The Hindu Business Line : Draft rules on export of taxable services issued

IN keeping with the demand of trade and industry for clarity on what constitutes export of services, the Finance Ministry on Thursday issued draft rules that spell out the meaning of `export of taxable services'. The proposed rules concerning export of services would eventually form part of the existing service tax rules.

The Centre has through Finance Bill 2004 empowered itself to make rules for defining export of taxable services, providing exemption to such exports and allowing rebate of tax paid or payable on exported taxable services and their inputs.

The Ministry's move to articulate the meaning of `export of taxable services' through legislative provisions is being seen by certain tax experts and industry circles as a precursor to the withdrawal of existing service tax exemption on taxable services for which payments are received in convertible foreign exchange.

In the draft rules, the Ministry has said that taxable services provided in relation to export goods would be deemed as export of services.

It also provides that these services can be exported without payment of service tax. Alternatively, thesecan be exported on payment of service tax and later on the tax rebate may be claimed.

Further, rebate of service tax or excise duty paid on inputs used in providing taxable services would also be available.

The draft rules specify that taxable services of an architect, interior decorators, real estate consultancy and construction would be considered as export of taxable services if such services are provided in relation to "an immovable property situated outside India".

A number of taxable services such as those provided by stock brokers, customs house agents, clearing and forwarding agents, chartered accountants, mandap keepers, courier agency, fashion designers, air travel agents, road transport, Internet café, tour operators and port services would be treated as export of services only if such services are performed outside India.

The Finance Ministry has also held that such services are deemed to have been performed outside India even if they are partly performed outside India.

For taxable services such as telephone, pager, general insurance, advertising agency, consulting engineers, manpower recruitment agency, management consultancy, broadcasting services, the type of user would determine the treatment. If these services are rendered to an industrial or commercial user located outside India, then they would be treated as export.

A recipient having any establishment or office in India would however be deemed not to be located outside India. Similar services rendered to non-industrial or non-commercial users would be treated as export, if the recipient is located outside India at the time such services are received.

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