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Applicability of Service Tax

CA Sanjay Baheti (PROPRIETOR) (1155 Points)

12 May 2010

A firm of chartered accountant in Ahmedabad provides professionsal services to firm of CA's of USA/UK for there clients in UK/USA and get the fee from those CA firms in convertible foreign exchange. If the CA firm in Ahmedabad, liable to charge service tax or not ? If yes then how the foreign firm of CA's will get the cenvat credit in India? Will it make a difference if a Private Ltd. company provide the same services instead of CA firm?

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1 Replies

Ajay Kumar Mourya (C.A.) (37 Points)
Replied 12 May 2010

Hi Sanjay,

As you say that CA firm of Ahmedabad provides professional services to the CA firm in UK / USA, it is the matter of export of services. As per RULE 4 of the Export of Service Rules, 2005, " Any service, which is taxable under clause (105) of section 65 of the Act, may be exported without payment of service tax." Hence CA firm in Ahmedabad is not liable to service tax.

Your second question is "how the foreign firm of CA's will get the cenvat credit in India". In this regard I will say that due to CA firm in UK / USA is receiving the service from CA firm in India, he is liable to pay and service tax. Hence matter regarding cenvate credit of service tax does not arise. HOWEVER as per Rule 5 of the Export of Service Rules, 2005, " Where any taxable service is exported, the Central Government may, by notification, grant rebate of service tax paid on such taxable service or service tax or duty paid on input services or inputs, as the case may be, used in providing such taxable service and the rebate shall be subject to such conditions or limitations, if any, and fulfillment of such procedure, as may be specified in the notification."

If a foreign firm of CA is receiving the services from India as well as providing the services in India, in that case the said Rule 5 will be applied. In present case, foreign firm is receiving the services from India but providing the services to the clients which are in foreign country. Hence, matter of cenvat credit of service tax does not arise.

Your 3rd question was "Will it make a difference if a Private Ltd. company provide the same services instead of CA firm?" In this regard I will say that there is no any difference if a PVT Co. provides the same services because the service provider may be any person i.e. firm, pvt co. ltd co. etc.