for the purposes of this section, be taxable service, and such taxable service shall be treated as if the service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and recipient had himself provided the service in India, and accordingly all the provisions of this Chapter shall apply :accordingly all the provisions of this Chapter shall apply :


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PROVISO TO SEC. 66A (1)PROVISO TO SEC. 66A (1)

ProvidedProvided that where the recipient of that where the recipient of the service is an individual and such the service is an individual and such service received by him is otherwise service received by him is otherwise than for the purpose of use in any than for the purpose of use in any business or commerce, the business or commerce, the provisions of this sub-section shall provisions of this sub-section shall not apply. not apply.


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PROVISO TO SECTION 66A (1)PROVISO TO SECTION 66A (1)

Provided furtherProvided further that where the provider of that where the provider of the service has his business establishment the service has his business establishment both in that country and elsewhere, the both in that country and elsewhere, the country, where the establishment of the country, where the establishment of the provider of service directly concerned with the provider of service directly concerned with the provision of service is located, shall be provision of service is located, shall be treated as the country from which the service treated as the country from which the service is provided or to be provided.is provided or to be provided.


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SECTION 66A (2)SECTION 66A (2)

(2) Where a person is carrying on a business (2) Where a person is carrying on a business through a permanent establishment in India and through a permanent establishment in India and through another permanent establishment in a through another permanent establishment in a country other than India, such permanent country other than India, such permanent establishments shall be treated as separate establishments shall be treated as separate persons for the purposes of this section.persons for the purposes of this section.

Explanation 1. — A person carrying on a Explanation 1. — A person carrying on a business through a branch or agency in any business through a branch or agency in any country shall be treated as having a business country shall be treated as having a business establishment in that country.establishment in that country.


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EFFECTIVE DATE

Section 66A..18.4.2006Indian National Ship Owners Assn. case

• 2009(13)STR235(Bom) Recipient in India liable to Service tax for

service received from abroad only from 18-4-2006 after enactment of Section 66A

Rules cannot be made to make service recipient liable when Finance Act, 1994 makes service provider liable - Rule 2(1)(d)(iv) of Service Tax Rules, 1994 is invalid


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Taxation of Services (Provided from Outside Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.-w.e.f. India and Received in India) Rules, 2006.-w.e.f. 19.04.2006.19.04.2006.

India-Rule 2(e)..includes installation, structures India-Rule 2(e)..includes installation, structures and vessels located in CS/EEZ, for the purpose and vessels located in CS/EEZ, for the purpose of prospecting/extraction/production of mineral of prospecting/extraction/production of mineral oil & natural gas and supply thereofoil & natural gas and supply thereof

Service …. Received in IndiaService …. Received in India


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Taxable services grouped into three categories:Taxable services grouped into three categories:

Category ICategory I – 13 taxable services eg. architect service, – 13 taxable services eg. architect service, real estate agent service, construction of complex real estate agent service, construction of complex service, etc.service, etc.

Category IICategory II – 50 taxable services – courier service, – 50 taxable services – courier service, outdoor catering service, photography service, transport outdoor catering service, photography service, transport of goods by road service, beauty treatment service etc.of goods by road service, beauty treatment service etc.

Category IIICategory III – 36 taxable services – eg. advertising – 36 taxable services – eg. advertising agency service, banking & other financial services, agency service, banking & other financial services, management consultant service, etc.management consultant service, etc.

THREE CATEGORIESTHREE CATEGORIES


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Category ICategory I – the service must be provided in – the service must be provided in relation to an immovable property situation in relation to an immovable property situation in India.India.

Category IICategory II – the service must be performed – the service must be performed either fully or partly in India.either fully or partly in India.

Category IIICategory III – the service must be received by a – the service must be received by a recipient located in India for use in relation to recipient located in India for use in relation to business or commerce.business or commerce.

CONDITIONSCONDITIONS


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Rule 4Rule 4

The recipient of taxable services provided The recipient of taxable services provided from outside India and received in India from outside India and received in India shall make an application for registration shall make an application for registration and for this purpose, the provisions of and for this purpose, the provisions of Section 69 of the Act and the rules made Section 69 of the Act and the rules made thereunder shall apply.thereunder shall apply.


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RULE 5RULE 5

The taxable services provided from outside The taxable services provided from outside India and received in India shall not be treated India and received in India shall not be treated as output services for the purposes of availing as output services for the purposes of availing credit of duty of excise paid on any input or credit of duty of excise paid on any input or service tax paid on any input services under service tax paid on any input services under Cenvat Credit Rules, 2004.Cenvat Credit Rules, 2004.


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VALUE OF SERVICE

Rule 7 –Service Tax Valuation Rules

Amount as is equal to the actual consideration charged

Total consideration ,even if service partly performed outside India- Category II services


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EXPORT & IMPORT OF SERVICES - BIPIN KUMAR VERMA