Service tax liability on import of services

1482 views 7 replies

Deblina Nandi Roy

Chartered Accountant

84 Points Joined February 2010

Dear All,

I am a Finance Manager in an SME. We have a third party agent in US who helps us getting orders from proposed customers. Recently as per a service agreement, they have asked us to pay them 5% commission on the quarterly sales figure to them. Say for July to Sep 14, Sales, we are to pay them 5% on 5th day of Oct 14. We will share the data with them and based on that they will share a bill every quarter without charging any service tax.

In this regards, I have the below qs:

Will the above give rise to any Service tax Liability?

If yes then in whose hand?

What service category will it be treated as - Commission on Sales/ Business Auxiliary service?

If say, service tax Liability incurs in the hand of service recipient, since this might be a case of Import of Service, then can the recipeint that is my company, claim cenvat credit on the amount of Service tax that we pay?

How will TDS be calculated and at what rate?

Thanks in advance for all of your kind response.

Rgds,

Deblina

Replies (7)

Harendra Kumar

Tax Advisor

1326 Points Joined July 2011

Mam,

It is business suport services then you are liable have to pay service tax under RCM and get the benefit of paid tax as CENVAT Credit Rule, 2004.

If found observation in thsi reagrd plz forward the same.

Thanking you,

Hari

73 Points Joined December 2008

Commission paid to agent located abroad was covered under reverse charge mechanism and service tax was payable by the recepient of service.

However there is a amendment Notification 14/2014 which specifies place of provision is place of service provider and hence, in my opinion, there will be no service tax liability in your case.

Any thoughts are welcome.

Hari

73 Points Joined December 2008

If the agent does not have a PE in India, there will not be any TDS liability. This view has been taken by ITAT Chennai in Faizan Shoes Pvt Limited.

Deblina Nandi Roy

Chartered Accountant

84 Points Joined February 2010

Dear Hai,

Thanks. But what is the definition of provision of service? I mean although the service is provided by the 1) US agent but we get orders from 2)various countries and our production site or place of business is in 3)India..so which place will be treated as provision of service? Also kindly help to send me the link of the notification, please..

Also if we do not deduct TDS from the agent's commission which they have also strictly denied to bear the liability of any taxes, do we, as in the service recipient have to bear the TDS liabilty then? At what rate?

Thanks in advance again for your response.

Hari

73 Points Joined December 2008

As per section 66B Service tax is applicable on services provided in taxable territory. "Place of Provision rules" has been formulated under Secion 66C, to determine where services are provided. Rule 9 of Place of provision rules read with Notification 14/2014, provides in respect of services provided by intermediary, place of provision will be place of location of service provider.

Hence in your case place of provision is USA ( location og Agent ), which is located outside taxable territory, hence service tax is not attracted.

Refer https://www.servicetax.gov.in for act, rules, notifications etc.

In my view, commission paid to agent located abroad is not taxable in India, hence TDS will not be applicable, since it is not a fee for technical service.

Please review the resources and get absolutely certain before proceeding.

Guest

It is business suport services then you are liable have to pay service tax under RCM and get the benefit of paid tax as CENVAT Credit Rule, 2004. If found observation in thsi reagrd plz forward the same.