Service Tax on export of services

Date : 16-08-2016

World becomes narrow due to technology and favorable trade agreements between countries. Export is necessary for country to progress. Not only goods but services are also exported. In this article, we will see service tax on export of services and exemption of service tax on export services and procedure to avail it.

Service Tax on Export of Services:

To understand service tax on export of services, first we will see definition of export of service. You can also read this detailed discussion on liability of paying service tax for a better understanding of the concept.

Definition: As per rule 6A of service tax rule
Provision of services provided or agree to be provided shall be deemed to be export of services when

1. The provider of services is located in taxable territory
2. The receiver of services is located outside taxable territory.
3. The service is not specified in rule 66D of the act.
4. The place of provision of service is outside India.
5. The payment is received in convertible foreign exchange
6. The provider and recipient of service are not merely establishments of a distinct person in accordance of rule 66B of the act.

Example:

Mr.X provides tax consultancy and advice service to Mr. Y at US. In this case, the provider of services is in taxable territory and service receiver is outside taxable territory. Service is render outside India. So there is export of service and it is out of service tax levy.

 Exemption of service tax on export of services:

Service tax is not levied on export of services because service is provided outside India and service tax is destiny based consumption tax. Indian government cannot tax outside India. But to decide eligibility of exemption, go through definition of export as per rule 6A.  Read an earlier post on service tax exemption list in SSI.

 Cenvat Credit and Export:

One big benefit of export of service is that there is no requirement to reverse cenvat credit on goods and services utilized in export of services. The reason is that export of service is not exempted service. So rule 6(6A) of cenvat credit rules does not apply.

 Options to avail exemption of service tax on export of services:

Service provider can avail exemption by choosing one option from below:

1. Export services without payment of excise duty/service tax and utilize cenvat credit to pay excise duty     or service tax on other taxable manufactured goods or services provided.

2. Export services without payment of service tax/excise duty and claim refund of service tax and excise duty paid on inputs as per rule 5 and notification no. 27/2012- CE (NT) dated 20/6/12.

3. Export without payment of service tax and claim rebate of service tax paid on input services and excise duty paid on inputs. (Notification no. 39/2012 service tax dated 29/6/2012.

4. Full exemption in respect of GTA services and services of foreign commission agent utilized for export of goods where service receiver is liable to pay service tax under reverse charge mechanism. (Notification no. 31/2012-ST ,42/2012-ST).

5. Exemption to service provider when services are provided to VKGUY, FPS and FMS.

Please note down that service provider can choose only one option and get benefit of it. Benefit of more than one option is not available.

 Best option for exemption of service tax on export of service:

Getting refund/rebate of input tax is lengthy procedure so best option is option 1. Export services without payment of service tax and utilize cenvat credit to adjust against service tax or excise liability of other services provided or goods manufactured.

Procedure to claim rebate under notification no. 39/2012 –ST dated 20/6/12:

1. File declaration with assistant/deputy commissioner before export of taxable services with details like description, quantity, value, rate of duty and amount of duty payable on inputs required to provide services and the same of service tax and education actually required to provide services to be exported.

2. The declaration shall be verified by AC/DC prior to export of service. It will be accepted by them after full satisfaction.
3.         Exporter should obtain input and input services from registered dealer with invoice which is eligible for cenvat credit.

4. Rebate claim shall be filed before AC/DC after services are exported in form ASTR-2. The application should be accompanied with evidence of receipt of payment against services exported, evidence of duty paid on inputs and service tax paid on input services, declaration that service has been exported in terms of rule 6A of service tax rules.

5. Assistant /Deputy Commissioner Can sanction rebate within 15 days.

Procedure to claim refund of input service tax and duty under cenvat credit Rules via notification no. 27/2012 CE(NT) dated 18/6/12:

1. Submit application in form A to AC/DC. The application should be signed by authorized signatory.

2. Submit certificate signed by auditor in form as given in annexure A -1.

3. Enclose copies of bank realization certificates in respect of services exported.

4. 1 application should be submitted every quarter for export of services. If exporter is exporting goods also, he can submit another application for claim of refund for export of goods for same quarter.

5. Refund of input service credit is limited to ration of export turnover to the total turnover.

6. Example: Total turnover is Rs. 500 and export turnover is Rs. 100 . Input services is Rs. 5 . In this case refund available = Rs. 1 ( 5/500*100).

7. Refund claim shall not exceed amount lying in the balance at the end of quarter for which refund claim is made or at the time of filling refund claim whichever is less.

8. Refund claim should be passed within nine month from the end of quarter when service is exported.

9. Refund is available no matter the assessee is not registered under service tax act.

Procedure to claim total exemption in respect of GTA services utilized in relation to export:

1. Exporter can avail full exemption to pay service tax on good transport agency services. The condition is that he is exporter registered with export promotion council, has export import code number and registered with service tax act via notification no. 31/2012 – ST and 42/2012-ST.

2. He has to submit declaration in form EXP1 or EXP3 and file half yearly return in form EXP 2 or EXP 4. He has to enclose document showing payment of commission, copy of agreement etc. Read our tutor on service tax on GTA services.

Thus by choosing right option and following the procedure exporter can save service tax on export of services by using exemption of service tax on export of services. If you find procedure to claim exemption lengthy, you can get help of chartered accountant who is working in indirect tax field.