Service tax on royalty of exports

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This query is : Resolved

Kasinath Tumuluru (Querist)

17 February 2009 We are into semiconductor chip designing business. we provide the software to our subsidiary, which is at USA, to manufacture the chips and sale. we are claiming some percentage of royalty on sales done by our subsidiary, because we are providing the software.

Is the royalty which i am getting is exempted from service tax as per Service tax export rules,2005 ( i am fullfilling 3 conditions) or will it attract the service tax? please advice.

Dayal

Dayal (Expert)

20 February 2009 Royalty is received by you in relation to the sales done by subsidiary.
So you are a receiver.

Since you are a receiver, you will stand classified under Import of services and Not export of Services.
Royalty falls under Intellectual proprety rights, and also falls classified under the third category of services in relation to business or commerce.

It is understood that service tax would stand payable, however you will also be eligible for 100% Cenvat credit as it fall under the 16 specified category

Kasinath Tumuluru

Kasinath Tumuluru (Querist)

20 February 2009 The royalty i am getting is against the software services i am providing to subsidiary . Here i am not importing any servcies.The condition or the calculation of royalty is some % on their sales.

Here i am not importing any services. I am getting the revenue in way of royalty fee.

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