Exemption to Business Exhibition Service rendered outside India - Exhibition of poor drafting?
TAXING provisions of cross border services are often confusing for the trade and the officers alike. While, for any service to be treated as export, it is essential that the payment should be received in foreign currency, all services for which payments are received in foreign currency are not treated as export of services. We have a separately defined “Export of service Rules, 2005” which decide whether a particular service is export or not. All taxable services are divided into three categories in these rules and the test for the second category of services is the “ place of performance” of service.
Business Exhibition service falling under Sec 65(105)(zzo) is covered under category two ( Rule 3 (ii)) of Export of Services Rules, 2005). This implies that when this service is performed outside India, and when the payment for such service is received in convertible foreign exchange, it is treated as export of service and the same may be exported without payment of service tax.
In this year's budget, an interesting exemption notification has been issued vide Notification No 5/2011 ST dated 01.03.2011. This notification reads:
In exercise of the power conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, being satisfied that it is necessary in the public interest, so to do hereby exempts the taxable service specified in sub-clause (zzo) of clause (105) of section 65 of the said Finance Act, when provided by an organiser of business exhibition for holding a business exhibition outside India, from the whole of the service tax leviable thereon under section 66 of the said Finance Act.
One wonders why such an exemption is required when the service of holding Business Exhibition outside India is treated as export of service. Even assuming that this notification is required to take care of the cases where the Exhibition is held outside India, by the Indian organisers, but the payment is received in Indian Currency because of participation by the Indian Industrial houses, then the medicine is worse than the disease. That is because even if there is any genuine exporter of this service who is receiving the foreign exchange, such exporter has also been covered under this exemption, with the result, he is not entitled for any CENVAT Credit on the input services/ inputs nor can he claim any export benefits.
May be a minor amendment that the exemption applies to the cases where only the amount is received in India Rupees would help the genuine exporters.