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© Lakshmikumaran & Sridharan, 2011 1 1 EXPORT & IMPORT OF SERVICES - BIPIN KUMAR VERMA SESSION VIII
© Lakshmikumaran & Sridharan, 2011 2 1 2 COVERAGE 2 IMPORT OF SERVICES EXPORT OF SERVICES
© Lakshmikumaran & Sridharan, 2011 3 SESSION OBJECTIVE BASIC CONCEPTS RELEVANT PROVISIONS OF LAW CIRCULAR & NOTIFICATIONS RELEVANT CASE LAWS
© Lakshmikumaran & Sridharan, 2011 4 BASIC CONCEPT Why do we need to identify export & imports –Which country to tax the cross border services –To implement FTPs
© Lakshmikumaran & Sridharan, 2011 5 CHARACTERSTICS OF SERVICE Intangible Transitory and consumed as it is produced Incapable of being stored, owned or possessed
© Lakshmikumaran & Sridharan, 2011 6 Notification No.2/99-ST 28.2.1999 Notification No.6/99-ST dated 09.04.1999 Circular No. ST/5/2003 dated 25.4.2003 Notification No. 21/2003-ST dated 20.11.2003 Export of Service Rules, 2005 EVOLUTION OF PROVISIONS FOR EXPORT OF SERVICES
© Lakshmikumaran & Sridharan, 2011 7 NOTIFICATION NO. 6/99-ST Notfn 2/99-ST….payment made in convertible FE Notification No.6/99-ST.- Taxable Services for which payment is received in India inconvertible FE exempted Notification No.6/99-ST was rescinded w.e.f. 01.03.2003. Circular No.ST-56/5/2003 dated 25.04.2003 issued by CBEC
© Lakshmikumaran & Sridharan, 2011 8 Circular No.ST-56/5/2003 dated 25.04.2003 Service Tax is a destination based consumption tax No Service Tax can be levied when a taxable service is exported This position remained even when a notification like No.6/99-ST did not exist Secondary services used in providing primary service exported also need not be subjected to the levy Circular No. 56/5/2003
© Lakshmikumaran & Sridharan, 2011 9 Notification 21/03-ST dated 20.11.2003 identical to Notification No.6/99-ST ---upto 14.03.05 Export of Services Rules, 2005 w.e.f. 15.03.2005. EOS Rules contain comprehensive provisions concerning export of taxable services and the benefits accruing thereon. Notification 21/2003-ST
© Lakshmikumaran & Sridharan, 2011 10 Taxable Services grouped into three categories:- Category – I: Property based services-architect service, real estate agent service, construction services etc. Category – II: Performance based services– eg. courier service, commercial coaching or training service etc. Category – III: Residuary services eg. banking & other financial services, management consultant service, etc. EOS RULES, 2005
© Lakshmikumaran & Sridharan, 2011 11 CONDITIONS - EOS The conditions to qualify as export of service are specified in the sub-rules of rule 3 of the Export Rules. Specific conditions for each category Common conditions
© Lakshmikumaran & Sridharan, 2011 12 Specific conditions Category – I: the service must be provided in respect of immovable property situated outside India. Category – II: the service must be performed either fully or partly outside India RULE 3 EOS
© Lakshmikumaran & Sridharan, 2011 13 Unique condition Category – III: (a) if in relation to business or commerce -the recipient must be located outside India (b) Other than in relation to business or commerce - recipient must be located outside India at the time of provision of service (c) if the recipient has any commercial establishment/office in India then the order for the service must be made by the commercial establishment/office of the recipient located outside India RULE 3 …
© Lakshmikumaran & Sridharan, 2011 14 Common Conditions –delivered and used outside India (upto 01.03.2007) –provided from India and used outside India [deleted w.e.f. 27.02.2010] ‘Used outside India’ Circular No 111/05/2009-ST dated 24.02.2009 Circular No 141/10/2011-TRU dated 13.05.2011 Microsoft Corp 15 STR 680, 16 STR 545 Rule 3 …
© Lakshmikumaran & Sridharan, 2011 15 CONDITIONS (b) payment is received by the service provider in convertible FE National Engineering 2008 11 STR 156 (Tri Del) CCE, Rajkot Vs Shelpan Exports 2010-TIOL-1037- CESTAT-AHM. 2010-TIOL-1037- CESTAT-AHM.2010-TIOL-1037- CESTAT-AHM. Nipuna Services Ltd. v. Commissioner — 2009 (14) S.T.R. 706 (Tribunal) Nipuna Services Ltd. v. Commissioner — 2009 (14) S.T.R. 706 (Tribunal) payment received from Indian exporter who has received in foreign exchange - sufficient
