CONFERENCE ON INTERNATIONAL TAXATION

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INDIA & EMERGING GLOBAL TAX TRENDS

CONFERENCE ON INTERNATIONAL TAXATION

A PRESENTATION ON

CROSS BORDER SERVICESBY

DR. SANJIV AGARWALFCA, FCS

Organized By SaturdayHyderabad Sub-Chapter 23rd March, 2013of International Fiscal Association Hyderabad

© Dr. Sanjiv Agarwal

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Taxation of Cross Border Services

This Presentation Covers

Overview of ‘service’ and issues in cross border services

Legislative background

Export of Services

Import of Services

Territorial concept

Taxable territory

Non- taxable territory

Taxation of services in negative list regime

Place of Provision of Services Rules, 2012

Special Economic Zones


What is Service

‘Service' has been defined in clause (44) of the new section 65B and means –

any activity

for consideration

carried out by a person for another

and includes a declared service (66E)

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'Service' does not include - any activity that constitutes only a transfer in title of goods or immovable

property by way of sale, gift or in any other manner

a transfer, delivery or supply of goods which is deemed to be a sale of goods within the meaning of clause (29A) of article 366 of the Constitution

a transaction only in money or actionable claim

a service provided by an employee to an employer in the course of the employment.

fees payable to a court or a tribunal set up under a law for the time being in force

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This scope shall not apply to –

a) functions performed by M.P., M.L.A., Members of Panchayats / Municipalities who receive any consideration in performing the functions of that office as such member; or

b) duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or

c) duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Government or local authority and who is not deemed as an employee before the commencement of this section.

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For the purpose of scope of service -

(a) an unincorporated association or a AOP and a member thereof shall be treated

as distinct persons;

(b) an establishment of a person in the taxable territory and any of his other

establishment in a non-taxable territory shall be treated as establishments of

distinct persons

(c) A person carrying on a business through a branch or agency or

representational office in any territory shall be treated as having an

establishment in that territory

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The New Taxability Concept

Taxable

3. Exemptions (39)

1. Non -

Taxable

territory

(POPS)

2. Negative list (17)

SERVICE FOR A CONSIDERATION

E - MAGIC TEST

E: EmployeeM: MoneyA: Actionable claimG: GoodsI: Immovable propertyC: Court Fee

9 DE

CL

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SE

RV

ICE

S

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Peculiar Features in Cross Border Services

Service tax is a destination based consumption tax –

International practice

Double taxation

With export of services, taxes should not be exported

Imports – taxed at the destination

Incentivizing exports

Special incentives – rebates, SEZ etc.

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The concerns

How to tax cross border services

How to determine whether the transaction is export

How to determine whether the transaction is import

How to determine place of provision of services

How to value the services so provided

Availing tax exemptions / refunds

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Legislative Background (prior to 1.7.2012)

Taxable services provided in India were taxable except J&K

State –No concept of territory

Tax on export of services governed by Export of Services Rules,

2005

Tax on import of services governed by Taxation of Services

(Provided from Outside India and Received in India )Rules, 2006

Refunds and rebates under various schemes

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Service Tax applicable on all taxable services under the jurisdiction

including import of services unless specifically exempt from the levy

of service tax.

Such exemptions cover -

i) services rendered in the State of Jammu & Kashmir

ii) services provided to Special Economic Zones (SEZ) and units

in SEZ’s

iii) export of service

If service is exported, no service tax is payable

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Activities should be carried out by a person for another person (i.e.,

Service provider and service receiver)

Both can be in same country (say, India)

Both can be in foreign country (say, out of India)

Both of them can be in different countries (say, one in India and other

outside India)

Service provider in India, service receiver outside India ( Export of service)

Service provider outside India, service receiver in India (Import of service)

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Export of services deemed to have taken place based on criteria for

export as per rule 3.

For exports, services should be fully or partly performed outside

India.

