NO LEVY OF SERVICE TAX ON EXPORT
OF SERVICES
The Finance Ministry
has clarified that the Service Tax is destination based consumption
tax and it is not applicable on export of services. Export of
services would continue to remain tax free even after withdrawal
of notification no.6/99 dated 9.4.99. Further it is clarified
that service consumed/provided in India in the manufacture of
goods which are ultimately exported, no credit of service tax
paid can be availed or reimbursed at present as inter-sectoral
tax credit between services and goods are not allowed.
This clarification
comes in response to various representations raising apprehension
that because of the withdrawal of the notification no.6/99, export
of services would be affected as it would be costlier by 8%, thus
making export of services from India costlier in the international
markets.
It may be recalled
that Budget Notification No.2/2003 dated 1.3.2003 had rescinded
earlier Notification no.6/99-Service Tax dated 9.4.99, which exempted
taxable service from payment of service tax so long as payment
for services rendered is in convertible foreign exchange and it
is not repatriated outside India. Consequent to the issue of Notification
no.2/2003 cited above, service tax would be leviable on all taxable
services consumed or rendered in India, irrespective of whether
the payment thereof is received in foreign exchange or not.
In regard to the
services of secondary service provider, it is clarified that as
such services are consumed in India, the same would be liable
to pay service tax.
It is further clarified
that the enhancement of the rate of service tax from 5% to 8%
for payments receivable in foreign exchange for services performed
prior to March 2003, would be applicable only when the Finance
Bill is passed. If payments are received in the aforesaid case
after the Finance Bill is passed, the rate of tax applicable would
be 5% so long as the billing has been made prior to the date of
passing of the Finance Bill. If the billing is made subsequent
to the date of the passing of the Finance Bill, the service tax
would be applicable at the enhanced rate of 8%.
