EXPORT / IMPORT OF SERVICES UNDER NEGATIVE LIST BASED TAXATION -By CA R S PAVAN KUMAR B.Com, FCA

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Service Tax based on Negative List

► Until June 30, 2012 the levy of service tax was applicable only on 119 notified services.

► With effect from July 1, 2012, service tax is being levied on all services unless they are covered by any of the entries in the negative list or are otherwise exempted.

► The Export of services and Import of service Rules notified under the earlier regime have been scrapped and place of provision of services has been introduced ► Rule 6A under the Service tax Rules 1994 has been introduced to provide the conditions required to be satisfied for qualifying as an export of service.

2 -By CA R S PAVAN KUMAR B.Com, FCA

How to determine exports – Rule 6A

Following are the essentials to consider a service as exported: ► The provider of service is located in the taxable territory, ► The recipient of service is located outside India, ► The service is not a service specified in Section 66D of the act, ► The place of provision of the service is outside India, ► The payment for such service has been received by the provider of service in convertible foreign exchange, and ► The provider of service and recipient of service are not merely establishments of a distinct person in accordance with the item (b) of explanation 3 of Section 65B(44) of the act.

3 -By CA R S PAVAN KUMAR B.Com, FCA

Charging Section Section 66B

► There shall be levied a tax(hereinafter referred to as “service tax”) ► ► At the rate of twelve percent On the value of all services(other than those covered under negative list) ► ► ►

Provided or agreed to be provided in the taxable territory

By one person to another and Collected in such a manner as may be prescribed 4 -By CA R S PAVAN KUMAR B.Com, FCA

Taxable Territory

Taxable Territory The territory to which Finance Act, 1994 shall apply Taxable Territory = India Finance Act, 1994 extends to whole of India except J&K.

India Means= Clauses (2) and (3) of Article 1 of the Constitution.

Its territorial waters, continental shelf(CS), exclusive economic zone (EEZ)or any other maritime zone as defined in the Maritime Zones Act, 1976; Seabed and the subsoil underlying the territorial waters; The air space above its territory and territorial waters; and The installations, structures and vessels located in the CS and the EEZ of India, for the purpose of extraction or production of mineral oil and natural gas and supply there of; 5 -By CA R S PAVAN KUMAR B.Com, FCA

Implication

► ► Service qualifying as export service is not leviable to service tax Any service provided not qualifying as an export service but provided outside the taxable territory is also not is not leviable to service tax 6 -By CA R S PAVAN KUMAR B.Com, FCA

How to determine exports – Rule 6A

Following are the essentials to consider a service as exported: ►

The provider of service is located in the taxable territory,

►

The recipient of service is located outside India,

► The service is not a service specified in Section 66D of the act, ► The place of provision of the service is outside India, ► The payment for such service has been received by the provider of service in convertible foreign exchange, and ► The provider of service and recipient of service are not merely establishments of a distinct person in accordance with the item (b) of explanation 3 of Section 65B(44) of the act.

7 -By CA R S PAVAN KUMAR B.Com, FCA

Determination of Location

Whether registered under service tax laws?

NO YES The location of business establishment / fixed establishment / establishment most directly concerned with the provision of the service NO Usual place of residence The Premise covered under such registration 8 -By CA R S PAVAN KUMAR B.Com, FCA

How to determine exports – Rule 6A

Following are the essentials to consider a service as exported: ► The provider of service is located in the taxable territory, ► The recipient of service is located outside India, ►

The service is not a service specified in Section 66D of the act,

► The place of provision of the service is outside India, ► The payment for such service has been received by the provider of service in convertible foreign exchange, and ► The provider of service and recipient of service are not merely establishments of a distinct person in accordance with the item (b) of explanation 3 of Section 65B(44) of the act.

9 -By CA R S PAVAN KUMAR B.Com, FCA

How to determine exports – Rule 6A

Following are the essentials to consider a service as exported: ► The provider of service is located in the taxable territory, ► The recipient of service is located outside India, ► The service is not a service specified in Section 66D of the act, ►

The place of provision of the service is outside India,

► The payment for such service has been received by the provider of service in convertible foreign exchange, and ► The provider of service and recipient of service are not merely establishments of a distinct person in accordance with the item (b) of explanation 3 of Section 65B(44) of the act.

10 -By CA R S PAVAN KUMAR B.Com, FCA

Place of Provision of Services

Rules for determining the place where the services are provided ► Follows the global practice of consumption based taxation ►

Rule 3:

Place of provision generally ►

Rule 4

: Place of provision for performance based services ►

Rule 5

: Place of provision for immovable property related service ►

Rule 6

: Place of provision of services relating to events ►

Rule 9

: Place of provision of specified services ►

Rule 10

: Place of provision of goods transport services ►

Rule 11

: Place of provision of transportation services ►

Rule 12

: Place of provision of services provided on board a conveyance 11 -By CA R S PAVAN KUMAR B.Com, FCA

