TIOL-DDT 1609 · the untouched capture
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1609 </font><br>
16.05.2011 <br>
Monday </strong></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax – Export of Services -A brief History </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> 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. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This was superseded by Notification No. 6/1999 dated 09.04.1999, which retained the exemption but added a proviso that the notification would not apply if the foreign exchange was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. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This notification was rescinded by Notification No. 2/2003 dated 01.03.2003. </font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Then what about the period prior to 1999 and after 2003? </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Board gave a clarification in Circular No. 56/5/2003, dated 25.04.2003 that, “<font color="#FF6633"><strong>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.</strong></font>” </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So export of services was not taxable with or without an exemption notification. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But the Board Circular, as usual did not receive much support from the field. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This Notification No. 21/2003 was rescinded by Notification No. 10/2005 dated 03.03.2005. Why? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align="justify"><strong><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">But what is export? Does anybody know? </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per the latest edition of the Export of Service Rules, export is:- </font></p>
<div align="justify">
<blockquote>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ In relation to certain listed services, provision of services in relation to an immovable property situated outside India.
</font>
</p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ In relation to certain services, services which are performed outside India, fully or partly.
</font>
</p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ For some other services, it is service provided to a recipient outside India. </font></p>
</blockquote>
</div>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In this background, we shall see a strange circular issued by the Board on Friday. </font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax - Export of Services - 'Used Outside India' - Clarification worse than Confusion </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ONE</strong> condition for export under the Export of Services Rules was that the service is provided from India and “used outside India”. Board Circular No.111/05/2009-ST, dated 24.02.2009 had clarified on the expression “used outside India” in Rule 3(2)(a) of the Export of Service Rules 2005 as prevalent at that time. The condition specified in Rule 3(2)(a) has since been omitted vide<em> Notification 06/2010-ST dated 27 Feb 2010</em>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It seems an issue had been raised as to whether for the period prior to 28.2.2010 the requirement that the service should be “used outside India” invariably means the location of the recipient? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board says, “In the stated Circular it was inter-alia, clarified that the words, “used outside India” should be interpreted to mean that “the benefit of the service should accrue outside India”. It is well known that services, being largely intangibles, are capable of being <strong>paid</strong> (<font color="#FF6633"><strong>maybe what they meant was provided</strong></font>) from one place and actually used at another place.” </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">More wisdom from the Board: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">These words should be given a harmonious interpretation keeping in view that during the period upto 27.2.2010 the explicit condition was provided in the rule that the service should be used outside India. In other words (<font color="#FF6633"><strong>when you say “in other words”, what you mean is that the previous words were not clear</strong></font>) these words may be interpreted in the context where the effective use and enjoyment of the service has been obtained. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This, however should not apply to services which are merely performed from India and where the accrual of benefit and their use outside India are not in conflict with each other. (<font color="#FF6633"><strong>What is the conflict?</strong></font>)</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Circular No.111/05/2009-ST explained the expression “used outside India” only and the other conjunct conditions, as applicable from time to time, also need to be independently satisfied for availing the benefit of an export. </font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Now what does this Circular clarify? If I am an agent in India for a foreigner to sell his goods in India and I get a commission, am I an exporter of service or an importer? Conversely, if I pay commission to a foreign agent to sell my goods abroad, am I an exporter or an importer of service? Can the Board clarify these questions in one word – YES or NO? If they do it, all the litigation will end – of course Tribunal willing. </font></strong></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please also see <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=9556"><strong>DDT 1181-24.08.2009</strong> </a>and <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=5165"><strong>Export of Service : To deliver or to provide is the question?</strong></a></font></p>
<p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=41&filename=notification/servicetax/2011/sercir141.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBEC Circular No. 141/10/2011 – TRU ., Dated: May 13, 2011 </font></strong></a></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Tariff Value increased for Brass Scrap </font></strong></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>GOVERNMENT</strong> has increased the tariff values of Brass Scrap (all grades) from USD 4272 to USD 4408 and reduced that of poppy seeds from 2745 to 2633 USD. There is no change in the value of other items.</font></p>
<p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=24&filename=notification/custom/2011/cnt11_034.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification No. 34/2011-CUS (N.T.), Dated : May 13, 2011 </font></strong></a></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">FTP – Deemed Export - Review of Policy - Suggestions invited</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DGFT</strong> wants to review the ‘deemed export policy' to </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">i) harmonise the various Customs Notifications with the Policy. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ii) improve the drafting of the policy as it exists today so that it is not amenable to multiple interpretations and specifically to remove ambiguities, repetitions etc. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">iii) revisit the issue of deemed export to see whether it properly reflects the Government priorities. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Those interested in making presentation to the Committee or submitting their views in person are welcome. Necessary date & time for an interactive session will be announced on DGFT website. Individual e-mails can be sent by those interested to attend the session by conveying so at vkgupta99@nic.in or lb.singhal@nic.in. </font></p>
<p><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=wnew/DGFT_TRADE_Notice_9.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DGFT Trade Notice No. 9: Dated : May 13, 2011 </font></strong></a></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600"> – Wednesday's cases</font></strong></font></strong></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a></a><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left"><strong><font color="#663399">Central Excise </font></strong></font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification 108/95-CE - since JBIC is not an International Organization exemption not available: CESTAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>LARGER</strong> period of limitation cannot be invoked, however, since stay was granted by High Court the period of stay is to be excluded and demand re-computed – Interest payable for delayed payment of duty: </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income Tax</font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Sec 37 - Whether foreign exchange loss suffered due to devaluation of rupee is notional or actual loss - Whether such loss is allowable only after five tests laid down by Apex Court in Woodward Governor case are satisfied - Yes, rules HC</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> issues before the High Court are - Whether foreign exchange loss suffered due to devaluation of rupee is notional or actual loss and whether such loss is allowable under Sec 37. Another question is - Whether, before such loss is allowed, five tests laid down by the Apex Court in Woodward Governor case must be satisfied. And the High Court says, YES. </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Customs </font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Advance Ruling - Imports for HAL - Exemption Certificate to be signed by an officer not below rank of a Joint Secretary to the Government of India in Ministry of Defence and not an officer of HAL: AAR </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> exemption shall not be available if the duty exemption certificate is signed by the General Manager, Procurement Division, HAL and countersigned by its Managing Director. The exemption shall apply only if the certificate contains the prescribed information and is signed by an officer not below the rank of a Joint Secretary to the Government of India in the Ministry of Defence. </font></p>
<p align="justify"><strong><font size="3" face="Verdana, Arial, Helvetica, sans-serif">T</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">omorrow is a <font size="3">H</font>oliday </font></strong></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Wednesday for the judgements</font></strong></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Wednesday with more <strong>DDT</strong></font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a Nice Time. </font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="mailto:vijaywrite@taxindiaonline.com"><strong>vijaywrite@taxindiaonline.com </strong></a></font></p>
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