Service tax on ecb loan intt

This query is : Resolved

POOJA SHARMA (Querist)
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10 October 2012 Whether Interest paid on ECB Loan to foreign lenders will be liable to service tax under reverse charge on import services or will be exempt under Negative list

NILESH MANDOLE, MBA (Fin),CS

NILESH MANDOLE, MBA (Fin),CS (Expert)
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10 October 2012 It attracts service tax

Sunil

Sunil (Expert)
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10 October 2012 For a service to be taxable based on location of receiver when receiver is in taxable territory and provider in non taxable territory, it is taxable only if it does not appear in the negative list. Therefore if you read the negative list:-
The negative list entry covers any such service wherein moneys due are allowed to be used
or retained on payment of interest or on a discount.

However, if you pay any fees or charges for administration of the loan other than the interest, you have to pay service tax on a reverse charge mechanism on those fees.

Abatements are available. Eg. Hire Purchase for Machinery Purchased. In India 10% of the interest charged is deemed to be fees for such service and accordingly taxable. Likewise if you take machinery on HP agreement from abroad, on 10% of the interest amount you will have to pay tax on reverse charge mechanism.

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Sunil

Sunil (Expert)
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10 October 2012 The basic principles of law is that you have to determine first the amount of service tax payable in the taxable area by a provider in the taxable area on similar service. If the service is exempt under negative list in taxable territory, then no reverse charge service tax if provided by someone from non taxable territory. Likewise if the service is taxable and qualifies for abatment, same abatement is available on reverse charge basis also.