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Import

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Not based on receipt from across the border, though loosely the term used is import ... Dry cleaning/fashion designer ( Garments industry) Vision for future ... – PowerPoint PPT presentation

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Title: Import


1
Import Export of Services- Service Tax Issues
  • By
  • V K Garg

2
Issues
  • Import
  • Export
  • Rebate/refunds

3
Import of services
4
Taxability
  • Not based on receipt from across the border,
    though loosely the term used is import
  • Providing a taxable service
  • from a person abroad (exporter)
  • to a person of Indian base (importer)
  • Service may be provided anywhere

5
Importer?
  • Any person who has any of the following in
    India
  • Business/fixed establishment or
  • Permanent address or
  • Usual place of business
  • Person need not be Indian resident. Sufficient if
    he fulfills any of the requirements

6
Important points
  • Point 1
  • Received by PERSON
  • Not limited in respect of operations in India
  • Point 2
  • Mere RECEIVED not necessarily consumed

7
Tangibility of services
  • Mostly goods
  • Rent a cab
  • BAS (production not amounting to production)
  • Combination of goods services
  • Catering
  • Beauty parlor
  • Only service
  • Management consultancy
  • BAS (commission agents)

8
Anywhere?
  • Service received in India
  • Consumed in India
  • Consumed elsewhere e.g. mobile chip used outside
    India
  • Service received outside India
  • Consumed in India e.g. mobile chip purchased
    abroad used in India
  • Consumed elsewhere

9
Anywhere?
10
Services received outside
  • Extra-territorial?
  • Act does not restrict services provided in India,
    unlike Central excise which says goods
    manufactured in India
  • Income tax on income earned abroad by Indian
    residents
  • Many other economic legislations e.g. FEMA
  • Even IPC applicable for acts abroad
  • However they are applicable to Indian
    residents/citizens.
  • Service tax made applicable to non-residents
    too though restricted to entities with physical
    presence in India, howsoever little

11
Services received outside
  • Does not appear unintentional no confusion in
    terms of taxability
  • Circular B1/6/2005 dt 27 July, 2005 states
    charging service tax from recipients when the
    service is provided by a non-resident is a well
    accepted international practice
  • Individuals exempt for non-commercial use
  • Notfn. 22/2005-ST exempts certain services (e.g.
    CHA,Steamer agent, CF provided by non-residents
    and consumed outside India in the context of
    sailing of an Indian ship

12
Services received consumed outside
  • Foreign consultant for a foreign project
  • Advertising abroad
  • Market research of foreign markets for new
    projects abroad
  • Banking Financial services abroad
  • Event management
  • Dry cleaning abroad
  • Health club fitness

13
Extra-territorial issues
  • Importer
  • Permanent residence UK
  • Usual place of business USA
  • Small establishment in India
  • Exporter
  • Established in USA with no office in India
  • Service Consultancy for business in USA
  • This may lead to multiple taxation totally
    disproportionate to business presence in a
    country

14
Determining test
  • For persons with residence/usual place of
    business in India
  • Services received anywhere and for use anywhere
  • For persons with residence/usual place of
    business other than India
  • For use in a business/ establishment or
    operations in India

15
International situation
  • Services received by entity in that country
  • Services received outside not taxable
  • Same as import in the case of goods
  • Received????
  • Delivery
  • Consumption
  • Either

16
Protections
  • Service should be a taxable service
  • Provided by a service provider defined as per the
    Act e.g.
  • Banking Financial Services
  • Banking/NBFC Co as per RBI Act
  • Authorized dealer as per FEMA Act
  • Body Corporate as per Indian Companies Act
  • Commercial Concern???

17
Protections
  • Insurer
  • carrying ….insurance business in India
  • Custom House Agent
  • licensed under Section 146 of Customs Act
  • Telegraph authority
  • As per Indian Telegraph Act
  • Stock broker
  • As per SEBI Act

18
Effective date
  • Explanation is only clarificatory can have
    retrospective effect
  • Sulochana Amma vs Narayanan Nair
    2002-TIOL_SC-Misc.
  • Harmonise and clear up ambiguity
  • Mithilesh Kumari vs Prem Behri Khare
    2002-TIOL-293-Sc-Misc
  • The presumption against retrospective operation
    is strong in cases in which the statute, if
    operated retrospectively, would prejudicially
    affect vested rights or the illegality of the
    past transactions, or impair contracts or impose
    new duty or attach new disability in respect of
    past transactions or consideration already
    passed.

