Government of India
Ministry of Finance
Department of Revenue
(Central Board of Excise & Customs)
Circular No.111/05/2009-ST
New Delhi, dated the 24th February, 2009.
Subject: Applicability of the provisions of the Export of Services Rules, 2005
in certain situations
In terms of rule 3 (2) (a) of the Export of Services Rules 2005, a taxable
service shall be treated as export of service if “such service is provided from
India and used outside India” Instances have come to notice that certain
activities, illustrations of which are given below, are denied the benefit of
export of services and the refund of service tax under rule 5 of the Cenvat
Credit Rules, 2004 [notification No. 5/2006-CE (NT) dated 14.03.2006] on the
ground that these activities do not satisfy the condition ‘used outside India’,-
(i) Call centres engaged by foreign companies who attend to calls from customers
or prospective customers from all around the world including from India;
(ii) Medical transcription where the case history of a patient as dictated by
the doctor abroad is typed out in India and forwarded back to him;
(iii) Indian agents who undertake marketing in India of goods of a foreign
seller. In this case, the agent undertakes all activities within India and
receives commission for his services from foreign seller in convertible foreign
exchange;
(iv) Foreign financial institution desiring transfer of remittances to India,
engaging an Indian organisation to dispatch such remittances to the receiver in
India. For this, the foreign financial institution pays commission to the Indian
organisation in foreign exchange for the entire activity being undertaken in
India.
The departmental officers seem to have taken a view in such cases that since the
activities pertaining to provision of service are undertaken in India, it cannot
be said that the use of the service has been outside India.
- The matter has been examined. Sub-rule (1) of rule 3 of the Export of
Services Rule, 2005 categorizes the services into three categories:
(i) Category (I) [Rule 3(1)(i)] : For services (such as Architect service,
General Insurance service, Construction service, Site Preparation service) that
have some nexus with immovable property, it is provided that the provision of
such service would be ‘export’ if they are provided in relation to an immovable
property situated outside India.
(ii) Category (II) [Rule 3(1)(ii)] : For services (such as Rent-a-Cab operator,
Market Research Agency service, Survey and Exploration of Minerals service,
Convention service, Security Agency service, Storage and Warehousing service)
where the place of performance of service can be established, it is provided
that provision of such services would be ‘export’ if they are performed (or even
partly performed) outside India.
(iii) Category (III) [Rule 3(1)(iii)] : For the remaining services (that would
not fall under category I or II), which would generally include knowledge or
technique based services, which are not linked to an identifiable immovable
property or whose location of performance cannot be readily identifiable (such
as, Banking and Other Financial services, Business Auxiliary services and
Telecom services), it has been specified that they would be ‘export’,-
(a) If they are provided in relation to business or commerce to a recipient
located outside India; and
(b) If they are provided in relation to activities other than business or
commerce to a recipient located outside India at the time when such services are
provided.
- It is an accepted legal principle that the law has to be read harmoniously so
as to avoid contradictions within a legislation. Keeping this principle in view,
the meaning of the term ‘used outside India’ has to be understood in the context
of the characteristics of a particular category of service as mentioned in
sub-rule (1) of rule 3. For example, under Architect service (a Category I
service [Rule 3(1)(i)]), even if an Indian architect prepares a design sitting
in India for a property located in U.K. and hands it over to the owner of such
property having his business and residence in India, it would have to be
presumed that service has been used outside India. Similarly, if an Indian event
manager (a Category II service [Rule 3(1)(ii)]) arranges a seminar for an Indian
company in U.K. the service has to be treated to have been used outside India
because the place of performance is U.K. even though the benefit of such a
seminar may flow back to the employees serving the company in India. For the
services that fall under Category III [Rule 3(1)(iii)], the relevant factor is
the location of the service receiver and not the place of performance. In this
context, the phrase ‘used outside India’ is to be interpreted to mean that the
benefit of the service should accrue outside India. Thus, for Category III
services [Rule 3(1)(iii)], it is possible that export of service may take place
even when all the relevant activities take place in India so long as the
benefits of these services accrue outside India. In all the illustrations
mentioned in the opening paragraph, what is accruing outside India is the
benefit in terms of promotion of business of a foreign company. Similar would be
the treatment for other Category III [Rule 3(1)(iii)] services as well.
- All pending cases may be disposed of accordingly. In case any difficulty is
faced in implementing these instructions, the same may be brought to the notice
of the undersigned. These instructions should be given wide publicity among
trade and field officers.
- Please acknowledge receipt.
- Hindi version follows.
Yours faithfully,
(Gautam Bhattacharya)
Commissioner (Service Tax)
Tel: 23093027
F.No.137/307/2007-CX.4 (Pt.)