Earlier, there was no definition for ‘export of service’ under Finance Act, 1994 or the related rules. It was then clarified that service tax is a destination based consumption tax and that it is not applicable on export of services. Then, Export of Services Rules, 2005 were issued for giving a clear idea on export of services. These rules went through a lot of amendments before being withdrawn finally on 01/07/2012, after which the Place of Provision of Service Rules, 2012 came in to force.
Rule 6A was inserted in Service Tax Rules, 1994 through Notification No. 36/2012-Service Tax. As per this rule, provision of any service shall be treated as an export of service if the following conditions are fulfilled:
1. The service provider is located in the taxable territory
2. The service recipient is located outside India i.e. outside the taxable territory
3. The service being provided does not fall under the Negative List as specified by section 66D of Finance Act, 1994
4. The place of provision of the service is outside India
5. The service receiver pays for the service in convertible foreign exchange
6. The service provider & the service receiver should not be branches of a single entity. If it is so, then any transaction relating to service between the two would not be treated as export of services.
Hence, only if all the above conditions are satisfied, then a service shall be treated as export of service.
Taxability of Export of services
According to the Place of Provision of Service Rules, 2012, the place of provision of service shall be determined and if such place is outside India, then no service tax will be leviable. Such a service provider will also be eligible to rebate of duty/tax paid on inputs or input services under Cenvat Credit Rules, 2004.