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Export of Services (Applicable upto 30th June, 2012)
Landmark Service Tax Judgments: Export of Service
Meaning and Scope :

The Export of Service Rules, 2005 define “export of services”. The Export of taxable services is exempted from Service Tax. If services are exported there is no Service Tax liability on the provider of taxable service.

The Export of Services, Rules, 2005 specifies 3(Three)categories of cross border transaction of services and conditions that will be construed as Export of services in cases of:

(1) Specified services which are provided in relation to immovable properties situated outside India. [Please Refer : Rule 3(1)(i) of Export of Service Rules, 2005.]  LIST : 1 Specified Services
 
(2) Specified services which are partly performed outside India [Please Refer : Rule 3(1)(ii) of Export of Service Rules, 2005.] LIST : 2 Specified Services
 
(3) The remaining taxable services, barring a few exceptions, when provided in relation to business or commerce, to a recipient located outside India. In case the services are provided not in relation to business or commerce, the same should be provided to a recipient located outside India at the time of provision of such service.
 
However, where such recipient has commercial establishment or any office relating thereto, in India, such taxable services provided shall be treated as Export of service only when order for provision of such service is made from any of his commercial establishment or office located outside India. [ Please Refer : Rule 3(1)(iii) of Export of Service Rules, 2005.] LIST : 3 Specified Services
 
Here it is important to note that “India” includes the installations structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof.” (Notification No. 6/2010 dated 27.2.2010)
 
'Used outside India'

As per Rule 3(2)(a) 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’. [Please Refer : Rule 3(2) of Export of Service Rules, 2005.] 

Even if an Indian architect prepares a design in India for a property located in U.K. and hands it over to the owner of property having his business and residence in India, it is to be to be presumed that service has been used outside India. Thus, Service Tax would not be levied.  

For the services that fall under List 3 [Rule 3(1)(iii)], the relevant factor is the location of the service receiver and not the place of performance. In this context, the phrase ‘used outside India’ is to be interpreted to mean that the benefit of the service should accrue outside India. Thus, for List 3 services [Rule 3(1)(iii)], it is possible that export of service may take place even when all the relevant activities take place in India so long as the benefits of these services accrue outside India. 

[ Please Refer : Service Tax Circular No. 111/05/2009 ST, dated 24-02-2009.]

 
If export proceeds are received in Indian currency :
If export proceeds are received in Indian currency, no export benefits shall be available.
 
If foreign national pays foreign currency :

If a foreign national pays in convertible foreign currency for service received by him in India, and he returns to foreign country, it shall not be treated as export, as services are rendered in India, even though it is rendered to any foreign national and he pays in convertible foreign currency.

 
Benefits to the Exporter of Services

Taxable services may be exported without payment of service tax, provided the conditions specified in Export of Service Rules, 2005 are fulfilled.

Where service tax has already been paid on export of services to countries (other than Nepal and Bhutan), rebate/refund of such service tax, can be availed by the exporter. [ Please Refer : Service Tax Notification No. 11/2005-S.T., dated 19-4-2005.] 

Where service tax has already been paid on the inputs and input services used in export of services to countries (other than Nepal and Bhutan), rebate/refund of such excise duty on inputs and service tax paid on input services can be availed by the exporter. [Please Refer: Service Tax Notification No. 12/2005-S.T., dated 19-4-2005.]

Where taxable services are exported without payment of Service Tax, but CENVAT Credit was availed, the refund of accumulated CENVAT Credit (if the same cannot be fully used for payment of Service Tax), may be claimed by exporter. [Please Refer : Rule 5, CENVAT Credit Rules, 2004.]

 
Benefits to the Exporter of Goods :

Service tax paid on the input services used in export of goods is refundable to exporter by way of rebate/refund. [Please Refer : Notification No. 41/2001-Central Excise (Non Tariff), dated the 26th June, 2001.]

CENVAT Credit accumulated on such input services is also refundable subject to the observance of certain prescribed procedures. [Please Refer : Rule 5, CENVAT Credit Rules, 2004; Notification No. 5/2006-C.E. (Non Tariff), dated 14th March, 2006.]

The refund of unutilised input service credit will be restricted to the extent of the ratio of export turnover to the total turnover for the given period to which the claim relates Maximum refund = Total CENVAT credit taken on input services during the given period × export turnover ÷ Total turnover 

Illustration :If total credit taken on input services for a quarter = Rs. 100,Export turnover during the quarter = Rs 300, Total Turnover during the quarter = Rs 500

Solution : Refund of input service credit under Rule 5 of the CENVAT Credit Rule, during the quarter = 100*300/500 i.e. Rs 60

[Please Refer : Notification No. 5/2006-C.E. (Non Tariff), dated 14th March, 2006.]

Few services, which are not in the nature of input service but are linked to export of goods, refund of service tax paid on these services is admissible to the exporter.  

