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Service tax on outsourcing service

16 June 2016

Hello Friends,

One of my client in India recive a work for registering intellectual property right of a person situated outside India(say, London). Due to heavy work load he outsourced this work to a person outside India(say, China). Now this person in China raised an invoice in the name of Indian person mentioning there instruction reference from him for USD 1000. This Indain person has to collect this USD 1000 from London person along with his nominal commissioning charges.

I need a clarity regarding this whole situation regarding service tax applicability. Whether we will take this situation as a whole or divide this in in import then export of service. Please suggest

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1 Replies

Chirag Parmar (Service) (65 Points)
Replied 16 June 2016

In the instant case, Transaction would be required to be dealt separately i.e. import and export of service as both the transactions can be said different transactions.

1. Export of service- When you have received a work for registering intellectual property right then subject to 6 conditions specified in Rule 6A of Service Tax Rules, 1994, it will be said Export of Service. In case of Export of Service, Service Tax would not be leviable as Place of Provision is outside the taxable territory.

2. Outsourcing of work- When you outsource the work then Rule 3 of Place of Provision of Service would apply and place of service receiver would be place of provision. In such a case, you will be liable to pay service tax under reverse charge as specified under notification no. 30/2012- ST dated 20.06.2012.