Service tax liability on exchange fluctuations

This query is : Resolved

Arun Kumar Jain (Querist)
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02 February 2009 Our company provides commission to foreign agents for getting the construction contracts abroad. As per the agreement, whenever Running Bill of contract invoice in respect of such oversees contracts are raised, the agreed percentage of commission on contract value is accounted for on the proportion of such RA bill. Such commission is accounted for on the basis of current exchange rate basis.

However, at the time of payment of such commission, the company has to pay more and sometime, less also. For example, the company has booked sale invoice of Rs. 10 lacs dollar upon which commission was booked @ 5% viz. 50,000/- US dollar @ Rs. 45 per USD. Therefore, the commission was booked at Rs. 22.50 lacs in accounts. However, at the time of actual payment of such commission, the rate of USD was Rs. 46 and therefore, the additional Rs. 50,000/- was accounted for under F/E fluctuations A/c.

Now, since such commission is covered under business Auxiliary Service, the company will have to pay Service Tax U/s 66A of Import of Service.

Please reply whether the company should pay Service tax on Rs. 22.50 lacs only or should pay on additionally paid Rs. 50,000/- also. What would be the case, if the rupee improves against dollar and company pay commission of Rs. 22 lacs @ Rs. 44/- per USD. In such a case, should company pay Service Tax on only Rs. 22 lacs.

Please study and reply the same and substantiate your reply on the basis of Rules or regultations issued under Service tax or any cout pronouncements.

Dayal

Dayal (Expert)
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19 April 2009 The rule purely adopts the amount paid in respect of the services. What is paid is relevant and not what has been booked.

The difference will attract service tax and stands to be paid

You may refer the determination of value rules which are amply clear on the payment aspects