Categorization of services for exports:

• Immovable property criteria

• Performance based criteria

• Recipient / user based criteria

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Immovable property criteria [Rule 3(1)(i)]

Immovable property should be located outside India

Services provided from India and used outside India

Payment received in convertible foreign exchange

E.g. Indian architect prepares a design sitting in India for a

property located in U.K and hands it over to the

owner of such property

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Performance Based Criteria [Rule - 3(1)(ii)]

• Services performed outside India, either wholly or partly.

• Services provided from India and used outside India

• Payment in convertible foreign exchange

E.g. An Indian event manager arranges a seminar for an Indian company

in U.K.; the service has to be treated used outside India on the basis

of performance in U.K even though the benefit of such seminar may

flow back to the employees serving the company in India.

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Recipient Based Criteria [Rule - 3(1)(iii)]

Services are provided in relation to business and commerce - recipient of service

should be located outside India;

Services are not provided in relation to business and commerce - recipient of

service should be located outside India at the time of provision of such service.

Services provided from India and used outside India (upto 28.2.2007)

Services delivered outside India and used outside India (W.e.f 1.3.2007)

Condition of used outside India deleted (W.e.f. 27.2.2010)

Payment received in convertible foreign exchange

E.g. A company taking orders from domestic buyers for its principal in UK &

US for export of goods by principal in India on commission basis

received in convertible foreign exchange from its principal

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Import of Services

Taxable under section 66A w.e.f. 18.4.2006

Conditions for taxation

Service must be received by a person in India

Service provider must be situated outside India

Service falls under any clause of 65(105)

Service provider has established business / fixed establishment /

permanent address outside India

Taxation of Services (Provided from Outside India and Received in

India) Rules, 2006.

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Import of Services

Categorization of services (Rule 3)

Immovable property criteria

Rule- 3(i) - Immovable property should be located in India.

Performance based criteria

Rule - 3(ii) - Services have been performed in India either wholly or

partly

Recipient based criteria

Rule - 3(iii) – The recipient of service should be located in India . The

service should be in relation to business or commerce.

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Case laws - Bombay High Court in the case of Indian National Ship Owners Association

v. Union of India (2009) 18 STT 212 (2009) 13 STR 235 (Bombay) had held that levy of service tax on a person who is resident of India but receives services from outside India prior to insertion of section 66A is not sustainable. In view of section 66A, offshore services cannot be subjected to service tax prior to 18.4.2006. Before enactment of section 66A, there was no authority vested by law in revenue to levy service tax on a person who was resident in India and received services outside India.

In Hindustan Zinc Ltd. v. CCE (2009) 18 STT 67; (2009) 18 STT 67 (CESTAT, New Delhi-LB), it was held that where taxable service is provided by a non resident or from outside India, who does not have any office in India, recipient of such service could not be held liable for paying service tax prior to 1.1.2005 notwithstanding amendment in rule 2(1)(d) of Service Tax Rules, 1994.

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Charge of Service Tax ( Section 66B ) w.e.f. 1.7.2012

Service tax shall be charge

at the rate of twelve percent

on the value of all services other than specified in the

negative list

provided or agreed to be provided in the taxable territory

by one person to another person

Services that are provided in a non-taxable territory are not

chargeable to service tax


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Up to 30.6.2012Up to 30.6.2012

Export of Services Rules, 2005

Export of Services Rules, 2005

W.e.f. 1.7.2012W.e.f. 1.7.2012

Rule 6A of Services Tax Rules, 1994

Rule 6A of Services Tax Rules, 1994

Place of Provision of Services Rules,2012

Place of Provision of Services Rules,2012++

Taxation of Cross Border Services – Exports


Rule 6A has been inserted in Service Tax Rules 1994 vide Notification

No. 36/2012-ST, dated 20.6.2012

Rule 6A comprises what is export of services

Service will be treated as export if —

(a) the provider of service is located in the taxable territory ,

(b) the recipient of service is located outside India,

(c) the service is not a service specified in the section 66D of the Act,

(d) the place of provision of the service is outside India,

(e) the payment for such service has been received by the provider of service in

convertible foreign exchange, and

(f) the provider of service and recipient of service are not merely establishments of

a distinct person. 22

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Rule 6A of Service Tax Rules, 1994

