Government of India
Ministry of Finance
Department of Revenue
(Central Board of Excise & Customs)
Circular No. 141/10/2011-TRU
*****
New Delhi, dated the 13th May 2011.
To
The Chief Commissioners of Central Excise and Service Tax (All),
The Director General (All),
The Commissioners of Service Tax (All),
The Commissioners of Central Excise and Service Tax (All).
Madam/Sir,
Subject: Applicability of the provisions of the Export of Services Rules, 2005
in certain situations
Circular No.111/05/2009-ST was issued on 24th February 2009 on the applicability
of the provisions of the Export of Services Rules, 2005 in certain situations.
It 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
Notification 06/2010-ST dated 27 Feb
2010. In the context of the stated Circular an issue has been raised, 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?
- 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 paid from one place and actually used at
another place. Such arrangements commonly exist where the services are procured
centrally eg audit, advertisement, consultancy, Business Auxiliary Services. For
example, it is possible to obtain a consultancy report from a service provider
in India, which may be used either at the location of the customer or in any
other place outside India or even in India. In a situation where the
consultancy, though paid by a client located outside India, is actually used in
respect of a project or an activity in India the service cannot be said to be
used outside India.
- It may be noted that the words “accrual of benefit” are not restricted to
mere impact on the bottom-line of the person who pays for the service. If that
were the intention it would render the requirement of services being used
outside India during the period prior to 28.2.2010 infructuous. 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 these words may be
interpreted in the context where the effective use and enjoyment of the service
has been obtained. The effective use and enjoyment of the service will of course
depend on the nature of the service. For example effective use of advertising
services shall be the place where the advertising material is disseminated to
the audience though actually the benefit may finally accrue to the buyer who is
located at another place.
- 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. The relation between the parties may also be relevant
in certain circumstances, for example in case of passive holding/ subsidiary
companies or associated enterprises. In order to establish that the services
have not been used outside India the facts available should inter-alia, clearly
indicate that only the payment has been received from abroad and the service has
been used in India. It has already been clarified that in case of call centers
and similar businesses which serve the customers located outside India for their
clients who are also located outside India, the service is used outside India.
- Besides above, to attain the status of export, a number of conditions need to
be satisfied which are specified in Rule 3(1) and Rule 3(2) of Export of
Services Rules 2005. 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.
- These instructions should be given wide publicity among trade and field
officers. Please acknowledge receipt. Hindi version follows.
Yours faithfully,
(Samar Nanda)
Under Secretary to Government of India
F.No. 280/26/2011-CX8A (Pt)