Export of Services

1. Simplified Approach to Export Of Services Rules Dear Friends!! I came across a number of
queries in relation to applicability of Service Tax on services performed in India for Service
receivers Outside India.
Some of the typical cases were:
1. Service of Recruting staff for employment for a Company outside India
2. Research and Development activity in India for a Company Outside India
Likewise there can be more cases.
So, I have tried to analyse these queries in the light of applicable service tax legislation.
In my opinion the above cases qualify as Export of Service and thus are not taxable under
Service Tax.
The abstract of my analysis is as below. (I have presented my analysis in the form of
questions and answers for ease of reference)
Question 1: What is Export of Services under Service Tax?
Answer: As per Rule 6A of the Service tax Rules, any service provided or agreed to be
provided shall be treated as export of services when-
a. the Service Provider is located in Taxable territory.
b. the recipient of service is located outside India.
c. the service is not a service specified in the Negative List in the section 66 of the Act.
d. the place of provision of service is outside India (Note: The most important
condition)
e. the payment for such services has been received by the Provider in CFE
f. the provider of service and recipient of service are not mere establishments of a
distinct person in accordance with the item (b) of Explanation 3 of clause (44) of
section 65B of the Act.
Note:The conditions above are all “and” conditions thus all need to be satisfied in order for a
service to be qualified as Export of Service.
Question2: What is taxable territory as mentioned in clause (a) of Rule 6A?
Answer: The term “taxable territory” has been defined in Clause 52 of Section 65B of
Finance Act. It means the territory to which provisions of this Chapter apply;
My Analysis: A reading of Section 64 along with Section 65B says that taxable territory
means whole of India except the State of Jammu and Kashmir. Therefore the first condition
to be satisfied in case of Export of Services is that the service provider is located in India
except for State J&K.
Qusetion3: How to determine that the recipient of service is located outside India.
Answer: As per Rule 2 of Place of Provision Rules, 2012 location of service receiver means-
where the recipient of service has obtained a single registration, whether centralized or
otherwise, the premises for which such registration has been obtained;
My Analysis: As first the location of service receiver is sought with respect to its service tax
registration whether single or centralised. His location shall be the one where he is registered.
b. where the recipient of service is not covered under sub –clause (a)
i. the location of his business establishments; or
ii. Where services are used at a place other than the business establishment, that is to
say, a fixed
iii. Establishment elsewhere, the location of such establishment; or
iv. where services are used at more than one establishments ,the establishment most
directly concerned with the use of the service; and
v. in the absence of such places, the usual place of residence of the recipient of service.

2. My Analysis: A reading of clause( b) brings out that when the receiver of service is
unregistered then his location shall be the location of his business establishment. Clause (b)
further says that where the services are used at a place other than business establishment,
such other place shall be the location of the service receiver. To add on I would say that just
having a business establishment in India, does not mean that the location of service receiver
is In India if the services are used at some other place outside India, then that would be the
location of the Service recipient (SR) and accordingly SR shall be said to be located outside
India.
Question 4: What does that mean “the service is not a service specified in the Negative List in
the section 66 of the Act.”
Answer: A Negative list of services has been specified under Section 66D of the Finance Act.
The services so specified are not taxable and are outside the purview of service tax.
Therefore, if a service provider provides any of such specified services then the question of
Export of Service does not arise at all as in the first place to qualify for exports the service
should be taxable.
Qusetion 5: What is the validity of this clause “the place of provision of service is outside
India”
Answer: This is the most important clause as it determines the main element for taxability of
a service. Place of Provision (POP) of Service Rules, 2012 prescribes specific Rules for
determination of place of provision for a number of specific services. However, as per
residuary rule 3, of POP Rules, 2012 where a service does not fall under any of the specified
rules, then the place of provision shall be as per Rule 3 i.e. is the location of service receiver.
Out of the specific rules, Rule 4 in my opinion requires a little more deliberation.
Rule 4 talks of services performed in respect of goods/individuals and not merely any
performance service.
An Overview of rule 4 of POP Rules 2012
As per this Rule, Place of provision shall be the location where the services are actually
perfumed.
Rule 4(a) says, where the services are provided in respect to goods that are required to be
made available by the Service Receiver to the Service Provider, the place of provision shall
be the place where services are performed.
Eg: typically in case of Warehousing, repair, testing, maintenance
Rule 4(b) relates to services that are provided to an individual who is either the recipient or
his representative, which require the physical presence of the Service Recipient with the
Service Provider, the place of provision shall be the place where services are performed.
Eg: typically in case of Health Care, education
To conclude this point we can say that to qualify for exports, the place of provision of a
service as determined by the Place of Provision of services Rules shall be outside India.
Question 6: What does that mean “the payment for such services has been received by the
Provider in Convertible foreign exchange (CFE)”
Answer: Another condition to be satisfied to qualify for exports is that the payment received
for rendering the services shall be received in Convertible foreign Exchange like
dollars($),Euros or other specified currencies.
Qusetion 7: What was the intent of Legislature in adding the clause “the provider of service
and recipient of service are not mere establishments of a distinct person in accordance with
the item (b) of Explanation 3 of clause (44) of section 65B of the Act.”
Answer: The intent of the Legislature is to clear that though as per Explanation 3 clause (44)
of Section 65(b) an establishment of a person in the taxable territory and any of his other

