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Applicability of service tax

Shikha Bajaj (CA ) (433 Points)

17 October 2013

Hello All,

Please clear the following query- X LLC (USA) is a wholly owned subsidiary of X India (Delhi).

X LLC is providing telecommunication services to clients in India through X India (outsourcing).

The client pays directly to X LLC in USD (and not to Indian Company). The Indian company raised invoice to X LLC for providing services to its clients in India and receives payment in USD.

Now, I want to ask-

1. Is it covered under export of services?

2. What is the place of provision of service?

3. On whom the liability to pay ST arises, if any. (Considering reverse charge mechanism also)

Thanks in Advance!!

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5 Replies

Saurabh Maheshwari (B.com,ACA) (5923 Points)
Replied 17 October 2013

In outsourcing deal b/w X India and X LLC ...X India is Service Provider and X LLC(USA) ....Since X LLC(USA) is located outside the Indian taxable Territory service is not taxable in India as the place of provision is outside India........ Place of prov is outside India because service receiver is outside India(As per Rule 3 of PPS,2011)....

As far as the ques of services provided by X Inda to X(USA) .......the same will be trated as export of services provided conditions as specified in Rule 6A of STR,1994 satisfies:

These conditions are :

Requirements of rule 6A for export of service

¨ Provider of service located in taxable territory and recipient located outside taxable territory

¨ Service should not be in Negative List

¨ Payment should be in free foreign exchange

¨ If branch in India of a company provides some service to another branch outside India, it will not be export service.

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Shikha Bajaj (CA ) (433 Points)
Replied 17 October 2013

Thanks Sir. But the services are provided in India.

and secondly, can't we apply Rule 4 in case of telecommunication services to check the place of provision?

Saurabh Maheshwari (B.com,ACA) (5923 Points)
Replied 17 October 2013

No Rule 4 will not be applicable because Telecom. service is provided by Indian co. in connection with outsourcing services to Foreign subsidiary....and outsourcing is covered by Business Support service....therefore Rule 3 will prevail and Place of Prov will be location of service receiver which is USA.....

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Shikha Bajaj (CA ) (433 Points)
Replied 17 October 2013

It means there is no liability to pay Service tax on X (India).

Whether service tax is applicable on X (LLC) and due to reverse charge mechanism, service recipient (Indian client) has to pay it??

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Saurabh Maheshwari (B.com,ACA) (5923 Points)
Replied 17 October 2013

Services provided by Indian co.(on behalf of Foreign co. as an BPO)are not taxable in India...because services are Infact provided to Foreign co so Indian co need not to charge St to Foreign co. bcoz Place of Provision of Business Support services is USA as per Rule3 of PPS Rules,2012 ....

As far tax liab on Indian clients under Reverse chg is concerned ....yes they are liable to pay ST under RCM as an importer of service where services are imported from USA co.(though actually provided by Indian co.)

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