In August 2004, the Government released the draft Export of Services Rules ("Rules") which discussed situations when services would be regarded as exported outside India, and be exempt from service tax (read our Hotline summarizing the draft rules). The Government has now notified these rules, by way of Notification No 9/2005 dated March 3, 2005. These Rules shall be effective March 15, 2005. From that date, the existing exemption available to services in respect of which consideration is received in convertible foreign exchange will be withdrawn.

As per the Rules, services taxable under the Finance Act, 1994 will be exempt from service tax where the same are exported outside India. In order to determine what constitutes export of services, all the notified services have been bifurcated into 4 categories, as under:

For this purpose, India is defined to include the designated areas in the Continental Shelf and Exclusive Economic Zone of India. The Rules further provide that any service tax or duty paid on any input services or inputs used in providing the services exported would be available as a rebate subject to such conditions and limitations and as per the procedure laid down in this respect.