3. establishments in a non-taxable territory shall be treated as establishments of distinct persons,
any export between them is taxable and not exempted.
Conclusion: A service provided shall be eligible as export of service if all the conditions
specified in Rule 6A of Service tax Rules are compiled with. Yes

4. Export of Services Rules under Service Tax
The Export of service Rules, 2005 were notified with effect from 15-03-2005 to determine
whether a provision of service will be regarded as export of service. Like export of goods,
service can also be exported without payment of duty/tax.
So before we move on to export our services outside India, let us understand in brief the basic
conditions required to be fulfilled, so that it can be treated as Export of service.
As per clause (1) of rule 6A of service tax rules, any service provided or agreed to be provided
shall be treated as export of service if all the below mentioned conditions satisfied
cumulatively-
A. The provider of service is located in the taxable territory :-
The first condition to be satisfied is that the service provider must be located in the taxable
territory. Under section 65B(52) of the act, the term ‘taxable territory’ means the territory to
which the provisions of the act apply. Under section 64(1) of the act, the act extends to the
whole of India except the State of Jammu & Kashmir.
From a combined reading of the aforesaid provisions, it is clear that the term ‘taxable territory’
means ‘India’ minus the State of Jammu & Kashmir.
It is also clear that any service provider located in the State of Jammu & Kashmir Cannot be
treated as an ‘exporter’.
B. The Recipient of service is located outside India :-
The second condition to be satisfied is that the recipient of service (service receiver) must be
located outside India. This means that the service receiver must be located outside the territorial
limits of India, including the State of Jammu & Kashmir.
If service provider is located within the State of Jammu & Kashmir, the case will not fall under
‘Export of Service’.
C. The service is not a service specified in section 66D of the Act :-
The third condition to be satisfied is that the service must not be a service specified in the
Negative List spelt out in section 66D of the Act.
There are certain changes made in the negative list. Updated Negative list can be checked at
following link :-
Exemption of Services –Notification No. 25 dated 20.06.2012 updated till date
D. The place of provision of the service outside India :-
The forth condition to be satisfied is that the place of provision of the service must be outside
India. The fulfillment of this condition will have to be determined in accordance with the place
of provision of service laid down in Rules 3 to 14 of the PPP Rules which are as follows: .

5. Rules
Description of
service
Explanation Place of Provisions
3 General Rule.
Generally the POP of service
is the location of service
recipient.However if the
location of service reciepient
is not available then the
location of service provided
will be POP
4(a)
Performance
based service
If goods are physically
made available to service
provided by Service
Recipient i.e repairing,
reconditioning, storage and
warehousing, cargo
handling service etc.
Location Where the services
are actually performed
first
proviso
to rule
4(a)
Services mentioned in 4(a)
are provided from a remote
location by way of
electronic means
Location where the goods are
situated at the time of
provision of services
Second
proviso
to rule
4(a)
Services provided in
respect of goods that are
temporarily imported in to
India for repairing,
reconditioning etc
Rule 4(a) will not apply,
subject to conditions as may
be specified in this regards
4(b)
if the physically presence
of an individual and the
service provider at the time
of performance of services
i.e cosmetic services,
personal security service,
health and fitness services,
photography services,
classroom teaching
services, etc.
Location Where the services
are actually performed
5
services related to
immovable
property
Services directly related to
immovable property:
Place where the immovable
property is located or
intended to be located
Services provided by
experts and state agents
Provision of hotel
accommodation by a hotel,
inn, club or campsite by
whatever name called
Grant of rights to use
immovable property i.e
renting
carrying out or co-
ordination of construction

6. work including architects or
interior decorators
Services not related with
immovable property:
Advice or information
relating to land prices or
property markets because
they do not relate to specific
sites
Making a return by a person
in respect of rental income
from immovable property
Repair and maintenance of
machinery which is not
permanently installed (this
related to goods)
6
Services relating
to events
Events covered are: cultural
artistic, sporting, scientific,
Educational, entertainment
event, conference, fair,
exhibition or similar
events.[list is
exhaustive]except
entertainment event
[exempt as per u/s 66D]
place where the event is
actually held
7
Service provided
at more than one
location
Where any service referred
to in rule 4,5,6 is provided at
more than one location ,
including a location in the
taxable territory.
Location in the taxable
territory where the greatest
proportion of the service is
provided
8
Services where
provider and
recipient are
located in taxable
territory
This rule will override rule
3,4,5 and 6 and not override
on 9,10,11or 12. If place of
provision of a service falls
under both rule 3,4,5 or 6
and rule 8, then rule 8 shall
apply due to the application
of rule 14.
Location of recipient of
service
9(a)
Specified
services
Services provided by a
banking company or
financial institution, or
NBFC to account holder
Location of Service Provider
9(b)
online information,
database access or retrieval
service
Location of Service Provider
9(c)
Intermediary service (
intermediary means a
broker, an agent or any other
Location of Service Provider

