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Rediff.com  » Business » Govt clears the air on services exports

Govt clears the air on services exports

By BS Economy Bureau in New Delhi
August 20, 2004 10:43 IST
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The finance ministry on Thursday 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.
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BS Economy Bureau in New Delhi
 

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