What is Export of Service?
Defining export of service has been very tricky due to intangible nature of
service transaction. Due to this nature of services, there has been constant
confusion regarding meaning of export of services. In Microsoft Corporation
India Pvt. Ltd. v. CST, New Delhi [2009 (15) STR 680], an attempt was made to
define the export transaction in services. This case relates to Stay application and
hence the view taken by the Hon’ble Tribunal in this case is prima facie view.
This prima facie view has also been approved by Delhi High Court as reported in
2009 (16) STR 545 (Del).
service transaction. Due to this nature of services, there has been constant
confusion regarding meaning of export of services. In Microsoft Corporation
India Pvt. Ltd. v. CST, New Delhi [2009 (15) STR 680], an attempt was made to
define the export transaction in services. This case relates to Stay application and
hence the view taken by the Hon’ble Tribunal in this case is prima facie view.
This prima facie view has also been approved by Delhi High Court as reported in
2009 (16) STR 545 (Del).
The facts in the Microsoft case is that M/s
Microsoft India Pvt. Ltd. has an agreement with Microsoft Singapore Operation
Limited. On behalf of the Singapore entity, Microsoft India was providing
services to customers based in India. M/s Microsoft India was receiving payment
from M/s Microsoft Singapore in foreign currency. The question was whether it is
export of service?
Microsoft India Pvt. Ltd. has an agreement with Microsoft Singapore Operation
Limited. On behalf of the Singapore entity, Microsoft India was providing
services to customers based in India. M/s Microsoft India was receiving payment
from M/s Microsoft Singapore in foreign currency. The question was whether it is
export of service?
The Hon’ble Tribunal
held,
held,
“The service provided in India was consumed
without reverting back to foreign principals for consumption abroad. Ultimate
outcome of service having been exhausted in India, there appears to be no export
of such services since efforts in India generated service recipients in India
only. The benefit of service terminated in India only without travelling abroad.
Whether service is directly provided by a foreign principal in India or foreign
principal providing service in India through its agents in India makes no
difference under Service tax law when Service tax is a VAT and that too
destination based consumption tax.”
without reverting back to foreign principals for consumption abroad. Ultimate
outcome of service having been exhausted in India, there appears to be no export
of such services since efforts in India generated service recipients in India
only. The benefit of service terminated in India only without travelling abroad.
Whether service is directly provided by a foreign principal in India or foreign
principal providing service in India through its agents in India makes no
difference under Service tax law when Service tax is a VAT and that too
destination based consumption tax.”
In any transaction related to Service, we need to
understand as to who is the Service Recipient. Service recipient is the person
who is making payment for the service. Any person who is not making payment of
services to the service provider is not a service recipient in the eyes of
service provider. Further, service provider is not raising any bill to the
person who is not paying for the services, and hence he cannot collect service
tax from that so called service recipient. In the present case there are two
transactions. Microsoft India is providing services to Microsoft Singapore. This
is export of service. Various persons in India are receiving services from
Microsoft Singapore, and they may be liable to pay Service Tax through reverse
charge method under Section 66A of the Finance Act.
understand as to who is the Service Recipient. Service recipient is the person
who is making payment for the service. Any person who is not making payment of
services to the service provider is not a service recipient in the eyes of
service provider. Further, service provider is not raising any bill to the
person who is not paying for the services, and hence he cannot collect service
tax from that so called service recipient. In the present case there are two
transactions. Microsoft India is providing services to Microsoft Singapore. This
is export of service. Various persons in India are receiving services from
Microsoft Singapore, and they may be liable to pay Service Tax through reverse
charge method under Section 66A of the Finance Act.
The distinction between Service Recipient who is
paying from the service, and persons actually availing benefit of these service
are always different. A corporation, who generally pays for the services cannot
avail benefit of most of the services- it cannot stay in hotels, or travel. It
cannot use software also. The persons actually availing these services are
different from corporation. It appears that in the present case these points
were not considered and I am sure at the time of final disposal of the case,
these issues will be examined.
paying from the service, and persons actually availing benefit of these service
are always different. A corporation, who generally pays for the services cannot
avail benefit of most of the services- it cannot stay in hotels, or travel. It
cannot use software also. The persons actually availing these services are
different from corporation. It appears that in the present case these points
were not considered and I am sure at the time of final disposal of the case,
these issues will be examined.
