Draft Rules for Services provided from outside India New DATE 01/03/2006

Taxation of Services (Provided from outside India and Received in India) Rules, 2006
At present, taxable services provided from outside India and received in India are charged to Service Tax under Explanation occurring at the end of sub-clause (105) of section 65 of the Finance Act, 1994. In the Finance Bill, 2006 it has been proposed to omit the said Explanation and insert a separate comprehensive provision, namely, section 66A, to levy service tax on services provided from outside India and received in India.

2. Taking into account the international practices of treatment of service for the purpose of export of service and other material facts, the Central Government has notified Export of Services Rules, 2005 on 3rd March, 2005 which has come into effect from 15th March, 2005.

3. Applying the same principles followed for Export of Service Rules, 2005, the Taxation of Services (Provided From Outside India and Received in India) Rules, 2006 is proposed to be notified.

4. Draft Rules required to be issued under this section is attached. Tax Research Unit, Department of Revenue, Ministry of Finance solicits the considered views/comments/suggestions on the above mentioned draft rules from all concerned.

5.Views are also invited on categorization of the fifteen specifically included services i.e. 65(105)(zzzi) to (zzzw) under clauses (i), (ii) and (iii) of Rule 3(2) of the draft Rules.

6.The same may be kindly sent to the following address, preferably by email, not later than 31st March 2006.

R. Sriram
Deputy Secretary (TRU)
Ministry of Finance, Department of Revenue
146 F, North Block
New Delhi

Email : tru.finmin@gmail.com

F.No.334/5/2006-TRU

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DRAFT NOTIFICATION No.________/2006-Service Tax
G.S.R.________ (E). In exercise of the powers conferred by sub-sections (1) and (2) of section 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules, namely:-

1. Short title and commencement. (1) These rules may be called the Taxation of Services (Provided from Outside India and received in India) Rules, 2006.

(2) They shall come into force on the date of their final publication in the Official Gazette.

2. Definitions. In these rules, unless the context otherwise requires.

(a) "Act" means the Finance Act, 1994 (32 of 1994);

(b) "India" includes the designated areas in the Continental Shelf and Exclusive Economic Zone of India as declared by the notifications of the Government of India in the Ministry of External Affairs numbers. S.O.429 (E), dated the 18th July, 1986 and S.O.643(E), dated the 19th September 1996;

(c) words and expressions used in these rules and not defined, but defined in the Act shall have the meanings respectively assigned to them in the Act.

3. Taxable services provided from outside India and received in India. (1) Where any taxable service specified in clause (105) of section 65 of the Act is,

(a) provided or to be provided by a person, who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India; and

(b) received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or, as the case may be, usual place of residence in India,

then, the service provided from outside India and received in India shall be a taxable service and such service shall be treated as if the recipient had himself provided such service in India, and accordingly all the provisions of the Act and the rules made thereunder shall apply.

(2) The taxable services provided from outside India and received in India referred to in sub-rule (1) shall in relation to taxable services‚

(i) specified in sub-clauses (p),(q), (v), (zzq),(zzza), (zzzb), and (zzzh) of clause (105) of section 65 of the Act, be the taxable services as are provided or to be provided in relation to an immovable property which is situated in India;

(ii) specified in sub-clauses(a), (f), (h),(i), (j), (l), (m), (n), (o), (s), (t), (u), (w),(x), (y), (z), (zb),(zc),(zi),(zj), (zn), (zo), (zq), (zr),(zt), (zu),(zv),(zw), (zza), (zzc), (zzd),(zzf),(zzg),(zzh), (zzi), (zzj), (zzl), (zzm), (zzn), (zzo), zzp), (zzs), (zzt), (zzv), (zzw), (zzx), (zzy),(zzzd),(zzze), and (zzzf) of clause (105) of section 65 of the Act, be the taxable services as are performed inside India:

Provided that if the said taxable service is partly performed inside India, it shall be considered to have been performed inside India;

(iii)other than those specified in clauses (i) and (ii) above, be the taxable services as are received by a recipient located in India, for use in relation to commerce or industry;

Explanation. For the purposes of this sub-rule, taxable services specified in sub-clauses (d), and (zzzc) of clause (105) of section 65 of the Act, which are provided or to be provided in respect of immovable property situated outside India shall not be treated as services provided from outside India and received in India.

4.Taxable services not to be treated as output services. The taxable services provided from outside India and received in India, referred to in rule 3, shall not be treated as output services for the purposes of availment of credit of duty as are paid on input or input service under CENVAT Credit Rules, 2004.

[F. No. Bx/x/2006-TRU]

(R.Sriram)
Deputy Secretary to the Government of India

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