The Hindu Business Line : When is forex earned taxable?

Any foreign currency earned or received by a service provider prior to March 15, 2005, was exempt from levy of service tax. According to Notification 6/1999-ST of April 9, 1999, and Notification 21/2003-ST of November 20, 2003, taxable services provided to any person in respect of which payment was made in convertible foreign exchange was wholly exempt from levy of service tax provided it was not repatriated outside India. This notification has since been rescinded vide Notification 10/2005-ST dated March 3, 2005, w.e.f. March 15, 2005. Consequent to this, Export of Services Rules, 2005 were notified vide Notification 09/2005-ST of March 3, 2005 w.e.f. March 15, 2005.

This receipt of convertible foreign exchange alone is not a criteria for exemption from levy of service tax but the taxable service in question will have to satisfy the criteria of being called an `export' as defined in rule 3 of the Export of Services Rules, 2005.

Prior to March 15, 2005, all convertible foreign exchange were exempt from levy of service tax. With effect from March 15, 2005, only export of services is exempt from service tax which may or may not involve receipt of foreign exchange.

Overseas training

What is your view on the incidence of service tax on organisations that depute employees on training to foreign institutes?

N. Sukumar

So far as coaching or training is concerned, the same is a taxable service under Section 65(26) of the Finance Act, 1994. In case of overseas training, generally, there is no question of levy of service tax. However, in view of Section 66A, introduced by the Finance Act, 2006 w.e.f. April 18, 2006, this needs examination under reverse charge method.

Section 66A levies service tax under reverse charge method on taxable services provided from outside India to a recipient in India. At the same time, the explanation at the end of sub-section (105) of Section (65), which was inserted in 2005, has been omitted which also provided for a similar provision.

Section 66A imposes two conditions which needs to be satisfied for taxation of service tax on such imported services: a) the service must be received by a person in India; and b) the service provider must be situated outside India.

Only if both these conditions are fulfilled, the question of levy of service tax arises. Import of services not meant for commercial or business use shall not be taxable. Thus, services of personal nature such as photography, videography, beauty parlour, health club, etc., may not get covered under this Section.

New Section 66A levies service tax on taxable services provided or to be provided by a person, who has established a business or has a fixed establishment from which the service is provided or to be provided, or has his permanent address or usual place of residence in a country other than India, and received by a person who has his place of business, fixed establishment, permanent address or usual place of residence in India, such service shall, for the purposes of this section, be a taxable service.

The Government has prescribed Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 for levy of service tax on taxable services provided from outside India and received in India.

In this case, though the services are actually received by individuals, they are in fact received by them on behalf of their company. Their company has deputed them for training abroad and there is a contract between the service provider and the trainee's company. As such, it will be treated that such services are received in relation to business or commerce only.

Rule 3 prescribes for the taxability of services provided from outside India based on three criteria. So far as coaching services are concerned, under rule 3(ii), taxable services provided from outside India and received in India shall be taxable service if performed inside India. If a service is performed partly inside India, even then it shall be considered to have been performed in India. As such, in the instant case, services are performed outside India and, therefore, it can be concluded that these services shall not be subjected to levy of service tax in India.

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http://MentorQA.blogspot.com

Sanjiv Agarwal

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