Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
12 September 2011Friends
We have imported a software used for design and drawing modules. The expenditure will not be charged to revenue but will be an addition to fixed asset ie will be capitalised.
Do we need to pay service tax on reverse charge mechanism as recipient of service ?
Please enlighten.
Regards,
CA Unnikrishnan Nair N
(Chartered Accountant)
(2083 Points)
Replied 13 September 2011
For IT services, situs of recipient is the test , hence you may be liable to tax under reverse mechanism.
Dipjyoti Majumdar
(CA in service & CS. dipmaj@ rediffmail.com )
(3468 Points)
Replied 14 September 2011
Dear Sir
Thanks for your valuable response. May I request Your goodself to kindly elaborate a little please.
many regards,
CA Unnikrishnan Nair N
(Chartered Accountant)
(2083 Points)
Replied 14 September 2011
For import of service , taxable services are grouped in to three. For each group the test is different. Test applicablew to the category whereunder IT serices fall is the situation of the service recipient. In the instant case, the recipient of service is situated in India and hence the transaction is impoert of service. But if your design/drawing service is taxable, the service tax paid on import of software is cenvat credit for you.
Dipjyoti Majumdar
(CA in service & CS. dipmaj@ rediffmail.com )
(3468 Points)
Replied 14 September 2011
Dear Sir
I agree with You. We are registered under taxable category "construction engineer" and we export services. So, there is no output service tax liability. The point is if we need to pay service tax under reverse charge method, we first need to pay cash. After cash payment it will become cenvat credit.
As there is no output liability , no scope of utilising cenvat credit really exists. It will just block our cash flow.
regards,
CA Unnikrishnan Nair N
(Chartered Accountant)
(2083 Points)
Replied 14 September 2011
If you have only export of service, the credit cannot be utilised. Then it is allowed as refund as per Rule 5 of CCR, 2004.
Have you paid customs duty on import of software ?
Dipjyoti Majumdar
(CA in service & CS. dipmaj@ rediffmail.com )
(3468 Points)
Replied 14 September 2011
Respected Sir
The software came in a CD through courier from overseas seller. The company did not incur any customs duty.
What is confusing to me is will the applicability of the service tax law change if I treat it as a FA or if i charge to revenue directly. I guess the testing criteria is if an Indian party would have charged service tax on its invoice under similar circumstances had it sold the material/provided service to us.
Am i correct sir. Look forward to your esteemed views please.
regards,
CA Unnikrishnan Nair N
(Chartered Accountant)
(2083 Points)
Replied 15 September 2011
Treatment in accounts has no relevance under sevice tax law. The foreign service provider cannot show service tax on invoice like an Indian service provider. You may pl. check with other experts before concluding.
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