India + Indian currency = Taxable

India + Foreign currency =Taxable

Non-taxable territory + Indian currency = Taxable

Non-taxable territory + Foreign currency = Export

/ Exempt

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How to Determine Taxability –i) Which rule applies to the service provided specifically? In case more

than one rules apply equally, which of these come later in the order given in the rules?

ii) What is the place of provision of the service in terms of the above rule?

iii) Is the place of provision in taxable territory? If yes, tax will be payable. If not, tax will not be payable.

iv) Is the provider 'located' in the taxable territory? If yes, he will pay the tax.

v) If not, is the service receiver located in taxable territory? If yes, he may be liable to pay tax on reverse charge basis.

vi) Is the service receiver an individual or government receiving services for a non-business purpose, or a charity receiving services for a charitable activity? If yes, the same is exempted.

vii) If not, he is liable to pay tax.

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Place of Provision of Service Rules, 2012

Purpose is to identify taxing jurisdiction for a service

In earlier regime focus was to determine taxability in case of exports and

imports only.

Present rules replace Export and Import Rules and define local

jurisdiction

Meant for cross border services, services to J & K, service providers

operating from multiple locations, determining services wholly consumed

in SEZ and a precursor to GST.

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Important Terms of POPS Rules, 2012

Taxable Territory [Section 65B(52)] –Taxable territory means

the territory to which the provisions of this chapter apply.

(Taxable territory = India – J & K State)

Non-taxable Territory [Section 65B(35)] – Non-taxable

territory means the territory which is outside the taxable

territory.


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Taxable Services to qualify as import if -

Service provider located in Non-taxable Territory

Service recipient located in Taxable Territory

Import services from outside India - pay local

taxes on reverse charge mechanism

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Location of service provider -

Business establishment – Place where essential decisions concerning the general

management are adopted and functions of its central administration are carried out.

A service provider or receiver can have only one business establishment

Fixed establishment -Place other than Business Establishment which has

permanent presence of human and technical resources to provide or receive service

Usual place of residence –

Body Corporate : place where incorporated

Individual : place where he spends most of his time for the period in question or

where he lives with his family and is in full time employment. An individual cannot

have more than one place of usual residence.

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Location of the service provider

(a) where the service provider has obtained a single registration, whether centralized or

otherwise, the premises for which such registration has been obtained

(b) where the service provider is not covered under sub-clause (a):

(i) the location of his business establishment; or

(ii) where the services are provided from a place other than the business

establishment, a fixed establishment elsewhere, the location of such

establishment; or

(iii) where services are provided from more than one establishment, whether

business or fixed, the establishment most directly concerned with the provision of

the service; and

(iv) in the absence of such places, the usual place of residence of the service

provider.

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Location of the service receiver

(a) where the recipient of service has obtained a single registration, whether centralized

or otherwise, the premises for which such registration has been obtained;

(b) where the recipient of service is not covered under sub-clause (a):

(i) the location of his business establishment; or

(ii) where services are used at a place other than the business establishment, a

fixed establishment elsewhere, the location of such establishment; or

(iii) where services are used at more than one establishment, whether business or

fixed, the establishment most directly concerned with the use of the service; and

(iv) in the absence of such places, the usual place of residence of the

recipient of service.

