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Discussion > Service Tax > Queries >

Service tax liability on foreign payment

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CWA FINAL


[ Scorecard : 97]
Posted On 11 January 2011 at 11:11 Report Abuse

Hello,

An indian company needs to pay for royalty to a US company and has to bear all incidental taxes .My query is

1. does indian co needs to pay for service tax (it does not have a Service tax number yet)?

2.If it has to pay for service tax , how it can avail the credit for the same ?

thanks


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Madhukar N Hiregange
Chartered Accountant


[ Scorecard : 19492]
Posted On 11 January 2011 at 11:41

The question is whether the service is covered under IPR or any other defined service. The nature ofthe payment and agreement maybe relevant to decide the same.

If it is a taxable service then under reverse charge the same would be payable by the Indian company and if the concern provides taxable services and uses such input services for the business then the same canb be availed as credit.





Monika
CWA FINAL


[ Scorecard : 97]
Posted On 11 January 2011 at 12:42

The indian co. deals in hosiery business for which the foreign firm(Comic publication) has allowed it to use certain names, characters on the garment it manufactures for which the royalty is being paid to the foreign co.

Also the the indian company is into manufacturing business and hence not registered with Service tax.




Suren
CHARTERED ACCOUNTANT


[ Scorecard : 397]
Posted On 11 January 2011 at 13:32

In case of import of service, tax is payable by recipient of services under method of ‘reverse charge’. Tax should be paid by cash i.e. GAR-7 challan and then Cenvat credit can be availed of the tax so paid, as it is his input service.




Monika
CWA FINAL


[ Scorecard : 97]
Posted On 11 January 2011 at 14:00

Does that means the Indian company has to seek registration under Service Tax ?




Monika
CWA FINAL


[ Scorecard : 97]
Posted On 12 January 2011 at 11:20

Is the exemption vide notification no.16/2002 dated 02.08.2002 applicable in this case ??




Suren
CHARTERED ACCOUNTANT


[ Scorecard : 397]
Posted On 12 January 2011 at 13:36

 

I DONOT THINK THAT THIS NOTIFICATION APPLICABLE IN UR CASE

ITS ONLY FOR UN AND THE LIKE

 

IF SERVICES RECEIVED FALL UNDER TAXABLE SERVICES UNDER SECTION 65 THEN REGISTRATION IS COMPULSORY

 

Notification No.16/2002-Service Tax

            In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), and in supersession of the notification of the Government of India, in the Ministry of Finance, Department of Revenue vide GSR 205(E), 24th April, 1998, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts all the taxable services specified in section 65 of the said Act provided by any person, to the United Nations or an International Organisation, from the whole of the service tax leviable under section 66 of the said Act.  

EXPLANATION:-      For the purposes of this notification, "International Organisation" means an international organisation declared by the Central Government in pursuance of section 3 of the United Nations (Privileges and Immunities) Act, 1947 (46 of 1947), to which the provisions of the Schedule to the said Act apply. 




Monika
CWA FINAL


[ Scorecard : 97]
Posted On 12 January 2011 at 14:07

But it doesn not make sense that just to pay the service tax on such 'reverse charge' mechanism , this Indian Co. which deals in manufacturing and does not have any service tax registration has to get registered and in the process get binded by the compliances arising out of being registered with Service Tax Authority i.e. Filing of return (in this case it would be Nil return)

Isn't there any exception to this case ?




Suren
CHARTERED ACCOUNTANT


[ Scorecard : 397]
Posted On 12 January 2011 at 15:45

IN MY VIEW NO EXCEPTION

ALSO LIMIT OF 10 LAKH NOT APPLICABLE




U S Sharma
glidor@gmail.com


[ Scorecard : 19410]
Posted On 12 January 2011 at 19:33

Originally posted by : Monika

But it doesn not make sense that just to pay the service tax on such 'reverse charge' mechanism , this Indian Co. which deals in manufacturing and does not have any service tax registration has to get registered and in the process get binded by the compliances arising out of being registered with Service Tax Authority i.e. Filing of return (in this case it would be Nil return)

Isn't there any exception to this case ?

more companies who are not in service tax area they are registered with service tax to pay "service tax" on Goods Transport Agency as "receipent of GTA- Taxable service" 

As being in business and maintaining Vat number u must have to pay freight for Lorry/ Truck and transport, and hence liable for service tax payment, which is avoided by youself, 

keep updated about tax system and pay proper taxes always and sleep with peace. :)



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