Budget 2010 has brought tremendous relief to the Indian service exporters. Various positive amendments have been introduced in the Budget 2010, which should make exporters’ lives a lot easier, at least on the service tax front.
The primary reason is the simplification of the Export of Service Rules (Export Rules). The Export Rules prescribe the conditions to determine when a service qualifies as exports. When the Export Rules were initially introduced in March 2005, they provided for two conditions to determine whether a service qualifies as exports.
The first condition was that the service should be in relation to an immovable property located outside India; or the service should be performed fully or partly outside India; or the service recipient should be located outside India. Of these, the condition which applied to a particular service was specified in the Export Rules. The second condition was that the consideration for the service should be received in convertible foreign currency.
However, in April 2006, the Export Rules were amended to provide an additional condition for a service to qualify as exports — that the service should be ‘delivered and used outside India’. What constituted ‘delivered and used outside India’ has been a matter of considerable litigation. In the context of services, which are inherently intangible in nature there was complete lack of clarity on the meaning of these terms.
In order to simplify the Export Rules, the condition of ‘service delivered outside India’ was replaced with the condition of ‘service provided from India’ in March 2007. While this partially reduced the confusion, litigation regarding the term ‘use of service outside India’ continued. In order to resolve this, the Central Board of Excise and Customs (CBEC) by a circular issued in February 2009, clarified that the meaning of the term ‘used outside India’ should be understood in the context of the characteristic of the particular category under the Export Rules in which that service falls.
By this interpretation, given that the term ‘use’ has to be interpreted in light of the other conditions prescribed for a service to qualify as ‘exports’, the condition of ‘use outside India’ became redundant. Though, it seemed that the export circular would bring some hope to the Indian service exporter, it did not last long, since the Delhi High Court rejected a stay application filed by Microsoft in this regard.
With the deletion of the conditions of ‘provided from India’ and ‘used outside India’ from the Export Rules, the finance minister has sought to address all controversy arising in this regard. This amendment in the Export Rules is expected to minimise litigation on the aspect whether a service qualifies as exports. Hence, this is an extremely welcome move for service exporters from India.
Source : The Economic Times