Regarding royalty received from foreign company

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GAURAV GUPTA (Querist)
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18 April 2015 Our company is engaged in sale of images online.
To enter into international market, it has enter into an agreement with a USA based company who is also engaged in similar trade.Terms of agreement:-

1. Our company just transfer the images to USA based company, but it does not amount to sales, so that the USA based company can sell to USA customers.

2. In consideration, our company received "ROYALTY" at specified percentage on the sales effected by the USA based company. Further it is received in Foreign currency.

3. Invoice is raised on the name of the USA based company to USA customers and not in our name.

NOW MY QUERY IS THAT:

Whether the company is liable to pay any service tax on the ROYALTY received from USA based company, as the deptt. issued Show Cause Notice to us, that this transaction is covered under REVERSE CHARGE MECHANISM and subject to service tax? Further, if we paid service tax under Reverse Charge, then whether can we claim CENVAT Credit on such tax?

Reply asap. Urgent!!!

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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18 April 2015 The company is not liable to pay any service tax on the royalty received from USA co. Service provided out side taxable territory hence no service tax payable.
You are service provider hence no reverse charge applicable.

GAURAV GUPTA

GAURAV GUPTA (Querist)
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18 April 2015 BUT THEY WERE SAYING THAT:

SUPPOSE USA BASED COMPANY MADE SALE OF 100$ AND AS PER AGREEMENT 40$ REMIT TO OUR COMPANY AS "ROYALTY".
BUT IN ACTUAL THEY ARE NOT THE OWNER OF IMAGES (i.e. USA BASED COMPANY) AND THEREFORE YOUR SALE (i.e. OUR COMPANY) IN THIS CASE IS 100$ AND FOREIGN EXPENSES AMOUNTED TO 60$ AND REMAINING 40$ IS YOUR ROYALTY INCOME. NOW YOU HAVE TO PAY SERVICE TAX UNDER RCM ON THAT 60$ ??

IS THIS VIEW IS POSSIBLE ???

GAURAV GUPTA

GAURAV GUPTA (Querist)
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CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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19 April 2015 RCM is applicable only to service receiver here you are only service provider, the service receiver is non resident.
Only income tax is payable not service tax.
The above view is not possible.

GAURAV GUPTA

GAURAV GUPTA (Querist)
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22 April 2015 Thank you sir, but how we will gonna prove that we are service provider and that USA based company is service receiver, as invoices is generated by that USA based companies to its customers in their own name and we receive only payments as a royalty after deduction of all expenses. Moreover, we also did not raise any invoice to USA based company??

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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22 April 2015 You are receiving payment from the USA company. It is only service provider can receive money. The service receiver pays the money.
From the above it is clear that you are not service receiver.
On behalf of you USA company raised invoice.
Yours is a strong case no service tax payable.

GAURAV GUPTA

GAURAV GUPTA (Querist)
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01 May 2015 THANK YOU SIR, BUT KNOW THEY RAISE SOME OTHER ISSUE....ACCORDING TO THEM, OUR SERVICES ARE COVERED UNDER RULE 9 OF PLACE OF PROVISION OF SERVICES (POP) AND ACCORDING TO WHICH POP IN CASE OF EXPORT IS LOCATION OF SERVICE PROVIDER AND THEREFORE SERVICE TAX IS PAYABLE ON SUCH EXPORT SERVICES...

SIR, IS THIS VIEW POSSIBLE??
REPLY ASAP....

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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01 May 2015 Your activity(Royalty) is not covered under Rule 9 of POP of service Rules.

GAURAV GUPTA

GAURAV GUPTA (Querist)
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01 May 2015 They said that your services are covered under "Online Information and database access or retrieval services" because we are sell our images online to our customers....

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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01 May 2015 You sell your images online to your customers. It is not 'Online information and database access or retrieval services'.
Sales are not covered under service tax.
You have a strong case contest it.

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