Definition of Export of Service

GST Update 24.06.2016

GST DAILY DOSE OF UPDATION:-

Definition of Export of Service:-

India is rich in cultural heritage due to which tourism and other allied service sectors are major sources of earning foreign exchange. In order to attract more tourists, government aims to make the service sector in India an affordable one. Due to this aim, export of services has been made free from the burden of service tax. At present, it is the rule 6A of Service Tax Rules, 1994 which lays down the principles governing the export of services as follows:-
“RULE 6A. Export of services. — (1) The provision of any service provided or agreed to be provided shall be treated as export of service when,-
(a)       the provider of service is located in the taxable territory,
(b)       the recipient of service is located outside India,
(c)       the service is not a service specified in the section 66D of the Act,
(d)       the place of provision of the service is outside India,
(e)       the payment for such service has been received by the provider of service in convertible foreign exchange, and
(f)        the provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of Explanation 2 of clause (44) of section 65B of the Act.”

If the above conditions are satisfied, it will be termed as export of service and all the consequential benefits will be allowable.

This rule has been borrowed by the draft GST Act at section 2(44) in order to determine the supply as “export of service”. This proposed section 2(44) reads as follows:-

“(44) the supply of any service shall be treated as “export of service” when
(a) the supplier of service is located in India,
(b) the recipient of service is located outside India,
(c) the place of supply of service is outside India,
(d) the payment for such service has been received by the supplier of service in convertible foreign exchange, and
(e) the supplier of service and recipient of service are not merely establishments of a distinct person;
Explanation.- For the purposes of clause (e), an establishment of a person in India and any of his other establishment outside India shall be treated as establishments of distinct persons.”

Thus, the supply of a service shall be treated as “export of service” if the above stated conditions are satisfied. If we compare these conditions with those laid down in the existing rule 6A of Service tax Rules, 1994; it is found that these are exactly same except one condition which does not find place in the proposed rule. This condition in rule 6A states that “The service should not be a service specified in section 66D of the Act”. The effect of this condition in the present rule 6A is that if a service is specified in section 66D (i.e. negative list), it will not be treated as export of service even if all the other conditions laid down in the rule 6A (which are imported by the proposed rule) are satisfied. In other words, a negative list service cannot fall in the definition of export of service in any case.

The rationale behind keeping this condition in the existing rule 6A is not understandable. At the first stance, it appears that the export of service is entitled to a no. of benefits including the rebate of inputs and input services and perhaps government does not want to extend these benefits to the exempted services. But there is another aspect too which does not seems to support this contention. In this regard, it is interesting to note here that this condition only debars services listed in section 66D, and not other exempted services which are included in the mega exemption notification no. 25/2012-ST dated 20.6.2012. Accordingly, if the services specified in mega exemption notification satisfy the conditions specified in rule 6A, the same will be entitled to the benefits allowable in case of export of services. Thus, this condition as existing in present scenario is somewhat discriminatory. Perhaps this is the reason the same is not carried forwarded to the proposed GST regime.

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GST Update 24.06.2016

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