Export, Transfer and Service as Defined Concepts

In one line

MU's topic 2.4 lists seven concepts as "new" under FEMA, and three of them, export, service and transfer, are definitions whose breadth is what makes the Act work. Precisely: section 2(l) defines export to include services; section 2(zb) defines service; section 2(ze) defines transfer in the widest terms the Act contains; and section 2(za) and 2(o) define security and foreign security.

Why these definitions are called "new"

Because FERA was drafted for a world of goods. Its controls assumed a physical consignment leaving a port, an invoice, and a bank collecting the proceeds. Services were an afterthought, and the transfer of an interest in an asset without a sale was not clearly caught at all.

FEMA was drafted after 1991, when services had become a large part of India's external earnings, and after the drafters had seen how the older controls were evaded. The three definitions in this chapter are the response: export was widened to cover services, service was defined so that the widening had content, and transfer was drafted to catch every way of parting with an interest, whether or not anything was sold.

Section 2(l): export

"Export", with its grammatical variations and cognate expressions, means:

(i) the taking out of India to a place outside India any goods;

(ii) provision of services from India to any person outside India.

Sub-clause (i) is the familiar limb and it matches the customs meaning: section 2(18) of the Customs Act defines export as taking out of India to a place outside India.

Sub-clause (ii) is the new one, and it is the difference between the two statutes. A software company writing code in Pune for a client in California exports nothing under the Customs Act, because no goods leave India, and there is no shipping bill, no let export order and no customs frontier crossed. Under FEMA it is an export, and the whole apparatus of section 7, the declaration of full export value, and section 8, realisation and repatriation, applies to it.

The consequence should be stated plainly because it is the practical point of the definition. A service exporter owes the same obligation to bring the money home as a goods exporter, and the failure to realise attracts a penalty under section 13(1) in exactly the same way. Since services are a very large part of India's export earnings, a definition confined to goods would have left most of the country's foreign exchange receipts outside the realisation obligation.

"Import" in section 2(p) is defined on the corresponding pattern as bringing into India any goods or services.

Section 2(zb): service

"Service" means a service of any description which is made available to potential users and includes the provision of facilities in connection with banking, financing, insurance, medical assistance, legal assistance, chit fund, real estate, transport, processing, supply of electrical or other energy, boarding or lodging or both, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service.