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Service exporters need not pay tax
February, 26th 2009

Call centres, investment advisory and medical transcription service providers, marketing agents and money-transfer companies, among others, can breathe easy.

The government has spelt out that such services can be considered as exports and can therefore be eligible for refund of tax paid on inputs to vendors.

Activities of ongoing concerns, such as call centres, were denied the benefit of export of services and refund of service tax as departmental officers raised questions as to how their services could be deemed as exports when these were being performed within the country. The operative part was these activities did not satisfy the condition used outside India.

An exporter of services does not have to pay service tax and can claim refund of input tax paid to vendors. A Central Board of Excise & Customs circular cleared the air on the contentious issue. It stated that the phrase used outside India for such services should be interpreted to mean that the benefit of the service should accrue outside the country.

It is possible that the export of service may take place even when all relevant activities happen in India so long as the benefit of these services accrue outside India, the circular issued by Gautam Bhattacharya, service tax commissioner, stated. What is accruing outside India is the benefit in terms of promotion of business
of a foreign company.

For instance, a call centre which is located here and addresses the query of a customer of a foreign client will be deemed to have exported its service, even though the call was answered in India, as the overseas customer will be the beneficiary of the advice received from the call centre employee.

This clarification certainly deserves kudos, said Prasad Paranjape, ED (indirect tax), PwC. Having put behind the technical hurdle, the government should consider quickly clarifying on certain procedural or technical issues that unduly delay refunds so that exporters can really see cash coming into their accounts.

Many have been clubbed into three categories under export of services rules. Category I includes services like architecture, general insurance, etc, which are deemed export if they are provided in relation to an immovable property situated outside India.

Category II includes services like rent-a-cab operators, convention services, etc, which can be considered export, where the place of performance of the service can be established, if such services are either fully or partly performed outside India. Category III, under which call centres, investment advisory and money-transfer agents, are deemed exports, if they are provided in relation to business to a recipient located abroad.

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