Service Tax – Export of Services -A brief History
THE Department which is gearing up to administer the GST, is unfortunately not clear as to what export of services really means. To understand the complications, a brief history may be in order.
By Notification No. 2/1999 dated 28.02.1999, the Government had exempted all taxable services, provided to any person in respect of which payment is received in India in convertible foreign exchange, from the whole of the service tax.
This was superseded by Notification No. 6/1999 dated 09.04.1999, which retained the exemption but added a proviso that the notification would not apply if the foreign exchange was repatriated or sent out of India.
This notification was rescinded by Notification No. 2/2003 dated 01.03.2003.
Then what about the period prior to 1999 and after 2003?
The Board gave a clarification in Circular No. 56/5/2003, dated 25.04.2003 that, “Service Tax is destination-based consumption tax and it is not applicable on export of services . Export of services would continue to remain tax-free even after withdrawal of notification no. 6/99 dated 9.4.99.”
So export of services was not taxable with or without an exemption notification.
But the Board Circular, as usual did not receive much support from the field.
The Board brought back a revised edition of Notification No. 6/99 in the form of Notification No. 21/2003 dated 20.11.2003, which exempted all taxable services specified in sub-section (105) of section 65 of the said Act, provided to any person in respect of which payment is received in India in convertible foreign exchange, from the whole of the service tax.
God alone knows (not even the Board knows) why Notification No. 6/99 was rescinded and why the same notification was brought back in the form of Notification No. 21/2003.
This Notification No. 21/2003 was rescinded by Notification No. 10/2005 dated 03.03.2005. Why?
By Notification No. 9/2005 dated 03.03.2005, the “Export of Services Rules, 2005” came into existence. These Rules clearly stipulated that any taxable service may be exported without payment of Service Tax.
But what is export? Does anybody know?
As per the latest edition of the Export of Service Rules, export is:-
++ In relation to certain listed services, provision of services in relation to an immovable property situated outside India.
++ In relation to certain services, services which are performed outside India, fully or partly.
++ For some other services, it is service provided to a recipient outside India.
In the first two categories, it is important that the service is provided outside India at least partly, while in the third category, the place of service is immaterial – only the service recipient should be outside India.
Things appear to be quite clear - except to the babus who made these laws! Several disputes are pending regarding what export really means in the third category. In many cases, the Department adopts a “heads you lose, tails, I win” attitude. If you provide service for a foreign resident, not only the department wants to deny export benefits, but also want to collect Service Tax on these exported services.
In this background, we shall see a strange circular issued by the Board on Friday.