Service tax - consultancy for textile manufacturing

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

13 February 2013 Dear Sir,

We have started an agency who is acting as buying agency for US based importer and we get commission for the same. This service is expempted as per service tax norms.

Sometime we also have to do consultancy in terms of development of fabrics such yarn dying, texture, feel etc. for the final prodcuts. In this regard, i have following query:
1) Is this service is taxable or not, If yes, on what rate?
2) If not, then is service tax registration is required or not?
3) If not, then do I have to declare this to service tax department to get expemption?

Please advise.

Arun Kumar Singh

Arun Kumar Singh (Expert)
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13 February 2013 depend upon the uses of services under the place of provision of services rules 2012. Uses of services is outside India and received the payment in foreign currency then service tax will be exempt.

Querist : Anonymous

Querist : Anonymous (Querist)

13 February 2013 Thanks for reply. But consultancy is provided to exporter for product development and payment is made in INR.

Does this service quality to Textile Processing which is an exempted under service tax norms?

Querist : Anonymous

Querist : Anonymous (Querist)

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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24 July 2025 Got it! Here’s the clarification on service tax applicability on consultancy services related to textile manufacturing/product development when:

Consultancy is provided to an exporter,

Payment is received in Indian Rupees (INR),

Service relates to product development like fabric/yarn dyeing, texture, feel, etc.

1. Is this consultancy service taxable?
Textile Processing Services are specifically exempt from service tax as per exemption notifications (like Notification No. 25/2012-ST).

However, consultancy services for product development (such as advice on fabric yarn dyeing, texture, feel) do not directly qualify as textile processing service.

Such consultancy is typically considered as “Professional, Technical, and Business Consultancy Services” (under Section 65(105)(zzzh) or similar heads).

Therefore, this consultancy service is taxable under Service Tax law at the applicable rate (historically 12.36%, but rates vary over time).

2. Place of Provision and Export of Services
If the consultancy is provided to an exporter outside India, and payment is received in foreign currency, then the service qualifies as export of service which is exempt from service tax.

But if payment is received in INR (Indian Rupees) and the service is consumed within India, then service tax is applicable.

3. Registration Requirement
If your aggregate taxable turnover exceeds the prescribed threshold (typically Rs. 10 Lakhs or Rs. 20 Lakhs depending on the time period and rules), you must register for service tax.

Even if the consultancy is exempt (like export of services), if you provide other taxable services, registration may be required.

4. Do you need to declare for exemption?
There is no requirement to separately declare the exemption to the service tax department.

Exemption is claimed based on facts like place of provision, payment currency, nature of services, etc.

You must maintain proper documentation supporting your claim of exemption (like export contracts, invoices showing foreign currency payment, etc.).

Summary for your case:
Situation Service Tax Applicability Registration Requirement Exemption Available?
Consultancy to exporter, payment in foreign currency Exempt as Export of Service Required if turnover exceeds limit Yes, export of service exemption
Consultancy to exporter, payment in INR Taxable as consultancy service Required if turnover exceeds limit No exemption
Consultancy qualifies as Textile Processing Service Exempt Required if other taxable services exist Yes, exempt under textile processing notification

If the consultancy is distinct from textile processing (i.e., purely advisory), then service tax is chargeable on INR payments.

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