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India [U/s 65B(27)]

(a) the territory of the Union according to Article 1 clauses (2) and (3) of the

Constitution;

(b) its territorial waters, continental shelf, exclusive economic zone or any other

maritime zone ;

(c) the sea-bed and the sub-soil underlying the territorial waters;

(d) the air space above its territory and territorial waters; and

(e) the installations, structures and vessels located in the continental shelf of India

and the exclusive economic zone of India, for the purposes of prospecting or

extraction or production of mineral oil and natural gas and supply thereof;

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S. No. Conditions Tax Liability

1 Both service provider and service receiver are in taxable territory

Service provider

2 Service provided from taxable territory in non taxable territory except J & K

No tax (Export)

3 Service provided from non-taxable territory (including J & K) in taxable territory

Service receiver (Import)

4 Both service provider and service receiver are in non-taxable territory

No service / No tax

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POPS - At a GlanceRule Governing Situation Place of Provision of Service

3 General RuleIf recipient's location not available in the ordinary course of business

Location of Service ReceiverLocation of Service Provider

4 Service provided in respect of goods that are required to be made physically available by the service receiver to the service provider t o provide the service When such services are provided from a remote location by way of electronic meansThis rule shall not apply in case of service provided in respect of goods temporarily imported into India for repair or re-export.

Service provided entirely or predominantly in the physical presence of an individual.

Location where service is performed.

Location where the goods are situated at the time of provision of service

Location where service is performed.

5 Immovable property based services provided directly in relation to an immovable property (includes grants of right to use immovable property, services for carrying out or coordination of civil work)

Location or proposed location of immovable property

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POPS - At a GlanceRule Governing Situation Place of Provision of Service

6 Services in relation to an event Location of event

7If services referred to in Rules 4, 5 & 6 provided in many locations, including location in taxable territory.

Taxable territory in which greatest proportion is provided

8Where service provider and service receiver located in taxable territory

Location of service receiver

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Specified services of banking, online data base, intermediary services and hiring means of transport up to one month.

Location of service provider

10 Goods transport service Goods transportation agency services

Destination of goods Location of person liable to pay tax

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POPS - At a Glance

Rule Governing Situation Place of Provision of Service

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Passenger transport services Where the passenger embarks on the conveyance for continuous journey

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Services provided on board a conveyance

First scheduled point of departure.

14Order of application of rules Later rule to supersede.

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Rule 3- Default Rule

The main rule or default rule provides that a service shall

be deemed to be provided , where the receiver is located

In case, when location of the service receiver is not

ascertainable, location of the service provider is the place

of provision of service

This rule is applied when none of the other later rules apply

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Rule 3- Default Rule

‘A’Service Provider

‘X’Service Provider

‘B’Service Receiver

‘Y’Service Receiver

Taxable Territory Non- Taxable Territory

Taxable for A

Taxable for B

Not Taxable


Rule 4- Performance based services

Place of provision is the location where services are actually performed

Goods which are required to made physically available

Services involve movable objects or things that can be touched, felt or

possessed

Examples:

Services in respect of goods to be physically made available by receiver

(repair, storage / warehousing, technical testing, dry-cleaning, cargo handling

etc).

Plastic surgery, beauty treatment services, personal security services, health

and fitness services, photography services internet cafe services etc.

Contd……39

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Rule 4- Performance based services

Market research reports, CA reports do not fall under this rule

Indian engineers going to US to repair a ship not taxable in India

Foreign engineers coming to India to repair a ship – taxable in India

Services provided from a remote location by electronic means –

where goods located at that time

Not applicable when goods are temporarily imported into India for

repairs, reconditioning or reengineering for re-export

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Rule 5-Services relating to Immovable Property

Place of provision is where immovable property is located

Applicable for services directly connected with immovable property.

Immovable property not defined in the Finance Act, 1994.

Immovable property shall include land, benefits to arise out of land, and

things attached to the earth, or permanently fastened to anything attached

to the earth. [ S. 3 (26) of the General Clauses Act, 1897]

Definition is inclusive

Properties such as buildings and fixed structures on land covered under

immovable property.

The property must be attached to some part of earth even if under water.

