AdminThe Central Board of Excise and Customs (CBEC) has, in a far-reaching measure, clarified on interpretation of Export of Services Rules, 2005. In a Circular dated 24-Feb-09, the CBEC has examined in detail Rule 3(1) & 3(2) of Export of Services Rules, 2005 and laid down the principles as to what constitutes an `export of service’.
Sub-rule (1) of rule 3 of the Export of Services Rule, 2005 categorizes the services into three categories:
Category (I) [Rule 3(1)(i)] : For services (such as Architect service, General Insurance service, Construction service, Site Preparation service, etc.) 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.
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, etc.) 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.
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’,-
- If they are provided in relation to business or commerce to a recipient located outside India; and
- 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.
Sub-rule (2) of rule 3 of the Export of Services Rule, 2005 further lays down following conditions to determine whether the service is exported or not:
- Such service is provided from India
- Such service is `used outside India’
- Payment for such service is received by the service provider in convertible foreign exchange
Now, using an illustrative list, the Circular clarifies that the meaning of the term ‘used outside India’ in Rule 3(2) has to be understood in the context of the characteristics of a particular category of service as mentioned in rule 3(1).
Category (I) service [Rule 3(1)(i)]
Under Architect service, 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.
Category (II) service [Rule 3(1)(ii)]
If an Indian event manager 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.
Category (III) [Rule 3(1)(iii)]
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, 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.
On the same line of interpretation, the Circular clarifies that the following services would constitute export of service since benefits of these services accrue outside India:
- Call centres engaged by foreign companies who attend to calls from customers or prospective customers from all around the world including from India;
- 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;
- 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;
- 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.
It is important to note that the Circular is effective retrospectively and the Department is bound to dispose all pending matters accordingly.
