Service tax on intercompany recharge mechanism

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

31 January 2013 My client a subsidiary of Foreign Entity. It has incurred some cost in India on employee cost plus consutltant cost whcih it wants to recover from the Foreign entity on cost plus mark up basis. I want to know

a) whether it should charge service tax on cost plus mark up invoice which it shall raise on foreign entity/group cos?

b) what are the conditions for qualifying this as export of services and thus claiming exemption from charging of service tax?

CA Vipin Jain

CA Vipin Jain (Expert)
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01 February 2013 a) as per Explanation 3 to Section 65 (44) an establishment of a person in taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct person. So service tax should be applicable if other conditions for taxability are satisfied.

b) Now export of services rules are replaced by Place of provision Rules. For claiming exemption "Place of provision of service"must be outside taxable territory limits. Place of provision depends upon nature of services. So it you can prove that place of provision of your service is outside taxable territory then it would not be chargeable to service tax.