Circular
No.111/05/2009-ST
F.No.137/307/2007-CX.4
(Pt.)
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Excise &
Customs)
*****
New Delhi, dated the 24th
February, 2009.
Subject: Applicability
of the provisions of the Export of Services Rules, 2005 in certain
situations
In terms of 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”
Instances have come to notice that certain activities, illustrations of which
are given below, are denied the benefit of export of services and the refund of
service tax under rule 5 of the Cenvat Credit Rules, 2004 [notification No.
5/2006-CE (NT) dated 14.03.2006] on the ground that these activities do not
satisfy the condition ‘used outside India’,-
(i) Call centres engaged by
foreign companies who attend to calls from customers or prospective customers
from all around the world including from India;
(ii) Medical transcription where
the case history of a patient as dictated by the doctor abroad is typed out in
India
and forwarded back to him;
(iii) Indian agents who undertake
marketing in India of goods of a foreign seller. In this case, the agent
undertakes all activities within India and receives commission for his services
from foreign seller in convertible foreign exchange;
(iv) Foreign financial institution
desiring transfer of remittances to India, engaging an Indian organisation to
dispatch such remittances to the receiver in India. For this, the foreign
financial institution pays commission to the Indian organisation in foreign
exchange for the entire activity being undertaken in India.
The departmental officers seem to have
taken a view in such cases that since the activities pertaining to provision of
service are undertaken in India, it cannot be said that the use of the service
has been outside India.
2. The matter has been
examined. Sub-rule (1) of rule 3 of the Export of Services Rule, 2005
categorizes the services into three categories:
(i) Category (I) [Rule 3(1)(i)] : For services (such as Architect
service, General Insurance service, Construction service, Site Preparation
service) that have some nexus with immovable property, it is provided that the
provision of such service would be ‘export’ if they are provided in relation to
an immovable property situated outside India.
(ii) Category (II) [Rule
3(1)(ii)] : For services (such as Rent-a-Cab operator, Market Research
Agency service, Survey and Exploration of Minerals service, Convention service,
Security Agency service, Storage and Warehousing service) where the place of
performance of service can be established, it is provided that provision of such
services would be ‘export’ if they are performed (or even partly performed)
outside India.
(iii) Category (III) [Rule
3(1)(iii)] : For the remaining services (that would not fall under category
I or II), which would generally include knowledge or technique based services,
which are not linked to an identifiable immovable property or whose location of
performance cannot be readily identifiable (such as, Banking and Other Financial
services, Business Auxiliary services and Telecom services), it has been
specified that they would be ‘export’,-
(a) If they are provided in
relation to business or commerce to a recipient located outside India;
and
(b) If they are provided in relation
to activities other than business or commerce to a recipient located outside
India at the time when such services are provided.
3. It is an accepted legal
principle that the law has to be read harmoniously so as to avoid contradictions
within a 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 sub-rule (1) of rule 3.
For example, under Architect service (a Category I service [Rule 3(1)(i)]), even
if an Indian architect prepares a design sitting in India for a property located
in U.K. and hands it over to the owner of such property having his business and
residence in India, it would have to be presumed that service has been used
outside India. Similarly, if an Indian event manager (a Category II service
[Rule 3(1)(ii)]) arranges a seminar for an Indian company in U.K. the service
has to be treated to have been used outside India because the place of
performance is U.K. even though the benefit of such a seminar may flow back to
the employees serving the company in India. For the services that fall under
Category III [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 Category III 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. In all the illustrations mentioned in the
opening paragraph, what is accruing outside India is the benefit in terms of
promotion of business of a foreign company. Similar would be the treatment for
other Category III [Rule 3(1)(iii)] services as well.
4. All
pending cases may be disposed of accordingly. In case any difficulty is faced
in implementing these instructions, the same may be brought to the notice of the
undersigned. These instructions should be given wide publicity among trade and
field officers.
5. Please
acknowledge receipt.
6. Hindi version follows.
Yours faithfully,
(Gautam Bhattacharya)
Commissioner (Service Tax)
Tel: 23093027
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