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Govt clears the air on services exports
Our Economy Bureau / New Delhi August 20, 2004
Revenue dept proposes services exports to be exempt from 8% service tax.
The finance ministry today sought to clear the confusion on what
constituted services exports by doing away with the traditional
definition of mode of payment — whether it is Indian rupee or foreign
exchange — to determine services exports.
In a set of draft rules posted on the ministry’s website for public
comments, the revenue department has proposed that services provided for
goods to be exported would be treated as exports. These services would
thus be exempt from the 8 per cent service tax.
Further, the services of architects, interior decorators, real estate
consultancy or construction firms, for immovable property situated
abroad, would be considered as service exports. For example, if an
architect provides the design for a commercial complex in London, he
will not be required to shell out the 8 per cent service tax.
Alternatively, he can pay the tax and claim a refund later. Similarly,
specified services involving a physical activity, for instance, storage
and warehousing of goods, which are performed outside India, would be
treated as export. To avoid disputes, the department has said that even
if such services were partly performed outside, it would be treated as
exports.
For instance, if a warehousing company provides services to a goods
manufacturer both in India and abroad, it has to pay service tax on the
total bill. Now, the portion of services rendered overseas — warehousing
of goods for the manufacturer say in United States of America — would
not attract the 8 per cent tax.
Also, services like advertising, manpower recruitment, on-line
information and database access, broadcasting, banking, etc rendered to
an industrial or commercial user located outside India, would be treated
as exports unless the user has any office in India.
The department has listed 22 such services including management
consulting, telegraph and telex, general insurance, cable operations,
which if provided to an overseas user would not be taxed.
The finance ministry has proposed a suitable amendment in the Finance
Bill to enable Government to make rules defining export of taxable
service, and providing exemption to such exports and rebate of tax paid
or payable on exported taxable services and their inputs.
In a press statement issued today, the government said that there were
no legislative provisions defining the export of services. Though all
taxable services for which payments were received in convertible foreign
exchange were exempt from service tax, there had been demands from the
industry seeking suitable norms.