Contd……

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Rule 5-Services relating to Immovable Property

Examples:

Services in course of construction, alteration, repair, maintenance etc, of immovable

property

Renting of immovable property

Services of real estate agents, architects, engineers etc. relating to land, building or civil

engineering works

Services connected with oil / gas / mineral exploration

Surveying, property management services, hotel accommodation

Lease, or a right of use, occupation, enjoyment or exploitation of an immovable property

Real estate services in relation to the actual or proposed acquisition, lease or rental of

property, legal services rendered to the owner or beneficiary or potential owner or

beneficiary of property as a result of a will or testament

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Rule 6- Service relating to Events

Place of provision is the place where event is actually held

Covers admission to events, organizing events and ancillary services relating to events

Includes cultural, artistic, sporting, scientific, educational, entertainment event, or a

celebration or any other similar event

Examples

Conventions

Conferences

Exhibitions

Fairs , Seminars

Workshops

Weddings

Sports

Cultural Events etc. Contd……

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Rule 6- Service relating to Events

A management school located in UK intends to organize a road show in Mumbai and

New Delhi for prospective students. Any service provided by an event manager, or

the right to entry like participation fee for prospective student will be taxable in India.

An Indian fashion design firm hosts a show at USA. The firm receives the services of

a Canadian event organizer. The place of provision of this service is the location of

the event, which is outside the taxable territory. Any service provided in relation to

this event, including entry fee will not be taxable.

Provision of sound engineering for an artistic event is a pre-requisite for staging of

that event and should be regarded as a service ancillary to its organization. A

service of hiring a specific equipment to enjoy the event at the venue, is ancillary to

admission.

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Rules 7- Services from Multi locations

The place of provision shall be the location in taxable territory where greatest

proportion of service is provided.

Service is performed at different locations like partly from Mumbai , partly from New

Delhi

Where any service stated in 4, 5 and 6 is provided at more than one location

including a location in taxable territory and one or more location is outside taxable

territory

Example:

• Technical inspection and certification of a product by carrying out testing at two

locations in India and one outside India - Taxable in India where a higher stake is

involved.

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Rule 8- Both service provider and service receiver located in taxable

territory

Where service provider and service recipient is in taxable territory, the

location of service receiver will be the place of provision

Even when the actual provision takes place outside taxable territory , it

will be taxable in India.

Example

• Indian plane needs repair while in US. Indian maintenance agency

sends its engineers to US for repairs or hires engineers in US to repair

the plane. This transaction will be taxable in India superseding earlier

clauses.

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Rule 9 - Place of Provision in case of Specified Services

The place of provision of service is location of service provider

Specified services includes

Banking service (to account holders)

Online information and database access or retrieval

Intermediary services

Hiring of means of transport up to a period of one month

Account means an account which bears an interest to the depositor.

Services provided to holders of demand deposits, term deposits, NRE (non-resident

external) accounts and NRO (non-resident ordinary) accounts

Services linked to or requiring opening and operation of bank accounts such as

lending, deposits, safe deposit locker etc.

Transfer of money including telegraphic transfer, mail transfer, electronic transfer etc.

Contd…..

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Banking services provided to persons other than account holders will be covered under the

main rule (Rule 3- location of receiver).

Services not covered under this rule

financial leasing services including equipment leasing and hire-purchase;

merchant banking services;

Forex, broking, and purchase or sale of foreign currency, including money changing;

asset management including portfolio management, all forms of fund management,

pension fund management, custodial, depository and trust services;

advisory and other auxiliary financial services including investment and portfolio research

and advice, advice on mergers and acquisitions and advice on corporate restructuring

and strategy;

banker to an issue service.

Contd……

Tax on Money Remittance (Circular No. 163 dated 10.7.2012)

No service tax on foreign currency remitted to India from overseas

Amount of remittance comprises money

Service excludes money transactions

Even fee for remittance is not taxable (POPS)

Sender of money outside India - bank / company remitting located

outside India

Fee charged by Indian bank - remitter located outside India (not

taxable as per POPS)

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Online information and database access or retrieval services are services in relation to

online information and database access or retrieval or both, in electronic form through

computer network, in any manner.

