Export/Import of services - Board's callous clarification
CROSS border transactions of services has always been a bone of contention between the revenue and the tax payers. While the law is almost settled now that the tax is levied only with effect from 18.4.2006 after insertion of Section 66A, whenever any new service is brought into the tax net, export / import service rules need to be amended to incorporate the new services into one of the three categories of the services specified therein. In the first category of services, the export / import of the service is decided by the place where the immovable property is located. Place of performance of the service is the factor that determines the export / import in respect of the second category of the services. Third category is the residuary one where the service is deemed to be received in India if the recipient is located in India and vice versa.
However, the Board almost forgot to issue simultaneous amendments to these rules after notifying the new services in 2010, but issued a clarification Vide Circular No , Dated September 21, 2010 that all the new services notified through the Finance Act 2010 fall in category (iii) of clause (3) of services listed in the Export of Services Rules 2005 and Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, (residual category), no notification regarding individual classification was issued.
It appears that the above clarification was issued without any homework and just to cover up the inaction on the part of the Board to make timely amendments to the export / import of services rules.
For example, construction service has been notified earlier under category 1 service and the export / import of this service depends on the place where the immovable property is located. Now the incidental new service, i.e., Special services provided by a builder etc. to the prospective buyers such as providing preferential location or external or internal development of complexes on extra charges [Section 65 (105) (zzzzu)] will fall under the residual category, which is a clear anomaly.
Similarly, for Health services, ideally, the export/import should have been decided based on the place where the service is performed (Second category of services ...like Maintenance or Repair Services). But this service has been now clarified to be under third category of service. This means if an employee is sent abroad for treatment by a business entity, the recipient has to pay service tax irrespective of the place of rendering the service. Now, who is the recipient of the service? Individual Employee or the Business entity which has sent the employee? Can the service be treated as being received for use in relation to business or commerce, which is the fundamental requirement for category three services to be taxable in the hands of the recipients of the service? Another clarification ?