In this blog post, Yashika Joshi, a student pursuing a Diploma in Entrepreneurship Administration and Business Laws by NUJS, analyses tax provisions applicable to earnings from foreign clients in lieu of goods sold or services rendered.
The exports are considered an important part of the transactions taking place in the economy due to the foreign exchange that they generate.
Export Of Goods
The law relating to levy of tax on export of goods is stated under the Section 5(3) of Central Sales Tax Act, 1956. It is clearly stated in the laws that direct exports do not attract any sales tax. However, when the goods are sold to an exporter who in turn exports the goods to foreign buyers and the said sale could not qualify as export prior to 1976, then the said sales to an exporter were held liable to attract sales tax by the Supreme Court in the case of Mod Sirajuddin v. State of Orissa [36 STS 139(SC)].
However, in order to encourage exports, the sales or purchase prior to actual export of goods are also exempted from sales tax and taken as part of the exports. According to the section stated above. The last sale or purchase of any goods preceding the sale or purchase occasioning the export of those good out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export. According to Section 5(3), the following three conditions have to be fulfilled in order to take benefit under the Act:
- The transaction of last sale or purchase takes place after the agreement or order received by the exporter from his foreign buyer.
- The last purchase must have taken place after the agreement with the foreign buyer was entered into, and
- The transaction of such last sale or purchase was entered into for the purpose of complying with the agreement or order received by the exporter from his foreign buyer. In other words, the transaction between the exporter and his foreign buyer must be entered into first and therefore the exporter should enter into the transaction with the seller or purchaser, as the case may be, with a view of to the fulfilling his commitment with the foreign buyer.
- The transaction to be covered by Form H – issued by the buyer to the seller.
Export Of Services
The taxable services which are exported are exempt from tax. As per rule 6A of Service Tax Rules (Export of Services), 1994, any service provided or agreed to be provided is considered as export of service if the following conditions are fulfilled:
- Taxable Territory: The provider should be located in the taxable territory. Here, taxable territory means any place in India except Jammu & Kashmir where the law is not applicable.
- Location of Recipient: The recipient who receives the service should be located in any place outside India.
- Negative List of Services: The provided service should not come under the negative list of services as per section 66D of Service Tax Act. No service tax is levied on the services listed in the negative list.
- Place of Provision: Place of provision of service should be outside India. Place of the provision is determined according to Place of Provision of Service Rules, 2012. In other words, place of provision is the location of the recipient of service.
- Payment of Service: The payment received by the service provider should be in foreign exchange or in foreign currency which is convertible into another currency.
- Branch or Agency: If the service receiver is a branch or agency of the person providing the service then such service provided shall not come under the ambit of export of service. For example, if Ram is the service provider located in India and he is providing services to its branch office in New York, then such serviced shall not come under the export of service.
Rebate/Refund or Service Tax
Service tax paid on export of services or input services used for such export services shall be refunded according to the conditions and limitations specified in the Notification No. 39/2012 – Service Tax dated 20th June 2012.
Conditions and limitations necessary are as follows:
- Service should be export of service as per rule 6A of Service Tax Rules, 1994.
- Duty on input must have been paid for which the rebate is claimed.
- Service tax and cess must have been paid for the input of services, for which the rebate if claimed, to the service provider.
- If the service receiver is responsible for paying service tax as per reverse charge mechanism, then he should have paid the service tax to the government.
- The total amount of service tax, duty and cess admissible should not be less than Rs. 1000/-.
- No CENVAT credit has been availed on input services for which the rebate is claimed.
Procedure to Claim Rebate:
- The service provider of export service should file a declaration with the jurisdictional Assistant or Deputy Commissioner of Central Excise before the date of export of service.
- The declaration should contain the details of the service to be exported, description, quantity, value, the rate of duty and the amount of service tax and cess payable on input services to be used for providing the service to be exported.
- The commissioner shall verify the correctness of the declaration, and if satisfied he will accept the declaration.
- The exporter can obtain inputs from a registered factory or registered dealer, accompanied by invoices issued under the Central Excise Rules, 2006 for the purpose of CENVAT Credit Rules, 2004.
- The exporter can receive the input services along with the invoice issued under the provisions of Service Tax Rules, 1994.
- After the export of service, the exporter shall file for claim of rebate with the commissioner.
- The application for the claim should be accompanied by the invoices issued for the inputs and input services.
- Submit the documentary evidence of receipt of payment against the service exported.
- Submit a declaration that the service is exported as per the rules 6A.
- After receiving the claim application, the commissioner after verification, if satisfied, shall sanction rebate in whole or in part.
Exemption of Services for Exporter of Goods
The taxable services mentioned below as received and used by an exporter for export of goods are exempted from service tax as per the Notification No. 31/2012 – Service Tax dated 20th June 2012. The exporter need not pay any service tax on these services.
- From any freight container station or inland container depot to the port or airport from where the goods are exported.
- Or directly from their place of removal to an inland container depot, freight container station, port or airport from where the goods are exported.
For this exemption, the exporter should produce the consignment note issued in his name by the GTA. Hence, we can say that export of goods and services are exempt from any tax, and if any tax is paid then the exporter can claim refund or rebate for the same as per the provisions set out by law.