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Service tax reverse charge

Manjunatha M K (Manager - Accounts) (318 Points)

16 January 2013

We do export of Goods to Europian Countries (100% export).

We appointed a person (an Europian) in Europe to do marketing in Europe.

My query is whether we should pay service Tax as Receipient of Service under Reverse Charge Mechanism.

Thanks in advance

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6 Replies

praveen (Chartered Accountant) (6971 Points)
Replied 16 January 2013

In my opinion it wont be applicable.

As the service is provided outside India and the benefits of the service is also reaped outside India.

However, take an expert opinion on this.

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Manjunatha M K (Manager - Accounts) (318 Points)
Replied 17 January 2013

Thanks Mr.Praveen.

I agree with you. I have same opinion.

Our Chartered Accountant suggested that the service tax is applicable in this case. He told me that if we read the Act, It clearly says if receipient of service is in India, then it amounts to import of service.

I am not satified with our CA. My opinion is, Service has been provided outside India by a Person Outside India. I don't think that Government of India has Jurisdiction to tax services Provided outside India by a person Outside India.

PARMITA MAZUMDER (CA- Practice) (386 Points)
Replied 17 January 2013

If the person is doing marketing of goods and selling the same also rule 4 of Place of provision rules, 2012 will be applicable. Place of provision will be outside the taxable territory where the services are actually performed. And if he is doing marketing only and goods are not required to be made physically available to him then default rule 3 of Place of Provision Rules, 2012 will be applicable which says location of the service recipient will be place of provision, then it will become import of service.

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Manjunatha M K (Manager - Accounts) (318 Points)
Replied 17 January 2013

Thanks PARMITA MAZUMDER,

But do you think that the Government of India has jurisdiction to Tax Services Provided outside India by a Person Ouside India ?

You can also refer Suprecourt ruling in Vodafone case (regarding Income Tax)

PARMITA MAZUMDER (CA- Practice) (386 Points)
Replied 17 January 2013

Government is not taxing the outsider but the person receiving the service from outsider.

Manoj Agarwal (Service Tax Consultant Rourkela ServiceTaxExpert@yahoo.com) (3456 Points)
Replied 20 January 2013

Dear Sir,

As per section 2 (f) of the Place of Provison of Service Rules, 2012 (POPR), “intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the ‘main’ service) between two or more persons, but does not include a person who

provides the main service on his account.;

So, if the Europian is providing you Marketing Service as an intermediary, then Rule 9 of the POPR is applicable which reads as below:

9. Place of provision of specified services.- The place of provision of following services shall be the location of the service provider:-

(a) Services provided by a banking company, or a financial institution, or a nonbanking financial company, to account holders;

(b) Online information and database access or retrieval services;

(d) Service consisting of hiring of means of transport, upto a period of one month.

So you are not liable to Service Tax.

Otherwise Rule 3 is applicable which has shifted the burden of tax on the service recipient. I agree with the views of Ms Parmita. The govt. is not putting any tax liability on any outsider. The liability is on the person in the taxable territory.

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