(i) Port (authorised ports) Services, Section 65(105)(zn) 

(ii) Port (other than authorised ports) Services, Section  65(105)(zzl) 

(iii) Goods Transport Agency Services, Section 65(105)(zzp) 

(iv) Transport of goods in Containers by Rail Services, Section 65(105)(zzzp) 

(v) General Insurance Business Services (In relation to Immovable Property), Section 65(105)(d)   

(vi) Technical Inspection and Certification Services, Section 65(105)(zzi)

(vii)Technical Testing and Analysis Services, Section 65(105)(zzh)
 

(viii) Cleaning Services, Section 65(105)(zzzd)

(ix) Storage and Warehousing Services, Section 65(105)(zza)

[ Please Refer : Service Tax Notification No. 42/2007-S.T., dated 29-11-2007.

(x) Courier Services, Section 65(105)(f)

[Please Refer : Service Tax Notification No. 3/2008-S.T., dated 19-02-2008.

(xi) Custom House Agency Services, Section 65(105)(h)

(xii) Banking and Other Financial Services, Section 65(105)(zm)

(xiii) Business Auxiliary Services, Section 65(105)(zzb)

[Please Refer : Service Tax Notification No. 17/2008-S.T., dated 01-04-2008.

(xiv) Foreign Exchange Broker Services, Section 65(105)(zzk)

(xv)  Supply of Tangible Goods for use Services, Section 65(105)(zzzzj)

[Please Refer : Service Tax Notification No. 24/2008-S.T., dated 10-05-2008.]

 
Filing of rebate claims or refund of CENVAT Credit :

To claim rebate or refund of CENVAT Credit, application has to be filed in the Central Excise or Service Tax Division/Group where the assessee is registered.

Application for filing a claim of rebate of Service Tax and cess paid on taxable services exported should be filed in Form No. ASTR-1 [Please Refer : Notification No. 11/2005-ST.]

Application for filing a claim of rebate of duty paid on inputs, Service Tax and cess paid on input services should be filed in Form No. ASTR-2 [Please Refer : Notification No. 12/2005-ST.]

To claim refund of Service Tax paid on taxable services used by the exporter of goods the manufacturer-exporter has to file the application to the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, having jurisdiction over the factory of manufacture or warehouse. [Please refer : Service Tax Circular No 101/4/2008-ST dated 12-5-2008]  

 

Case Laws Related

  • STO 2013 CESTAT 1125
  • Export of Service: Board issued a clarification vide Circular dt. 24.01.2009 where it has been clarified that it is possible that export of service may take place even when all the relevant activities take place in India so long as the benefits of these services accrue outside India: Matter remanded.

  • STO 2013 CESTAT 606
  • Banking & Other Financial Services: Export of Services: Exemption under Notification No. 21/2003 dated 20/11/2003 available when the consideration for the services rendered was received in foreign currency: For the period prior to 20/11/2003, Board's circular dated 24/05/2003 clarifies that no service tax would be leviable on export of services for which consideration is received in convertible foreign exchange.

  • STO 2013 CESTAT 125
  • Export of Service Rules: Service recipient is the foreign telecom service provider and not the subscriber of the foreign telecom service provider who is roaming in India: Appellant not eligible for rebate.

  • STO 2013 CESTAT 325
  • Export of Service: Only activity of the applicants is to procure order from their foreign manufacturer of the goods who is located outside India. Therefore, the service recipient is located outside India and the service is covered under Export of Service Rules.

  • STO 2012 CESTAT 942
  • Export of Service: Services provided to foreign service receiver through transmission of signals in India: Appellants have head office in Nashik, payment received in Nashik office: Appellants to produce evidence to co-relate the payment received in foreign convertible currency: Matter remanded.

     

  • STO 2012 CESTAT 1058
  • Export: Services used for export: CHA Service: Goods were exported and when export documents are presented to the Customs office, then that is the place of removal as per Section 5 of C.E. Act: Appeal allowed.

  • STO 2012 CESTAT 775
  • Export of Service: Demand: Stay: The applicants are performing activity of promoting the business of Alcatel, Germany and receiving Commission in foreign exchange: Stay granted.

  • STO 2012 CESTAT 100
  • Export of Service: Refund to be filed within one year from the date of export and not from date of payment of service tax: Notification being part of the statute has to be strictly followed. 

  • STO 2012 CESTAT 43
  • Export of Services: Stay: Since the secondary services ultimately gets consumed/merged with the services that are being exported no service tax would be leviable on such secondary services. Stay granted.

  • STO 2011 CESTAT 281
  • Stay: Export of Services: STP units providing services to foreign company for maintaining their host servers for operating CRS : Prima facie case made out : Total waiver granted.