Place of Provision of Service

Rule 12 Provided on Board on a conveyance The place of first scheduled departure of that conveyance(any conveyance) Some Examples: Movies, Music, Entertainment on demand Internet services The place of provision for said services need not be determined if it is provided as part of the fare Health & Fitness Services 12 -By CA R S PAVAN KUMAR B.Com, FCA

Place of Provision of Service

Passenger Transportation Rule 11 The place where the passenger embarks for a continuous journey Goods Transportation Service Rule 10 The place of destination of goods (excluding mail & courier), however in case of GTA, the location of person liable to pay tax 13 -By CA R S PAVAN KUMAR B.Com, FCA

Place of Provision of Service

Specified Services Rule 9 The location of service provider: Following are the specified services: ► Services of following companies to its account holders: ► Banking company ► Financial institution ► NBFC ► Hiring a means of transport upto a period of one month ► Online information and database retrieval services ► Intermediary Service 14 -By CA R S PAVAN KUMAR B.Com, FCA

Online Database and Retrieval Services

Services provided in relation to online information and database access or retrieval or both, in electronic form through computer network, in any manner.

Examples ► Web based services providing trade statistics, legal and financial data, matrimonial services ► Social networking sites ► Services providing access or download of digital content 15 Exclusions ► Sale of goods ► Telecommunication Services ► Services capable of being rendered over internet. Eg: Consultancy ► Repair of software or hardware ► Internet Access Service -By CA R S PAVAN KUMAR B.Com, FCA

Intermediary Service

Intermediary means a broker, an agent or any other person who arranges or facilitates a provision of a service between two or more persons but does not include the service provider himself.

Examples ► Travel Agent ► Recovery Agent ► Commission Agent for any service 16 -By CA R S PAVAN KUMAR B.Com, FCA

Place of Provision of Service

Events Rule 6 The place where the event is actually held Specifically Included Admission to/organization of: ► Cultural, Artistic ► Sporting, Scientific ► Educational, Fair ► Entertainment Events ► Conference ► Exhibition, etc & ► Services ancillary to above 17 -By CA R S PAVAN KUMAR B.Com, FCA

Place of Provision of Service

Immovable Property Rule 5 The Place where the immovable property is located or intended to be located Specifically Included ► Estate Agents ► Hotel, Guest House, Inn or Camp Site Accommodation ► Renting ► Construction ► Services by Experts 18 -By CA R S PAVAN KUMAR B.Com, FCA

Place of Provision of Service

Performance Based Service Rule 4(a) The location where the services are actually performed 1 Services in respect goods that are required to be made physically available by Receiver of Service to Provider of Service in order to provide service Example: Repair service, testing service, storage service, etc If the above mentioned services are provided from a remote location by way of electronic means, then the place of provision of service shall be the location where goods are situated.

The above mentioned criteria shall not apply in case of goods imported temporarily into India for repairs / reconditioning for re-export 19 -By CA R S PAVAN KUMAR B.Com, FCA

Place of Provision of Service

Rule 4(b) 2 The services provided to an individual which require the physical presence of the receiver or his agent for provision of service Example: Health & Fitness, Commercial Training, Photography 20 -By CA R S PAVAN KUMAR B.Com, FCA

Place of Provision of Service

In General Rule 3 The Location of Recipient of Service Some Examples: Management Consultancy Services Credit Rating Catering Service 21 -By CA R S PAVAN KUMAR B.Com, FCA

Place of Provision of Service

Rule 8 Provider and Recipient in the same taxable territory The location of recipient of service An Example: An aircraft of Company ABC develops a technical snag in UK, hence Company XYZ deputes its engineers in UK: Rule 8: POP is India More than one location (Rules 4,5,6) Rule 7 The place where the greatest proportion of service is provided.

22 -By CA R S PAVAN KUMAR B.Com, FCA

Place of Provision of Service

Order of Application Rule 14 The rule that occurs later among the rules that merit equal consideration.

An Example: An architect based in Mumbai provides his service to an Indian Hotel Chain located in New Delhi to provide his service to newly acquired property in Dubai Rule 4: POP is Dubai | Rule 8: POP is New Delhi Rule 14: POP is New Delhi 23 -By CA R S PAVAN KUMAR B.Com, FCA

How to determine exports – Rule 6A

Following are the essentials to consider a service as exported: ► The provider of service is located in the taxable territory, ► The recipient of service is located outside India, ► The service is not a service specified in Section 66D of the act, ► The place of provision of the service is outside India, ►

The payment for such service has been received by the provider of service in convertible foreign exchange, and

► The provider of service and recipient of service are not merely establishments of a distinct person in accordance with the item (b) of explanation 3 of Section 65B(44) of the act.

24 -By CA R S PAVAN KUMAR B.Com, FCA

Convertible FE – Some Issues

Consequences of not repatriating the funds in CFE or within the time limit allowed by RBI(6 months): According to Rule 6(8) of CCR, 2004 EOS will be considered as exempt service Reversal of CENVAT Credit on account of exempt service Following issues will arise: What should be the classification of service while filing ST3? EOS or Exempt?

Whether a separate refund application needs to be filed for refund of credit reversed or can the exporters suo moto avail the CENVAT Credit?

