EXPORT OF SERVICES: RECENT CHANGES

[Dr. Sanjiv Agarwal]

Categorization of Services

Vide Notification No. 12/2011 ST dated 1.3.2011, under the Export of Service Rules, 2005, certain services have been rearranged as follows:

(i) Service provided by builders [Section 65 (105) zzzzu)] has been added to sub-rule 1(i) and will be considered as exported, subject to compliance with other conditions, if the immovable property is situated outsideIndia.

New Services, viz , hotel accommodation services  and restaurant services shall also be covered in sub-rule (1) (i).

(ii) Rail travel agent [Section 65 (105) (zz) and health related service care [Section 65(105) (zzzzo)] have been added to sub-rule 1(ii) and deleted from clause 1(iii) and will  be considered as exported, subject to compliance with other conditions, when they are performed outside India; and

(iii)Services of -

-     credit rating agency [Section 65 (105)(x)],

-     market research agency [Section 65(105)(y)],

-     technical testing and analysis [Section 65(105)(zzh)],

-     transport of goods by air [Section 65(105)(zzn)],

-     goods transport agency [Section 65(105) (zzzp)],

-     opinion poll [Section 65(105)(zzs)], and

-     transport of goods by rail [Section 65(105)(zzzp)]

have been deleted from sub-rule 1(ii) and as such, the additional condition of performance outside India will be stand removed. These services will be considered as exported, subject to compliance with the relevant conditions, if the recipient is located abroad under sub-rule(1) (iii).

Further, exemption has been granted vide Notification 8/2011-ST dated 1.3.2011 to services of transportation of goods by air or road or rail provided to a person located in India when the goods are transported form a place outside India to a destination outside India.( ie, origin and destination are both outside India) Exemption has also been granted vide Notification 9/2011-ST dated 1.3.2011 to the transportation of goods by air provided that the air freight is included in  the value of goods in order to avoid taxing this service twice. Vide Notification No. 5/2011-ST dated 1.3.2011, exemption has been granted to organizer of business exhibition for holding business exhibition outside India [section 65(105) (zzo)].  

Point of Taxation in Exports

Point of Taxation Rules, 2011 provide for determination of point of taxation in different situations wef. 1.4.2011. These rules determine the point in time when the taxable services shall be deemed to be provided. According to Rule 7, the point of taxation in respect of services covered by rule 3(1) of the Export of Service Rules 2005, shall be the date on which payment is received. In case where the payment is not received within the period specified by the Reserve Bank of India, the point of taxation shall be determined, as if this rule does not exist. Thus, export of services is exempt subject, inter alia, to the condition that the payment should be received in convertible foreign exchange. Until the payment is received, the provision of service, even if all other conditions are met, would not constitute export. In order to remove the hardship that will be caused due to accrual method, the point of taxation has been changed to the date of payment. However, if the payment is not received within the period prescribed by RBI, the point of taxation shall be determined in the absence of this rule. For details, refer to Topic No. 8 of the Book. 

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