Export of Service Rules, 2005 defines export of
services in two parts. Rule 3(1) defines export of services in terms of places
where services are provided or received. Rule 3(2) defines export of services in
terms of payment received in foreign exchange. It is to be noted here that Rule
3(1) and 3(2) are independent of each other, i.e. a provision of service is
export of service if it satisfies either the definition of 3(1) and
3(2).
services in two parts. Rule 3(1) defines export of services in terms of places
where services are provided or received. Rule 3(2) defines export of services in
terms of payment received in foreign exchange. It is to be noted here that Rule
3(1) and 3(2) are independent of each other, i.e. a provision of service is
export of service if it satisfies either the definition of 3(1) and
3(2).
Export of anything (goods or services) and
receipt of payment in foreign exchange are two entirely different things,
governed by different statute. Export is governed by trade & revenue
statutes, where as receipt of payment is governed by Foreign Exchange Management
Act. Thus there can be export f goods and services, without receipt of payment
in foreign exchange. In custom parlance, connected with export of goods, it is
well known in terms of waiver of Guaranteed Receipt given by the authorized
dealers.
receipt of payment in foreign exchange are two entirely different things,
governed by different statute. Export is governed by trade & revenue
statutes, where as receipt of payment is governed by Foreign Exchange Management
Act. Thus there can be export f goods and services, without receipt of payment
in foreign exchange. In custom parlance, connected with export of goods, it is
well known in terms of waiver of Guaranteed Receipt given by the authorized
dealers.
Let us take a simple example. Jet airways
provides air travel services from London to Newyork. An Resident Indian national
book an air ticket. Obviously the Indian national is required to make payment to
the Service provider in Indian Rupees. Is it export of Service? Obviously yes.
Irrespective of the fact that payment is received in Indian Rupee, it is an
export of service. These types of cases are covered in Rule 3(1) of the Export
of Services Rule, 2005.
provides air travel services from London to Newyork. An Resident Indian national
book an air ticket. Obviously the Indian national is required to make payment to
the Service provider in Indian Rupees. Is it export of Service? Obviously yes.
Irrespective of the fact that payment is received in Indian Rupee, it is an
export of service. These types of cases are covered in Rule 3(1) of the Export
of Services Rule, 2005.
Rule 3(2) of the Export of Services Rules defines
what we understand as “deemed export”. It reads as, “The provision of any taxable
service specified in
sub-rule (1) shall be treated
as export of service when the following conditions are satisfied, namely……….” The term treated as export of
service is very important. What Rule 3(1) defines is export of service, whereas
Rule 3(2) defines as something which may not be export of service, but shall be
treated as export of service. Let us take another example of Jet Airways. It
provides air travel service from Delhi to Mumbai. Say, a person based in London
book a ticket for this service. Obviously he will pay in foreign exchange. Is it
export of service? In terms of Rule 3(1), it is not export of service but due to
deeming definition of Rule 3(2) of Export of Service Rules, it is export of
service.
what we understand as “deemed export”. It reads as, “The provision of any taxable
service specified in
sub-rule (1) shall be treated
as export of service when the following conditions are satisfied, namely……….” The term treated as export of
service is very important. What Rule 3(1) defines is export of service, whereas
Rule 3(2) defines as something which may not be export of service, but shall be
treated as export of service. Let us take another example of Jet Airways. It
provides air travel service from Delhi to Mumbai. Say, a person based in London
book a ticket for this service. Obviously he will pay in foreign exchange. Is it
export of service? In terms of Rule 3(1), it is not export of service but due to
deeming definition of Rule 3(2) of Export of Service Rules, it is export of
service.
The concept of export and deemed export is well
known in tax parlance. Rule 3(1) provides the concept of export, whereas Rule
3(2) defines the concept of deemed export, i.e. something which will be treated
as export. When those concepts are applied to Rule 3(1) and 3(2) of Export of
Services Rules, the matter becomes clear and easy to comply with.
known in tax parlance. Rule 3(1) provides the concept of export, whereas Rule
3(2) defines the concept of deemed export, i.e. something which will be treated
as export. When those concepts are applied to Rule 3(1) and 3(2) of Export of
Services Rules, the matter becomes clear and easy to comply with.
Leave a Comment