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Service tax flash by Grant Thorton India
February, 26th 2009

This has come as a relief to the service exporters embroiled in litigation with the service tax department over the interpretation of this term.

The Central Board of Excise and Customs (the Board) has issued a Circular dated 24 February 2009 clarifying the meaning of the term used outside India in the Export of Services Rules 2005 (Export Rules). This has come as a relief to the service exporters embroiled in litigation with the service tax department over the interpretation of this term.

In terms of the Export Rules a taxable service shall be treated as export of service if such service is provided from India and used outside India. If a service qualifies as an export of service no service tax is payable. The departmental officers have (in certain cases such as call centre services, medical transcription services, commission agent services etc.) been denying the benefit of Export Rules on the pretext that since the activities are undertaken in India, it cannot be said that the use of that service has been outside India.

The Board has clarified that the meaning of the phrase used outside India needs to be understood in the context of the characteristics of a particular category of service mentioned in Export Rules. The Export Rules have classified the various taxable services into three categories.

The departmental circular is binding on all service tax authorities and hopefully this will be an end to the ambiguity for exporters and withdrawal of pending Show Cause Notices. The Circular specifically states that pending cases should be disposed off accordingly.

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