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CBEC’s New Clarification On Scope Of “Used Outside India” In Export Rules

18 May 2011

The Central Board of Excise and Customs ("CBEC") has issued a new Circular to clarify the term 'used outside India' under the Export of Service Rules, 2005 ("Export Rules"). The Circular seeks to clarify as to whether the condition of "used outside India" (for these Category III services) would be satisfied merely if the recipient is located outside India. Taxand India aims to provide some clarity over the Circular.

The Circular states:

  • Services are capable of being paid from one place and actually used at another place (eg audit, advertisement, consultancy, Business Auxiliary Services).
  • The services would not be treated as 'used outside India' merely because the payment has been received from a recipient located outside India. The words 'accrual of benefit' are not restricted to mere impact on the profitability of the person who pays for the service.
  • The words 'used outside India' should be interpreted in the context of where the effective use and enjoyment of the service has been obtained. This would depend on the nature of the service.

Taxand's Take

The Circular seems to redefine the term 'used outside India' to determine the 'accrual of benefit outside India' based on the effective use and enjoyment of services outside India.

No principle has been laid down to determine the place of use and enjoyment in different scenarios and this could create controversies. While this Circular is relevant for the period up to 27 February 2010, the Revenue may seek to rely on the same to initiate proceedings for past periods and to deny the benefit of export in cases where the services are not used outside India, in accordance with this Circular.

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Your Taxand contacts for further queries are:
Rajeev Dimri
T. +91 11 3081 5000

Taxand's Take Author