Essentially delivered over the internet or an electronic network which relies on the

internet or similar network for their provision.

Completely automated, and require minimal human intervention.

Examples

i) online information generated automatically by software from specific data input by

the customer, such as web-based services providing trade statistics, legal and

financial data, matrimonial services, social networking sites

ii)digitized content of books and other electronic publications, subscription of online

newspapers and journals, online news, flight information and weather reports

iii)Web-based services providing access or download of digital content.

Contd…………

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Online information and database retrieval does not includes –

Sale or purchase of goods, articles etc. over the internet;

Telecommunication services provided over the internet, including fax, telephony,

audio conferencing, and videoconferencing;

A service rendered over the internet, such as an architectural drawing, or

management consultancy;

Repair of software, or of hardware, through the internet, from a remote location;

Internet back-bone services and internet access services.

Contd………

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Intermediary means -

- broker,

- agent, or

- any other person, by whatever name called

- who arranges or facilitates a provision of a service

- between two or more persons

- but does not include a person who provides the main service on

his account

Contd……….

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Hiring of means of transport

Land vehicles such as motorcars, buses, trucks;

Vessels;

Aircraft;

Vehicles designed specifically for the transport of sick or injured persons;

Mechanically or electronically propelled invalid carriages;

Trailers, semi-trailers and railway wagons.

Non- transport means

Racing cars;

Containers used to store or carry goods while being transported;

Dredgers, or the like.

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Rule 10- Transportation of Goods

Place of destination of goods

Except in GTA by road where place of provision is location of person

liable to pay tax

Example -

GTA (ABC) located in Delhi transports a consignment of new

motorcycles from the factory of XYZ in Gurgaon (Haryana), to the

premises of a dealer in Bhopal, (MP). XYZ is a registered assessee and

is also the person liable to pay freight and hence person liable to pay

tax.

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Rule 11 – Passenger Transportation Services

Place where passenger embarks on conveyance for continuous journey

Continuous journey means a journey for which:-

(i) a single ticket has been issued for the entire journey; or

(ii) more than one ticket or invoice has been issued for the journey, by one service

provider, or by an agent on behalf of more than one service providers, at the same

time, and there is no scheduled stopover in the journey

Stopover means a place where a passenger can disembark either to transfer to another

conveyance or break his journey for a certain period in order to resume it at a later point

of time.

All stopovers do not cause a break in continuous journey. Only such stopovers will be

relevant for which one or more separate tickets are issued.

Contd…..

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Rule 11 – Passenger Transportation Services

Example -

A travel on Delhi-London-New York-London- Delhi on a

single ticket with a halt at London on either side, or even

both, will be covered by the definition of continuous journey.

If a separate ticket is issued, New York-Boston-New York,

the same will be outside the scope of a continuous journey.

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Rule 12- Services provided on board conveyances

First scheduled point of departure of conveyance for journey

On board service of provision of movies, music, games, beauty treatment etc.

Example –

A video game or a movie-on-demand is provided as on-board entertainment

during the Kolkata-Delhi leg of a Bangkok-Kolkata-Delhi flight. POP will be

Bangkok (outside taxable territory, hence not liable to tax).

If the same service is provided on a Delhi-Kolkata-Bangkok-Jakarta flight

during the Bangkok-Jakarta leg, POP will be Delhi in the taxable territory,

hence liable to tax.

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Rule 14- Order of application of Rules

Where more than one rule applies, rule

that occurs later is relevant rule

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Exemptions under N. No. 25/2012-ST, dated 20.6.2012

Entry No. 31 Services by an organizer to any person in respect of a business

exhibition held outside India

Entry No. 34 Services received from a provider of service located in a non-

taxable territory by(a) Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession; an entity registered under section 12AA of the Income Tax Act, 1961 for the purposes of providing charitable activities; or

(b) a person located in a non-taxable territory

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Rebate of inputs/input services for export of services (Notification No.

