Say, a person in Mumbai is in the business of producing films and has a website on which the films are uploaded. Now, if a person sitting in USA downloads the film and makes the payment in foreign exchange, will it be an export of service? Well, think about the place of provision of service for the given case study! In case of online information and database access or retrieval services, the place of provision of service is the location of service provider. So, as per the said rule, the place of provision of service is Mumbai. Consequently, there is no export of service.  This article will check service tax applicability on online services rendered outside India.

Now, which services would constitute as an online information and database access or retrieval services? Web based services providing trade statistics, legal and financial data, matrimonial services, social networking sites, digitized content of books and publications, online newspapers and journals, flight information and weather reports, download of digital content are all online information and database access or retrieval services. However, the following services are specifically excluded from online information and database access or retrieval services:

• If you sale or purchase goods, articles over the internet,
• Telecommunication services provided over the internet, including fax, telephony, audio or video conferencing,
• A service which is rendered over the internet, such as an architectural drawing, or management consultancy through e mails,
• Repair of software or hardware, through internet, from a remote location
• Internet backbone services and internet access services

Now, for services where there is no specific rule in the place of provision of service, we follow the residuary rule which says that the location of service receiver is the place of provision of service. So, if a chartered accountant is providing taxation services to a person in a foreign country, since the receiver of service is abroad the place of provision of service would be outside India. Now, you can follow the following steps to determine the place of provision of service:

Step 1: Understand the case study and apply the POPS rules.

Step 2: If the case falls under a specific head then fine else treat the location of the service receiver as the place of provision.

Step 3: Where both the provider and receiver of service are in taxable territory, then the place of provision of service is the taxable territory.

Step 4: When more than one rule is applicable then follow the rule “latter the better”.

Step 5: If place of provision of service is outside India and other conditions of export of service are satisfies, then there is an export of service and benefits can be claimed.

We should not get confused between place of provision of service rules (POPS) and export of service. Quite simply, a service is treated as export of service if all the following conditions are satisfied:

• Service provider should be located in taxable territory.
• Service receiver should be located outside India
• The service should not be in the negative list of services
• Place of provision of service should be outside India
• The payment for service should be received in convertible foreign exchange
• Service provider and receiver should not be just the branches of same establishment.

As you can see, place of provision of service should be outside India so that it is treated as an export of service, However that is not the whole and sole, there are other conditions as well which need to be satisfied to qualify as export of service. Now, why are we emphasizing so much on export of service? Well, if there is no export, then the benefits related to export is also not available. Say, if the POPS is outside India but it is not an export. In such cases, although service tax liability is nil (as the POPS is outside the taxable territory), yet the export rebate is not allowed, so the cenvat credit in respect of inputs have to be reversed. So, it becomes all the more important to know whether there is an export of service or not.

Let us read through few practical examples to get a better understanding of the concept. Say, an IT firm located in Delhi provides repair service in respect of software, to an IT company at its establishment in Australia by way of electronic means. Is there an export of service? To answer this question, first think what the place of provision of service is in the given case. If you go through the POPS rules you will find that in case when services are provided from a remote location by way of electronic means, the place of provision of service is the location where goods are situated at the time of provision of service. In the given case, the software is located in Australia so the place of service is Australia. Now if the other conditions of export of service are satisfied then this will be treated as an export of service.

Let us take one more example. Say an architect in India agrees to provide designs for a company in India which is coming up with a resort in Dubai. If we go by property rule, the place of provision of service is Dubai. However when both the service provider and receiver are in India, the place of provision of service is India. So, we follow the rule “latter the better”. So, the place of provision of service is in India.

To Conclude – So, now you would appreciate that we need to understand the place of provision of service rules to decide whether there is an export of service or not. However both are not the same thing.

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