FTP changes have prospective effect

CHATROOM

According to the Circular No 1/2005 dated January 6, 2005, of the Central Board of Direct Taxes: "An undertaking set up in the domestic tariff area (DTA) and deriving profit from export of articles or things or computer software manufactured or produced by it, which is subsequently converted into an EOU, shall be eligible for deduction under Section 10B of the I-T Act on getting approval as 100 per cent export-oriented undertaking. In such a case, the deduction shall be available only from the year in which it has got the approval as a 100 per cent EOU and shall be available only for the remaining period of 10 consecutive assessment years, beginning with the assessment year relevant to previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as a DTA unit. Further, in the year of approval, the deduction shall be restricted to the profits derived from exports, from and after the date of approval of the DTA unit as a 100 per cent EOU. Moreover, the deduction to such units in any case will not be available after the assessment year 2009-10."

We provide management consultancy services to clients abroad and receive payment in foreign currency. Do we have to pay service tax?

Management consultants' services are covered under Rule 3 (3) of the Export of Services Rules, 2005. You need not pay service tax, if the following conditions are satisfied:

Services provided are used in relation to commerce or industry;
A recipient of such service is located outside India;
Payment for such service provided is received by the service provider in convertible foreign exchange;

Provided that the recipient of service has any commercial or industrial establishment or any office relating thereto, in India, taxable services to be export of service only if:

(a) Order for provision of such service is made by the recipient of such service from outside India;

(b) Service so ordered are delivered outside India and used in business outside India.

According to the current Foreign Trade Policy (FTP), the exemption from maintaining annual average exports has been removed under the Export Promotion Capital Goods (EPCG) scheme for service providers. Please clarify as to whether this condition will apply for EPCG licences issued earlier.

The condition for maintaining annual average exports will not apply to EPCG licences issued to service providers before April 19, 2007. Any amendments to the FTP will only have a prospective effect and not a retrospective effect, unless the amendment itself says that it will have a retrospective application.

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