39/2012-ST dated 20.06.2012)

Rebate is granted of whole of duty paid on excisable inputs or whole of

service tax and cess paid on all input services used in providing service

exported

Exported to any country other than Nepal and Bhutan

Subject to conditions, limitations and procedure as prescribed in the

said Notification.

Form ASTR-2 is to be used.

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Rebate of Service Tax on the taxable service which are received by an exporter of goods and used for exports of goods (Notification No. 41/2012-ST, dated 29.06.2012 )

In suppression to Notification No. 52/2011-ST dated 30.12.2011

Applicable w.e.f. 1.7.2012.

Rebate shall be granted by way of refund of service tax paid on the specified services

Specified services would mean —

(i) in the case of excisable goods, taxable services that have been used beyond the

place of removal, for the export of said goods;

(ii) in the case of goods other than (i) above, taxable services used for the export of

said goods;

but shall not include the following input services, viz, - construction, works contracts,

renting of motor vehicles, general insurance, servicing, repair & maintenance, outdoor

catering, health, life insurance etc. meant for employees etc.

Contd……

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Rebate of Service Tax on the taxable service which are received by an exporter of goods and used for exports of goods (Notification No. 41/2012-ST, dated 29.06.2012)

Rebate can be claimed on the basis of rates as mentioned in schedule or as per procedure (Para 2) or based on documents (Para 3)

Cenvat Credit of service tax paid on specified services used for export of goods should not be taken.

No rebate can be claimed under this notification by developer of SEZ or unit in SEZ.

If export proceeds are not received within time allowed or within extended time, such rebate shall be deemed to have never been allowed and shall be recovered back in terms of recovery provisions.

Forms used –

Form A1 – Application for claiming rebate of Service Tax on specified services used for export of goods.

Form A2 – Declaration by exporter for obtaining Service Tax code.

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Determination of point of taxation in case of specified services or persons

(Rule 7 of POT Rules, 2011)

POT shall be the date on which payment is made

When the payment is not made within a period of six months of the date of

invoice, the POT shall be determined as per normal provision

In case of associated enterprises, where the person providing the service is

located outside India, POT shall be the date of debit in the books of account

of the person receiving the service or date of making the payment whichever

is earlier.

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Special Economic Zone (SEZ)

Specified duty-free zone deemed to be a foreign territory

Objectives of promotion of goods and services leading to enhanced economic

activities, investment promotion, development of infrastructure, creation of

employment opportunities etc.

SEZ's could be multiple product SEZ's, sector specific, IT sector, free trade and

warehousing, gem and jewellery sector, biotechnology etc.

Enjoy tax benefits

Indirect tax exemptions include customs duty, central excise duty, service tax,

central sales tax, stamp duty and other miscellaneous taxes and duties

Direct tax exemptions include income tax, dividend distribution tax, securities

transaction tax, minimum alternate tax etc.


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Special Economic Zone (SEZ) Every developer and the entrepreneur shall be entitled to exemption, drawback

and concessions (Section 26(e) of SEZ Act, 2005)

(e) exemption from service tax under Chapter V of the Finance Act, 1994 on taxable services provided to a developer, or unit to carry on authorized operations in the special economic zone

Section 51(1) contains a non-obstante clause

Rule 31 of SEZ Rules, 2006 - Exemption to SEZ / units in SEZ from Service Tax

on taxable services rendered to developer of SEZ / Units for authorized operations

In case of inconsistency between the provisions of the SEZ Act and any other law

in force, the provisions of the SEZ Act shall prevail

W.e.f. 1.07.2012, the refund to SEZ will be granted under N. No. 40/2012-ST,

dated 20.06.2012

66

Taxation of Cross Border ServicesExemption Status to SEZs

67


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THANK YOU

FOR

YOUR

PRECIOUS TIME

AND

ATTENTION

Dr. Sanjiv Agarwal

FCA, FCS, Jaipur

[email protected]

[email protected]