Services provided by real estate consultants, architects, interior decorators, constructors and general insurers abroad will be treated as exports and, therefore, will not attract 10 per cent service tax.
As per the Export of Service Rules, 2005, notified by the government, services such as air transport, commercial coaching and dry-cleaning, which involve physical activity, will be treated as exports if the service is partly or wholly performed outside India.
The rules will be effective from March 15, 2005. Services like management consultancy, telephone, banking and other financial services will be treated as exports, provided they are extended to an industrial or commercial establishment located outside India and for use in commerce and industry.
In case an industrial or a commercial establishment also has a facility or an office in India, the services will be considered exports only if they are provided from outside India, or delivered outside India, and if payment for the services are received in convertible foreign exchange, according to an official release.
According to the rules, taxable services provided to a recipient and used other than in an industry or commerce will be treated as exports only if the recipient is outside India at the time when the service is rendered.
Taxable services are allowed to be exported without the payment of service tax. If services are exported, after payment of service tax, the rebate of service tax paid on such taxable services will be available.
Provisions for rebate of service tax paid on input services and excise paid on input goods have also been made. Consequential changes have also been made in the Cenvat Credit rules, 2004, and shall be effective from March 15, 2005.
So far, taxable services for which payments were received in convertible foreign exchange were fully exempt from payment of service tax.
However, there was no separate provision to define "export of services". In Budget 2004, an amendment had been made in the Finance (No.2) Act, 2004, enabling the government to make rules for defining export of service and providing exemption from service tax to such exports and rebate of tax paid on input services or duty paid on inputs used in such export of services.
Export of service cannot be defined in the same way as export of goods as unlike goods, services are not tangible.
Services are treated as exports if they are ordered by a person outside the country and delivered outside the country.
In other words, the recipient of a service, who is the principal beneficiary of the service, should be outside the country.
The rules have been notified taking into account the international practices of treatment of services for the purpose of export of services and other material facts, the release added.
