Service Tax – What is Export of Services? - Microsoft ordered to pre-deposit Rs 70 Crores - CNTRL + ALT + DELETE
CBEC in CIRCULAR NO. 111/05/2009-ST., Dated: February 24, 2009 had clarified,
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.
The Concept of imports and exports in Service Tax is quite complicated. If you appoint an agent to sell your goods in London and if the agent works from London and canvasses your goods in London, the service is treated as import and you are required to pay the tax. Conversely if you do in Delhi the same work for a London manufacturer, it should be treated as export of services and you should be eligible for all the benefits. For certain services, the place of performance of service is not important, but the location of the Service provider and recipient determines whether the service is imported or exported. This is the essence of the Board Circular.
But there are officers in the field who have scant or no respect for the Board and its wisdom. They even have the audacity to argue that the Board is wrong. A Commissioner is supposed to be the agent of the Board and he has no right to sit in judgement over the Board's wisdom. And a Commissioner who has the audacity to think that he is above Board has no right to exist as a Commissioner.
But the Field is full of intelligent people who are all far wiser than the Board and who know that nothing is going to happen to them for blatant disobedience of Board's instructions.
These issues take totally different and unexpected turns when they reach the courts.
In a recent Stay order, the Hon'ble Tribunal held, “The well tested and experienced Customs Act, 1962 has defined such term by section 2(18) thereof to mean "taking out of India to a place outside India ". Therefore, in no uncertain terms "export of service" shall mean that outcome of service should have been consumed outside India.”
So the Customs Act is exported into Service Tax. And the Tribunal directed Microsoft to pre-deposit Rs. 70 Crores.
All these days Microsoft and several other companies have been treated as exporters of service and they have also been given refund of Credit. Suddenly they have become providers of service in India and are liable to pay huge amounts of service tax.
Though this is a stay order, if it is put to effect – all of a sudden exporters will become importers and importers will become exporters. The whole face of taxation is going to change. Interesting days ahead.
It used to be said that while other leaders created history, Madam Indira Gandhi created Geography – she created Bangladesh.
Are our lawmakers and courts creating the lexicon or rewriting the dictionary? Thank God the original lexicographer Dr. Johnson and his illustrious student Boswell are not alive today!
You can see this very important CESTAT order in our ST se GST Tak Column tomorrow.