© Lakshmikumaran & Sridharan, 2011 16 BENEFITS- EOS RULES Rule 4 – taxable service can be exported without payment of Service Tax. Rule 5 – (a) Rebate of Service Tax + Cess paid on taxable service exported (b) Rebate of duty paid on inputs and Service Tax paid on input services used in providing the taxable service exported
© Lakshmikumaran & Sridharan, 2011 17 NOTIFICATIONS UNDER RULE 5 OF EOS (a) Notification No.11/05-ST dated 19.04.2005 – for granting rebate of Service Tax + Cess paid on taxable service exported. (b) Notification No.12/05 dated 19.04.05 – for granting rebate on duty/tax paid on inputs and input services used in providing taxable services exported
© Lakshmikumaran & Sridharan, 2011 18 Rule 5 of Cenvat Credit Rules, Kbace Tech Pvt Ltd Vs CCE, Bangalore Section 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.
© Lakshmikumaran & Sridharan, 2011 19 RULE 5 OF CENVAT CREDIT RULES Credit of inputs and input services used in providing taxable output services which are exported can be availed Credit can be utilized for discharging domestic liability If no adjustment possible, refund allowed Notification 5/2006 CX NT dt. 14.3.06
© Lakshmikumaran & Sridharan, 2011 20 20 CONCEPT & LEGAL PROVISIONS IMPORT OF SERVICES
© Lakshmikumaran & Sridharan, 2011 21OBJECTIVES How is import of taxable service dealt with in Service tax law ? How changes were made in Service Tax law from time to time to handle import of services ? What is the current position in Service Tax law vis-à-vis imports ?
© Lakshmikumaran & Sridharan, 2011 22 SECTION 64 (1) OF THE ACT Section 64 (1) – This Chapter extends to the whole of India except the State of Jammu & Kashmir. “India” includes territorial waters (12 NM)
© Lakshmikumaran & Sridharan, 2011 23 23 CHARGE OF SERVICE TAX Section 66 –There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent of the value of the taxable services referred to in sub-clauses (a), (b), (c), (d), (e), (f), (g), (h), (i),.... (zzzs), (zzzt), (zzzu), (zzzv), (zzzw), (zzzx), (zzzy), (zzzz), (zzzza), (zzzzb), (zzzzc) and (zzzzd) of clause (105) of section 65 and collected in such manner as may be prescribed. `
© Lakshmikumaran & Sridharan, 2011 24 PAYMENT OF SERVICE TAX Section 68 (1) Every person providing taxable service to any person shall pay service tax at the rate specified in Section 66 in such manner and within such period as may be prescribed. Section 68 (2) Notwithstanding anything contained in sub-section (1), in respect of any taxable service notified by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in section 66 and all the provisions of this Chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service.
© Lakshmikumaran & Sridharan, 2011 25 PERSON LIABLE TO PAY Rule 2 (1) (d) (iv) – in relation to any taxable service provided by a person who is a non- resident or is from outside India, does not have any office in India, the person receiving taxable service in India. w.e.f. 16.08.2002.
© Lakshmikumaran & Sridharan, 2011 26 NOTIFICATION NO. 36/2004 dated 31.12.2004 – u/s 68(2) OF THE ACT For the first time notified – “any taxable service provided by a person who is a non-resident or is from outside India and does not have an office in India” -Effective from 01.01.2005
© Lakshmikumaran & Sridharan, 2011 27 27 EXPLANATION TO SECTION 65 (105) “For removal of doubts, it is hereby declared that where any service provided or to be provided by a person, who has established a business or has a fixed establishment from which the service is provided or to be provided, or has his permanent address or usual place of residence, in a country other than India and such service is received or to be received by a person who has his place of business, fixed establishment, permanent address, or as the case may be, usual place of residence, in India, such service shall be deemed to be taxable service for the purpose of this clause”. -Effective from 16.06.2005.
