Export of Service Rules 2005 (“the rules”) was introduced in the year 2005 by Notification No. 9/2005 ST dated 03.03.2005 which have come into effect from 15th March 2005. These rules may be summarized as follows: The taxable services listed in Rule 3 (1) (i) shall be considered as export of service only when the service is provided to an immovable property situated outside India. Taxable services listed in Rule 3 (1) (ii) shall be treated as export of service even if they are partly performed outside India. Similarly taxable services listed in Rule 3 (1) (iii), the services shall be treated as export of service with exclusions mentioned therein. For the purpose of these rules, all the taxable services listed in the three sub clauses of sub rule 3 (1) have to be provided in relation to business or commerce to a recipient outside India. However if the recipient has a commercial establishment or office in India, then the order for receipt of such service shall be placed from any of his commercial establishment or office located outside India.

Further, sub rule 3 (2) stipulates that such services shall be treated as export of service only when they are delivered outside India (amendment discussed below) and used outside India and payment for such service is received by the service provider in convertible foreign exchange. The explanation under sub rule 3 (2) explains the scope of the term “India” which is based on the notifications issued by Ministry of External Affairs, Government of India. Further all the specified taxable services can be exported without payment of service tax and if any taxable service is exported on payment of service tax then rebate of such tax paid can be claimed by the service provider. Rebate of tax paid on inputs or input services used in providing such taxable service exported is also available. However these rebates are subject to the conditions prescribed in the relevant notifications. A detailed list of taxable services listed under the three sub clauses of rule 3 (1) is provided as an appendix to this write up.

Notification No. 2/2007 ST dated 01.03.2007 amends Export of Service Rules 2005 by substituting sub rule 3 (2). In fact, the change is only in sub-clause (a) of that sub rule. Prior to this amendment the sub clause in that sub rule read as follows:

“…… (a) such service is delivered outside India and used outside India; ….”

The amended sub clause with effect from 01.03.2007 is as follows:

“…… (a) such service is provided from India and used outside India; ….”

The essential difference is that the phrase “delivered outside India” is replaced by “provided from India”. Hitherto a taxable service is considered as exported if such service is delivered outside India irrespective of whether the service provider provides such service from within India or outside India. In other words, for the purpose of exporting taxable services there was no restriction on the location of the service provider i.e. even if taxable service is provided by a commercial arm of the service provider from any of his business establishments or offices located outside India then they are treated as export of service. This is more relevant to the service providers who are engaged in providing all the services listed in clause (i) of sub rule 3 (1) which requires physical presence of either the service provider or his personnel in actual provision of service. The services listed therein are in relation to an immovable property situated outside India. Now with the amended provision it is to be seen as to how any service of these taxable services can be exported at all when there is a stipulation that they have to be ‘provided from India’.

The “delivery/provision” fiasco also casts its shadow on a host of taxable services listed in sub clauses (ii) and (iii) of sub rule 3 (1) of the rules as well, where the taxable service warrants actual physical presence of the service provider or his personnel. The examples of such taxable services include beauty treatment service, cargo handling service, cleaning service, courier service, dry cleaning service, erection, commissioning & installation service, outdoor caterer’s service, packaging service, photography service, storage & warehousing service, survey & exploration of mineral, transport of goods by air service, transport of goods in containers by rail service, transport of goods by road service, video production agency’s service, ATM operations, maintenance or management service, cable service, computer network service, ship management service, survey & map making service (other than for immovable property), and transport of goods other than water, through pipeline or conduit service.

Though ‘service’ per se is intangible, I wonder how the aforementioned taxable services can be ‘provided from India’ by the service providers when actual service is linked directly or indirectly to tangible goods. May be mandarins in the finance ministry/CBEC have some ingenious ideas up their sleeves to provide crash courses to those service providers who are engaged in providing the taxable services affected by this amendment to ‘provide’ these services ‘from India’.

I also wonder if some of the other services listed in the statute can be exported at all whether they are delivered outside India or provided from India. The list of services in the appendix is self explanatory. Further, the explanatory notes and the letter from the JS (TRU) for service tax released by the Ministry/TRU states that Notification No. 2/2007 amends Export of Service Rules, 2005 by substituting the existing sub rule 3 (2) with a new sub rule. It also mentions that there is a clarification to the effect that taxable services will be treated as exports only if they satisfy both the provisions of sub rules 3 (1) and 3 (2).

Tailpiece: Fortunately or unfortunately the clarification or otherwise as claimed by the TRU letter is neither a clarification nor an explanation but a simple amendment in the body of Rule 3(2) that any taxable service specified under sub rule (1) shall be treated as export of service subject to further conditions in sub rule (2). This specification was hitherto absent in the older version of rule 3 (2). TRU could have stated the obvious rather than go overboard and state that a clarification is made to this effect in the Rules.