  • STO 2011 CESTAT 165
  • Service Tax: Refund: Remand: Primarily, the order of the Commissioner (Appeals) has been passed on the ground that specific discrepancies noted were not reconciled by the appellants. The order of the Commissioner (Appeals) is set aside and matter remanded to him for fresh consideration.(Para 6). The appeal is allowed by way of remand. (Para 7). 

  • STO 2011 CESTAT 173
  • Service Tax: Cenvat credit on inputs services: Notification No. 5/2006-CE NT dated 14.03.2006: Remand by Commissioner (Appeals): The impugned orders did not remit the dispute to be decided by the original authority. The Commissioner (Appeals) applied his mind and found that the respondents were entitled to refund claim on merits. He had also sustained the order of the lower authority rejecting part of the claim as barred by limitation.(Para 3). There is no infirmity in the impugned order and reject the appeals filed by the Revenue.(Para 4)

  • STO 2011 CESTAT 108
  • Service Tax: Banking and Financial Services: Money Transfers: Export of Services: Remand: The show cause notice in paragraph 7 proceeds on the ground that the value of services received by the appellant is in India rupees, while it is the claim of the appellant otherwise. Since the evidence of the amount so received in foreign exchange was not produced before the Adjudicating Authority, the Adjudicating Authority came to a conclusion that this service is not export of services. In view of this, remit back the matter to the Adjudicating Authority to reconsider the issue afresh after following the principles of natural justice. The impugned order is set aside and appeal is allowed by way of remand. (para 5)

  • STO 2011 CESTAT 341
  • Export of Service: Even though service utilized in India, since provided to person abroad: tax not leviable as the same is exempted.

  • STO 2010 CESTAT 568
  • Service Tax: Business Auxiliary Services: Taxable event: Demand: As regards the marketing and sales services rendered in India in respect of products manufactured and exported by a foreign client, the CBEC vide Circular No.111/05/09-ST dated 24.2.2009 had clarified that such services had to be treated as export since the beneficiary of such services was based abroad.(Para 5). The impugned Business Auxiliary Services have to be treated as exports and the impugned demand denying the benefit of export to those services involved is not sustainable.

    Maintenance and Repair Services: Taxable event: In the instant case, MRS involved were performed entirely in India. Moreover, such services were also delivered in India. Therefore, the MRS involved do not qualify for benefit of services exported. Accordingly, demand relatable to MRS and the applicable interest sustainable.(Para 7.1).
     

  • STO 2010 CESTAT 216
  • Business Auxiliary Service: Export of services abroad is exempted.

    Market Research Services: Activity of analyzing market research reports coming from abroad. Prima facie, amounts to rendition of Market Research Services.

  • STO 2009 CESTAT 1637
  • Service Tax: Business Auxiliary Service: Activity of promotion of sales of computers and peripherals' of M/s IBM, USA during the period from April 2007 to September 2007: Receipt of commission from IBM, USA: Export of services: As per the relevant rules governing export of service the following conditions were to be satisfied to treat the impugned services as export during the material period. (i) service should be provided in relation to business or commerce; (ii) service recipient to be situated outside India; (iii) consideration to be received in convertible foreign exchange; and (iv) service to be provided from India and used outside India. The appellants satisfied first three conditions. The appellants undertook to answer inbound and outbound calls relating to its customers wherein they would answer their queries. Additionally, the appellants maintained the Finance and Accounts related services and provided data processing services to companies outside India. The services were provided by the appellants for the benefit of the client's business outside India. Therefore they also satisfied the fourth condition. They relied on CBEC Circular No. 111/05/2009-ST dated 24.2.2009 The Circular had clarified Rule 3 (1) (iii) of the Export of Services Rules 2005. Call centers engaged by foreign companies attended to calls from customers or prospective customers from all around the world including from India. The Circular clarified that for such services, the location of the service recipient was relevant and not the place of performance of services. The Circular went on to clarify that these services would qualify to be export of service because the benefit of such service was being accrued outside India, i.e. promotion of business was of a foreign company situated outside India. Relying on various case law, it is highlighted that the Circular of the Board was binding on the adjudicating authority. Therefore prima facie the appellants are not liable to pay service tax and interest thereon and penalty imposed on them. (Para 4,7).

    Stay granted.

  • STO 2009 CESTAT 377
  • Service Tax: Exemption under Notf. 6/99 S.T.: Scope: Applicants rendered services in India , to foreign parties. The benefit of exemption in terms of Notification 6/99 which was withdrawn in 2003, was subsequently clarified by a Board circular to the effect that in the case of export services, there could be no levy of service tax. Applicants have made out a strong prima facie case for waiver in the light of Tribunal's stay order No. S/13/2008/C- II dated 5.12.2007 in the case of SGS India Pvt. Ltd. As regards the smaller amount, pre-deposit is ordered without entering into the arena of merits of this demand.(Para 1,2).

    Appeal partially allowed.

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