© Lakshmikumaran & Sridharan, 2011 28 SECTION 66A– w.e.f. 18.4.2006 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 business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and (b) received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purposes of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of this Chapter shall apply :
© Lakshmikumaran & Sridharan, 2011 29 PROVISO TO SEC. 66A (1) Provided that where the recipient of the service is an individual and such service received by him is otherwise than for the purpose of use in any business or commerce, the provisions of this sub-section shall not apply.
© Lakshmikumaran & Sridharan, 2011 30 PROVISO TO SECTION 66A (1) Provided further that where the provider of the service has his business establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided.
© Lakshmikumaran & Sridharan, 2011 31 SECTION 66A (2) (2) Where a person is carrying on a business through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purposes of this section. Explanation 1. — A person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country.
© Lakshmikumaran & Sridharan, 2011 32 EFFECTIVE DATE Section 66A..18.4.2006 Indian 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
© Lakshmikumaran & Sridharan, 2011 33 Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.-w.e.f. 19.04.2006. India-Rule 2(e)..includes installation, structures and vessels located in CS/EEZ, for the purpose of prospecting/extraction/production of mineral oil & natural gas and supply thereof Service …. Received in India
© Lakshmikumaran & Sridharan, 2011 34 Taxable services grouped into three categories: Category I – 13 taxable services eg. architect service, real estate agent service, construction of complex service, etc. Category II – 50 taxable services – courier service, outdoor catering service, photography service, transport of goods by road service, beauty treatment service etc. Category III – 36 taxable services – eg. advertising agency service, banking & other financial services, management consultant service, etc. THREE CATEGORIES
© Lakshmikumaran & Sridharan, 2011 35 Category I – the service must be provided in relation to an immovable property situation in India. Category II – the service must be performed either fully or partly in India. Category III – the service must be received by a recipient located in India for use in relation to business or commerce. CONDITIONS
© Lakshmikumaran & Sridharan, 2011 36 Rule 4 The recipient of taxable services provided from outside India and received in India shall make an application for registration and for this purpose, the provisions of Section 69 of the Act and the rules made thereunder shall apply.
© Lakshmikumaran & Sridharan, 2011 37 RULE 5 The taxable services provided from outside India and received in India shall not be treated as output services for the purposes of availing credit of duty of excise paid on any input or service tax paid on any input services under Cenvat Credit Rules, 2004.
© Lakshmikumaran & Sridharan, 2011 38 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
© Lakshmikumaran & Sridharan, 2011 39 New Delhi B-6/10, Safdarjung Enclave New Delhi – 110 029, India Ph: +91-11-26192243, 5129 9800 Fax: +91-11-26197578, 5129 9899 E-mail: Lsdel@Lakshmisri.com Mumbai 401-404, Kakad Chambers, 132, Dr. Annie Besant Road Worli, Mumbai – 400 018 Ph: +91-22-24914382 /84/86 Fax: +91-22-24914388 E-mail: Lsbom@Lakshmisri.com Bangalore 505-508, 5 th Floor, Brigade Plaza (North Block) No.71/1, Subedar Chatram Road, Anand Rao Circle, Banglaore-560009 E-mail: Lsblr@Lakshmisri.com Thank You Our contacts Hyderabad Block No 301, 3 rd Floor Hermitage office complex Hill Fort Road, Hyderabad Tel: +91-40-2323 4924/25 Fax: +91-40-2323 4826 E-mail: Lshyd@Lakshmisri.com Chennai 2, Wallace Garden, 2 nd Street Chennai -600 006 Tel: +91-44-2833 4700/701 Fax: +91-44-2833 4702 E-mail: Lsmds@Lakshmisri.com Ahmedabad B-334 (3 rd Floor), Sakar- VII, Nehru Bridge Corner, Ashram Road, Ahmedabad-380009 Tel: +91-79-4001 4500 Fax: +91-79-4001 4599 E-mail: Lsahd@Lakshmisri.com
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