IF A COMPANY IS REGISTERING ITS TRADEMARK AND PRODUCTS WITH A FOREIGN COUNTRY BY UTILIZING THE SERVICES OF A CONSULTANT WHICH DOES NOT HAVE A BASE OR PE IN INDIA. WHETHER SERVICE TAX APPLICABLE UNDER IMPORT OF SERVICES
REGARDS,
SUREN
Guest
Guest
(Expert)
24 May 2010
The current basis for taxation of import of services is through the “reverse charge” mechanism, whereby the service recipient is required to self-declare the import and pay tax accordingly. Indeed, the law deems the recipient of such services as the service provider in order to collect tax. The basis of the concept of reverse charge is the taxation of services based on consumption, that is, it operates as a consumption-based tax. This is in line with the generally accepted principle that export of goods and services should be effectively exempt from domestic taxation in the country of export and should be taxed in the country of import or ultimate consumption. In other words, the “reverse charge” mechanism follows the principle of a destination-based consumption tax. The service tax is supposedly such a tax, as has been stated in a departmental circular. The principle of taxation of import of services was initially introduced with effect from June 2005 by means of insertion of an explanation to the erstwhile Section 65(105) of the Finance Act, 1994. This explanation was inserted in this section even though Section 64 of the Act envisaged the taxation of only those services that were provided in India and not those that were provided elsewhere and received in India. Further, the explanation envisaged that all services received from a foreign service provider anywhere in the world by a recipient located in India would be chargeable to tax, regardless of whether the services were received in India.
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