Interpretation of Rule 3 of Export of Services Rules, 2005

 

 

As long as the services specified in Rule 3(3) are provided in relation to commerce and industry and recipient of such services is located outside India and the service recipient has no specified establishment in India, there is no requirement for the service provider to receive payment in convertible foreign exchange as mentioned in Rule 3(3)(ii)(1) so as to qualify for the benefits available to export of services.

 

 

 

 

 

 

CESTAT, SOUTH ZONAL BENCH, BANGALORE

Nipuna Services Ltd.

v.

CCE

Appeal No. ST/126-130/2008

November 14, 2008

 

RELEVANT EXTRACTS:

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13.       The Export of Services Rules, 2005 was notified by Notification No. 9/2005-ST. dated 03.03.2005. It was effective from 15.03.2005. The main rule is Rule 3. For clarity we are reproducing the said Rule as notified on 03.03.2005.

3.        Export of taxable service. - The export of taxable service shall mean, - :

(1)  in relation to taxable services specified in sub-clauses (d), (p), (q), (v) and (zzq) of clause (105) of section 65 of the Act, such taxable services as are provided in relation to an immoveable property which is situated outside India;

(2)  in relation to taxable services specified in sub-clauses (a), (f), (f), Oh Qh (I),M, (nUol (sUth (u), (w) (x), (y), (z) (zb) (zc), (zt), (zj), (znlfro), (zqhjzr)(zt), (zu), (zvl (zw) (zza) (zzc), (zzd), (zzf), (zzg), (zzh), (zzs), (zzj), (zzf), (zzm), (zzn), (zzoj, (zzp), (zzs), (zzt), (zzv), (zzw), (zzx) and (zzy) of clause (105} of section 65 of the Act, such services as are performed outside India:

Provided that if such a taxable service is partly performed outside India, it shall be considered to have been performed outside India;

(3) in relation to taxable services, other than, -

(i) the taxable services specified in sub-clauses (a), (f), (h), (i), 0, (I), (m),(n), (oh (Ph (qh (s), (t), (u), (v), (w), (x) (y), (z), (zbh),zzc), (zzd), (zzf), (zzg), (zzh), (zzt),(zzj), (zzl), (zzm), (zzn), (zzo), (zzp), (zzq), (zzs), (zzt), (zzv), (zzw), (zzx) and (zzy); and

(ii) . the taxable service specified in sub-clause (d) as are provided in relation to an immoveable property, of clause (105) of section 65 of the Act, -

(i) such taxable services which are provided and used in or in relation to commerce or industry and the recipient of such services is located outside India:

Provided that if such recipient has any commercial or industrial establishment or any office relating thereto, in India, such taxable services provided shall be treated as export of services only if -

(a)            order for provision of such service is made by the recipient or such service from any of his commercial or industrial establishment or any office located outside India;

(b)            service so ordered is delivered outside India and used in business outside India; and

(c)            payment for such service provided is received by the service provider in convertible foreign exchange;

(ii) such taxable services which are provided and used, other than in or in relation to commerce or industry, if the recipient of the taxable service is located outside India at the time when such services are received.

Explanation. - For the purposes of this rule "India" includes the designated areas in the Continental Shelf and exclusive Economic Zone of India as declared by the notifications of the , Government of India in the Ministry of External Affairs Nos. S.O. 429(E), dated the 18th July, 1986 and S.O. 643(E), dated the 19th .:. September 1996:

13.1. The above rule gives the meaning of export of taxable service. There are presently more than 100 taxable services. It is necessary to have a very clear concept of export of services. In respect of goods, it is not very difficult to understand what is meant by sport. Goods are tangible objects. For. e.g. when we say export of sugar, the sugar bags have actually moved out from our country to the destination abroad. What about services? When do we say are exported? In these days of internet and information technology, it would be very difficult to give a precise definition of port of services. However, Rule 3 reproduced above, attempts to categorize the taxable services into three categories. We can observe that there is Rule 3(1) we have 3(2) we have 3(3). Why such categorization?

13.2     A careful reading would reveal that Rule 3(1) relates to certain taxable services provided in relation to an immovable property situated outside India. The said services are specifically mentioned in the said Rule. For e.g. Insurance cover is given to immovable property. When the said immovable property is situated abroad, the insurance service provided to such property amounts to export of insurance service. Similar is the case with regard to the other services mentioned in Rule 3 (1). Suffice to say that the services mentioned in Rule 3(1) relate to immovable property situated abroad.

13.3     Rule 3 (2) indicates various services. When the services are performed outside India, they would be considered as Export of Services. In certain cases, a service may be partly performed in India and partly abroad, in such case also, the services would deemed to have been exported. Rule 3 (2) enumerates various services. A careful scrutiny would reveal that in respect of the services the performance is tangible. Examples: erection, commissioning, installing services, cargo handling, clearing and forwarding etc. In any case, in the present appeal, we are not concerned with these categories.

13.4.    Now let us come to Rule 3 (3). It has got two sub-clauses (i) and (ii). Sub-Rule 3 (i) does not concern us as it only states that the services mentioned therein are excluded from the scope of Rule 3 (3). The reason is, these services have been mentioned in Rule 3(2). Further, Sub-Rule 3 (ii) excludes services relating to namely insurance provided to immovable property. After Sub-Rule 3 (ii), there is a Sub-clause 3 (ii) (i). The numbering system could have been better. In any case, let us interpret the said Sub-clause (i) which is below 3 (ii). This clause covers the services, which are subject matter of the present appeals. A careful reading of the said sub-clause (i) of sub-rule 3(ii) reveals that in respect of these services, when the recipient of the services is located outside India, then the said services would be deemed to have been exported. There is a proviso for this sub-rule 3(ii) (i). This proviso states that if the recipient who is located outside India has any commercial or industrial establishment or any office in India, then such taxable services shall be treated as export of services only when the three conditions a, b, c enumerated therein are satisfied. One of such conditions is that the payment for service is received by the service provider in convertible foreign exchange. The question is whether the appellant would fall under this category? On going through the sub-rule 3{ii) (i), it is clear that the services provided should relate to commerce or industry. This is satisfied. The recipient of services should be located outside India. This condition is also satisfied. However, the condition relating to receipt of payment in convertible foreign exchange in terms of the proviso is applicable only and if only, the recipient has any establishment in India. As far as the appellants are concerned, their service recipients do not have any office in India. Therefore, the requirement of receipt of convertible foreign exchange as mentioned in the Rule 3 (3)(ii) (i) would not be applicable to them. What emerges from this analysis is that in terms of Export of Service Rule, 2005, as it then stood, there is no requirement for the appellant to receive payment in foreign exchange.

13.5. Now, we have to understand how far the position as per the above rules got modified subsequently due to further amendments. Summing up, as far as the Export of Service Rules 2005 is concerned, only in respect of services relating to 3 (3)(ii)(i), where the recipient has office in India, the requirement of payment in convertible foreign exchange is a must to deem such services as Export of Services. In other words, as long as the services specified in 3(3) are provided in relation to commerce and industry and recipient of such services is located outside India and the service recipient has no specified establishment in India, the appellant would be covered to qualify for the benefits available to export of services.

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