Draft Rules for determining 'export of services' announced
The Finance Bill, 2004 enabled the Government to make rules for defining 'export of taxable service' which would be exempt from the 8% service tax levy. In exercise of this power, the Government has released draft rules ("Rules") for defining the meaning of export of services for public comments.
Currently, as per the Notification No 21/2003 dated November 20, 2003, services in respect of which consideration is received in convertible foreign exchange are exempt from service tax. The Rules propose to modify this position by granting such exemption only to export of taxable services, as defined by the Rules. These Rules have bifurcated the taxable services in various categories discussed below in brief:
Where any taxable services are provided to units undertaking export of goods, irrespective of the above bifurcation, such services will be regarded as exempt from tax. The Rules also state that the Government may release further rules for rebate of service tax paid on input services in respect of exports of taxable services.
Note*: Kindly note that these are draft Rules, open for public comments. These Rules do not provide clarity regarding a situation where the consideration is paid by an entity outside India, who though might have an office in India, is actually consuming the services outside India.