25 -By CA R S PAVAN KUMAR B.Com, FCA

How to determine exports – Rule 6A

Following are the essentials to consider a service as exported: ► The provider of service is located in the taxable territory, ► The recipient of service is located outside India, ► The service is not a service specified in Section 66D of the act, ► The place of provision of the service is outside India, ► The payment for such service has been received by the provider of service in convertible foreign exchange, and ►

The provider of service and recipient of service are not merely establishments of a distinct person in accordance with the item (b) of explanation 3 of Section 65B(44) of the act.

26 -By CA R S PAVAN KUMAR B.Com, FCA

Export of Services - Benefits

► Availability of CENVAT Credit of Excise Duty / Service Tax / Additional Customs Duty paid on inputs / input services used in the provision of Export of Service ► Refund of Unutilised CENVAT Credit or Rebate ► Rebate of service tax or duty paid on input services or inputs used in providing such service ► Incentive schemes introduced by Services Export Promotion Council 27 -By CA R S PAVAN KUMAR B.Com, FCA

Refund of CENVAT Credit – A Glimpse

Notification No. 27/2012 – CE(N.T.) ► Certain Conditions and Limitations ► Only 1 refund claim per quarter (period of 3 months from 01 st April) ► Refund shall not exceed the balance lying in the CENVAT credit register as at the end of quarter or at the time filing application w.e.l

► ► A debit to the CENVAT credit register In case the refund sanctioned is lesser than the claim, then corresponding credit to the register.

► Submission of application in Form A to CCEx or DCEx ► Time limit = time limit under Section 11B of CEA, 1944 ► Refund claim supported by certificate of statutory or other auditor in Form A1.

28 -By CA R S PAVAN KUMAR B.Com, FCA

Rebate of Service Tax – A Glimpse

Notification 39/2012 – Service Tax ► Certain Conditions and Limitations: ► Service has been exported in terms of Rule 6A ► All the duties, service tax and cess has been paid ► No CENVAT Credit has been claimed ► File declaration with ACCEx or DCEx with specifiying description, value, amount of service tax & cess to be used in EOS ► Verification of declaration by the ST Authorities ► File of rebate claim in Form ASTR -2 after the service has been exported 29 -By CA R S PAVAN KUMAR B.Com, FCA

Definition of Exempt Service

► ► ► Taxable service exempt from whole of service tax Service on which no service tax is leviable Services whose part of the value is exempted by on the condition that no CENVAT Credit shall be availed on inputs and input services (Notification 01/2011 – C.E.) ► Excluding services exported in terms of Rule 6A of STR, 1994.

30 -By CA R S PAVAN KUMAR B.Com, FCA

Import of Services

► Import of Services Rules, 2005 is now redundant ► Any service provided from outside the Taxable Territory and received by a person within the Taxable Territory, then recipient is liable to pay service tax – Notification No 30/2012 31 -By CA R S PAVAN KUMAR B.Com, FCA

Case Study 1

Outside India

Company ABC 1 Clients of ABC 2 Company XYZ

India

1: Contract for providing on call support services in relation to products of ABC 2: XYZ to provide on call support services to clients of ABC located outside India 32 -By CA R S PAVAN KUMAR B.Com, FCA

Case Study 2

Outside India

Company ABC 1 2 Company XYZ

India

1: ABC sends drug samples for testing to XYZ at its facility in India 2: XYZ conducts tests and provides reports to ABC 33 -By CA R S PAVAN KUMAR B.Com, FCA

Case Study 3

Outside India

Company ABC 1 Company XYZ 2 Manpower of XYZ

India

1: Contract for supply of manpower by XYZ for development of software under the direction of ABC 2: Manpower deployed at the facility of XYZ in India 34 -By CA R S PAVAN KUMAR B.Com, FCA

Case Study 4

Outside India

Company ABC 1 Company XYZ

India

Situation 1: The goods sent by ABC to XYZ for repairs 35 -By CA R S PAVAN KUMAR B.Com, FCA

Case Study 5

Outside India

Company ABC 1 Server Company XYZ

India

Situation 1: The goods were repaired remotely by Company XYZ 36 -By CA R S PAVAN KUMAR B.Com, FCA

Case Study 6

Agreement Framework AAA Parent Agreement 2 [Service 1] BBB Parent

Outside India Country X

AAA-X Subsidiary Actual Rendition BBB-X Subsidiary Service 2 Agreement 3 37

Outside India Country Y

AAA-X Subsidiary Actual Rendition BBB-X Subsidiary Agreement 4 Service 3

Case Study 7

India

AAA Parent Service 1 BBB Parent

Outside India

Service 4 AAA-X Subsidiary Actual Rendition Service 2 BBB-X Subsidiary

Country X Outside India Country Y

Service 5 AAA-Y Subsidiary 38 Service 3 BBB-Y Subsidiary Actual Rendition

Questions?

?

39 -By CA R S PAVAN KUMAR B.Com, FCA

Thank You

Mobile: +91 99456 66773 Phone: 080 – 4204 0581 / 82 E-Mail: [email protected]

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