Ruling unsettles definition of the export of services

The export of services from India, which is exempt from service tax, is governed by the Export of Services Rules, 2005, first introduced in March of that year. There has since been a series of legislative amendments, and litigation in the area.

A key question concerns what activities constitute an “export of service” vis-à-vis services classified under category 3 for applying the criteria set out in the export rules. Until recently, the settled position has been that an export of service occurs if the recipient of the services is located outside India, and the benefit of the services (“beneficial enjoyment”) accrues outside India. This position was clarified and confirmed through decisions of the Customs, Excise and Service Tax Tribunal in the cases of Blue Star, ABS and Gap International Sourcing India, and also an administrative circular of 24 Feburary 2009 issued by the Central Board of Excise and Customs (CBEC).

However, a recent ruling by the tribunal in relation to an application for stay of demand for service tax in the case of Microsoft Corporation v CST, has called this settled position into question.

Rohan Shah is the managing partner at full-service law firm Economic Laws Practice. The firm is headquartered in Mumbai, and has offices in New Delhi, Pune and Ahmedabad.