7. person who are ranges or
facilitates a provision of
service between two or
more person, but does not
include a person who
provides the main service on
his account.
9(d)
service consisting of hiring
of means of transport upto
a period of one month(
transport goods or person
from one place to other)
Location of Service Provider
10
Transportation of
Goods service
Service of transportation of
goods other than by way of
mail or courier or through
GTA
Place of destination of goods
Proviso
to Rule
10
Services of GTA
Location of the person liable
to pay tax
11
In respect of
passenger
transportation
service
It may be pertinent to
mention that for flights
originating from , or
terminating in, the north
east region, though the POP
will be determined in term
of this rule, there is an
exemption for air
transportation of passengers
, embarking from, or
terminating in an airport
located in state of Arunachal
Pradesh, Manipur,
Meghalaya, Mizoram,
Nagaland, Sikkim, Tripura
or at Bagdogra located in
west Bangal
Place where the passenger
embarks on the conveyance
for a continuous journey
12
service on board a
conveyance
during the course
of passenger
transport
operations,
including services
intended to be
wholly or
substantially
consumed while
on board
For Example A video game
or a movie on demand is
provided as on the board
entertainment during the
Kolkatta- Delhi leg of a
Bangkok-Kolkata-Delhi
flight. The POP would be
Bangkok( outside taxable
territory, not liable to tax)
First scheduled point of
departure of that conveyance
for the journey

8. 14
order of
application of rule
For Example person X
located in Mumbai owns
immovable property in
Nepal. Mr Y located in
Hyderabad visits Nepal for
business purpose and stays
in the property owned by Mr
X in Nepal. He pays rent to
Mr X for staying in his
property. Now as per Rule
5, POP would be location of
immovable property but as
per Rule 8 because both the
service provider and service
recipient are located in
taxable territory, POP shall
be location of service
receiver
It states that where the
provision of service is prima
facie, determinable in term of
more than one rule, it shall be
determined i.a.w the rule that
occurs later among the rules
that merit consideration.
E. The payment of such service has been received by the provider of service in
convertible foreign exchange :-
The fifth condition to be satisfied is that the payment for the service in question must have been
received by the provider of that service in convertible foreign exchange. The term ‘convertible
foreign exchange’ has not been defined in the act or the Rules. Generally, the term is understood
to mean ‘foreign exchange which is for the time being treated by the Reserve Bank of India as
convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973
and any rules made thereunder’. The service provider must produce evidence of receipt of the
payment in convertible foreign exchange in order to claim the benefit of rebate.
In the case of National Engineering Industries v. CCE[2012] 36 STT 753/24 taxmann.com 328
(New Delhi – CESTAT). The assessee, a commission agent, booked business for foreign
supplier M/s. GMC for export of goods to Indian Railways. Instead of GMC paying
commission in foreign exchange to assessee, Indian Railways paid equivalent rupee value
commission to assessee and deducted such amount from payment made to GMC foreign
exchange. Assessee contended that service provided by it to foreign supplier was ‘export of
service’ and eligible for refund of service tax paid thereon. Department contended that there
was no export of service as commission had not been received by assessee in convertible
foreign exchange. It was held that instead of foreign exchange going out of India, there was
conservation of foreign exchange in India to extent of commission earned by assessee service
provider in view of the arrangement made by GMC through Indian Railways. This had fulfilled
objective of export of service. Hence, assessee’s claim of refund was allowable.
It is evident from the provisions of Rule 6A of Service Tax Rules that service can be considered
as export of service when the amount is received in foreign convertible currency. In case the
amount is not received in foreign convertible currency, the service will not be considered as
export of service, but service provider also will not be liable to pay service tax. It will be
considered as exempt service and therefore he will have to proportionately reverse the credit
as provided under rule 6(1) of the cenvat credit rules, 2004.

9. F. The provider of service and recipient of service are not merely establishments of a
distinct person in accordance with item (b) of Explanation 3 of clause (44) of section 65B
of the Act :-
This is the sixth and final condition that must be satisfied. This is deeming provision which
carves out an exception to the general rule that only services provided by a person to another
person are taxable. The fiction created was to ensure that inter se provision of services between
such persons, deemed to be separate persons would be taxable. The sixth condition stipulates
that the provider of service and recipient of service should not be merely establishments of a
distinct person referred to above. In effect, if a person has one establishment in a taxable
territory and another establishment in a non-taxable territory, services provided by the former
to the latter will not be treated as ‘export of service’.