'If provider and receiver of service are both in India, service is taxable'

We, an Indian company, undertake EPC contracts outside India. We supply material from India to project sites abroad. Upon reaching ports in other countries, the material is transported via road to the final destination. However, we are settling payments due for this activity in India. Now my transporter says that service tax is payable on the transportation services provided outside India. Please advise on applicability of service tax. 

I believe your transporter issues a consignment note as per Explanation to Rule 4B of Service Tax Rule, 1994. As per Rule 10 of the Place of Provision of Services Rules, 2012, “The place of provision of services of transportation of goods, other than by way of mail or courier, shall be the place of destination of the goods: Provided that the place of provision of services of goods transportation agency shall be the location of the person liable to pay tax”. In your case, the service is that of goods transportation agency. The service provider and service receiver are both located in India. So, the service is taxable.

   I have received an offer from a US firm to deliver software consulting services as an independent contractor. I will get payment in foreign exchange. What are the available tax treatment/deductions that I can claim to minimise tax outgo? 

You can export services without payment of service tax and utilise Cenvat Credit for payment of service tax on taxable services provided in India. Alternately, you can claim refund of such unutilised Cenvat Credit under notification no. 27/2012-CE (NT) dated June 20, 2012. Or you can claim rebate of the service tax paid on input services or excise duty paid on inputs under notification 39/2012-ST dated June 20, 2012. You can count the exports towards discharge of export obligation against your EPCG authorisation. No deduction is available under Income Tax laws for domestic tariff area units.  

CBEC circular no. Circular No. 1047/35/2016-CX, dated September 16, 2016 says that “where in respect of exports, input stage rebate on diesel under rule 18 of Central Excise Rules, 2002 is availed or diesel is procured without payment of Central Excise duty under sub-rule (2) of rule 19 of Central Excise Rules, 2002, no drawback either under column (6) and (7) or column (4) and (5) of the drawback schedule shall be admissible”. Can you explain the rational for this?

Para 4 of that circular itself explains that “in cases where input stage rebate on diesel is availed or diesel is procured without payment of Central Excise duty under sub-rule (2) of rule 19 of the Central Excise Rules, 2002, no drawback shall be available either with reference to column (6) and (7) or column (4) and (5). This is because a part of Excise duty on diesel, which is non-cenvatable, is factored under Customs component of the drawback rates as per rates and caps specified under column (6) and (7) of the schedule.” However, I do not find any legal basis for this restriction.