19
Liability for tax
  • Foreign service provider has an office in India
  • Liability of service provider
  • Foreign service provider does not have any office
    in India
  • Liability of service receiver
  • Office in India on the date of taxability of
    service opened later or closed later
    inconsequential
  • Exemption to individuals for non-business purpose

20
Export of services
21
Export
  • Three criteria
  • Property outside
  • Performance outside
  • Recipient outside
  • Other conditions
  • Delivery outside
  • Use outside
  • Payment in Convertible currency

22
Export?
  • For
  • Services relating to property e.g. General Ins.,
    Architect, Interior Decorator, Real Estate Agent,
    Construction, Site preparation, Dredging/ Map
    making
  • Rule 1 Property should be outside India

23
Additional conditions
  • Service delivered outside India and
  • Used in business or for any other purpose
    outside India and
  • Payment in convertible currency

24
Export?
  • For Specified services e.g.
  • CA/ICWA/CS
  • Agency functions CHA/Steamer agent/Stock
    Brokers/CF/Travel agents/ Underwriter
  • Travel related/ GTA
  • Surveys market research
  • Rule 2 Service performed outside India-partly or
    fully

25
Additional conditions
  • Service delivered outside India and
  • Used in business or for any other purpose
    outside India and
  • Payment in convertible currency

26
Export
  • All other services e.g.
  • Advertisement
  • Manpower recruitment
  • Business Auxiliary
  • Consulting/IPR
  • Insurance
  • Banking financial
  • Telephone

27
Export- Rule 3
  • Provided used in or in relation to commerce or
    industry
  • Recipient is located outside India
  • Recipient has presence in India
  • Order from outside India
  • Service delivered outside and used outside
  • Payment in convertible currency
  • Used other than Commerce industry
  • Recipient located outside at the time of receiving

28
Important point
  • When recipient outside India following conditions
    not necessary
  • Delivery outside India
  • Use outside India
  • Payment in convertible currency
  • Perhaps not necessary because these conditions
    automatically satisfied

29
Other important terms
  • Provided/performed/rendered/supplied
  • Inter-changeable depending on subject
  • Delivered
  • Where physical delivery possible e.g. maintenance
    repair, job-worked goods
  • But also used in the context of performance
  • Performed partly abroad, delivered fully ??

30
Rebate of taxes on export of services
31
Summary of rebate schemes
  • Pay tax on export and claim refund
    (Notfn.11/2005-ST) No input-output co-relation
  • Export tax free and claim refund on input taxes
    based on prior declaration of input-output norms
    (Notfn 12/2005-ST)
  • Export tax free and self-utilize the Cenvat for
    DTA clearances and claim refund of any
    unutilizable amount (Rule 5 of Cenvat Rules)

32
Rebate requirements
  • Proof of realization
  • Proof of payment of tax on output service or
    inputs, as the case may be
  • Undertaking to repay wrongful amount, together
    with interest

33
No refund available
  • Of taxes paid on input goods and input services
    on the export of non-taxable services e.g. ITES
  • Similar refund available on the export of
    non-dutiable or exempt goods, though restricted
    to Cenvat on input goods and not input services
    (there was no provision for Cenvat on input
    services under relevant Rule 18 of Central Excise
    Rules when it was enacted in 2002)

34
A few issues
  • Absence of safeguards, conditions etc in Rule 5
    of Cenvat
  • Mere absence of safeguards doesnt mean refund
    not admissible for Govt. to prescribe to
    safeguard its interest
  • Used in final goods/output services
  • Not directly or indirectly, in or in relation
    to
  • Unlike goods where one-to-one co-relation
    possible services are difficult to co-relate

35
A few issues
  • Unlike goods services can be used simultaneously(
    with no possibility of separate accountal) for
  • Dutiable non-dutiable good
  • Taxable non-taxable services
  • Exempt non-exempt good/services

36
A few issues
  • Possible solution to allow refund as follows
  • Directly relatable full admissibility
  • Not relatable at all full inadmissibility
  • Common use As per following formula
  • Max refund Total tax on input services
    export turnover on which refund claimed Total
    turnover

37
A few issues
  • Input-output actually required and not estimated
    (Notfn 11/2005-ST)
  • Actually required vs required actually
  • Semantics
  • Invoice for input services received periodically
  • Generally simultaneous except utilities like
    telephone

38
A few issues
  • Delivery outside India
  • Generally same as performed/provided unless
    service in physical form
  • Date of export
  • When all the conditions of export have been met
    date of invoice not applicable when receipt of
    payment a condition precedent for recognizing
    export

39
Problems of EOUs
  • Not allowed to receive input services free of tax
    as in the case of SEZs or as in respect of input
    goods
  • Thus pay tax and use Cenvat for DTA or claim
    refund under Rule 5
  • Difficult to co-relate services with goods

40
Services capable of co-relation
  • Organized Industry/public sector
  • Telephone
  • Insurance
  • Banking financial
  • BAS in certain areas
  • Goods related
  • GTA
  • Air transport
  • Cargo handling
  • Commission agents/CF/CHA
  • Packaging
  • Dry cleaning/fashion designer ( Garments
    industry)

41
Vision for future
  • Era of extreme international competition
  • Zero-rating of all exports
  • Most of the problems due to selective taxation
    and large number of exemptions
  • Universal taxation of goods and services/unified
    VAT
  • Refund based on international practice drawback
    incorporating service tax element
  • Simplification

42
Thanks
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