By the way is this “specification” going to make any difference as perceived by the CBEC/TRU? After all, the taxable services enlisted under sub rule (1) of rule 3 covers the entire gamut of taxable services under the statute while excluding only two taxable services viz., aircraft operator’s service to a passenger on an international journey, embarked in India (clause zzzo of sub-section 105 of section 65) and transport of passengers embarking in a port or any other port in India from a cruise ship (clause zzzv ibid) which can never be claimed as exported for obvious reasons. Instead the sub rule (2) could have read as follows: “The provision of any taxable service specified under sub (1) shall be treated as export of service when the following conditions are satisfied, viz,

a) the service provider exporting such taxable service adheres to the conditions prescribed in sub rule (1),

b) such taxable service is “provided from India and/or delivered outside India” as the case may be* and used outside India, and

c) payment for such service provided outside India is received by the service provider in convertible foreign exchange”.

* subject to my reservations about the phrase “provided from India” as explained in my write up above, which is disadvantageous to certain categories of service providers.

APPENDIX

3(1) (i) Taxable services provided in relation to an immovable property situated outside India

i. Architect’s service

ii. Auctioneer’s service

iii. Construction of complex service

iv. Commercial or Industrial construction service

v. Dredging service

vi. General Insurance service

vii. Interior decorator’s service

viii. Real estate agent’s service

ix. Site formation & clearance, excavation & earth moving, demolition & other service

x. Survey and map making service

3(1) (ii) Taxable services even if partly performed outside India

i. Airport service

ii. Air travel agent’s service

iii. Authorized service station service

iv. Beauty treatment service

v. Business Exhibition service

vi. Cargo handling service

vii. Chartered accountant’s service

viii. Cleaning service

ix. Clearing & forwarding agent’s service

x. Club or association’s provision of services, facilities to members

xi. Commercial training & coaching service

xii. Company secretary’s service

xiii. Convention service

xiv. Cost accountant’s service

xv. Courier service

xvi. Credit rating agency’s service

xvii. Custom house agent’s service

xviii. Dry cleaning service

xix. Erection, commissioning & installation service

xx. Event management service

xxi. Fashion designing service

xxii. Forward contract service

xxiii. Health & fitness service

xxiv. Internet café service

xxv. Management, maintenance & repair service

xxvi. Mandap keeper’s service

xxvii. Market research agency’s service

xxviii. Opinion poll service

xxix. Other port service

xxx. Outdoor caterer’s service

xxxi. Packaging service

xxxii. Pandal or Shamiana contractor’s service

xxxiii. Photography service

xxxiv. Port service

xxxv. Rent-a-cab scheme operator’s service

xxxvi. Security agency’s service

xxxvii. Sound recording service

xxxviii. Steamer agent’s service

xxxix. Stock broker’s service

xl. Storage & warehousing service

xli. Survey & exploration of mineral, oil and gas service

xlii. Technical inspection and certification service

xliii. Technical testing and analysis service

xliv. Tour operator’s service

xlv. Transport of goods by Air service

xlvi. Transport of goods in containers by rail service

xlvii. Transport of goods by road service

xlviii. Travel agent’s service

xlix. Underwriter’s service

l. Video production agency’s service

3(1) (iii) Taxable services with exclusions like aircraft operator’s service to a passenger on an international journey, embarked in India (clause zzzo of sub-section 105 of section 65) and transport of passengers embarking in a port or any other port in India from a cruise ship (clause zzzv ibid).

i. Advertising agency’s service

ii. Auctioneer’s service (other than for immovable property)

iii. ATM operations, maintenance or management service

iv. Banking & other financial service

v. Broadcasting service

vi. Business auxiliary service

vii. Business support service

viii. Cable service

ix. Computer network service

x. Consulting engineer’s service

xi. Card (credit/debit/charge) related service

xii. Facsimile service

xiii. Franchise service

xiv. General Insurance service (other than for immovable property)

xv. Insurance auxiliary service

xvi. Intellectual property service

xvii. Internet telephony service

xviii. Leased circuit service

xix. Life insurance service

xx. Mailing list and compilation service

xxi. Management consultant’s service

xxii. Manpower recruitment and supply agency’s service

xxiii. Programme production service

xxiv. Public relations management service

xxv. Rail travel agent’s service

xxvi. Recovery agent’s service

xxvii. Registrar to an issue service

xxviii. Sale of space or time for advertisement service

xxix. Scientific & technical consultancy service

xxx. Share transfer agent’s service

xxxi. Ship management service

xxxii. Sponsorship service

xxxiii. Survey & map making service (other than for immovable property)

xxxiv. Telegraph service

xxxv. Telex service

xxxvi. Telephone & pager service

xxxvii. Transport of goods other than water, through pipeline or conduit service

(The author is working with a leading Consulting Firm)