Service tax payment

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

24 October 2012 Hi,

We have imported machines from China under EPCG Scheme as per our PO and payment also 100% made.

The Installation of machine done by their agent who is located in India. We have not made any payment towards installation of machine to their agent. now excise auditor requested us to make service tax payment on installation of machine.

is that liable to pay Service Tax on installation of machine by us? whether can it be avoided ? Kindly clarify.

Sanjiv Dandona

Sanjiv Dandona (Expert)
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24 October 2012
Please clarify the following:

a) Please elaborate the terms of contract with the Machinery Supplier. Is it that under the contract they were supposed to install the machinery at your premises the the cost of installation was included in the cost of machinery.

b) On what value has the excise auditor asked you to pay service tax. Obviously it cannot be on the total value. Has he determined the Service Portion.

c) Are you aware whether the Agent who installed this machinery is entitled to Service or any other charges in this respect from the Principal.

We will examine this after getting replies to the above

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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24 July 2025 Based on your scenario and the applicable Service Tax provisions as of **24 October 2012**, here’s a detailed clarification:

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### 📌 **Background:**

* You imported machinery from China under **EPCG scheme**.
* Installation was done **by an agent located in India** (of the foreign supplier).
* **No payment** has been made to the agent for installation services.
* **Excise auditor is demanding Service Tax** on installation service.

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### 🧾 **Service Tax Liability as per 2012 Laws:**

#### 1. **Taxability of Installation Services:**

Yes, **installation and commissioning** of machinery is a **taxable service** under the **Service Tax** law (up to 30 June 2012 under specific categories, and from 1 July 2012 under the Negative List regime).

Under **Post-1 July 2012 regime**, all services are taxable unless they are in the negative list or exempted. Installation services do **not fall in the negative list** or full exemption.

#### 2. **Provision of Service Without Consideration:**

You mentioned **no payment** was made to the Indian agent. But Service Tax law (especially under Section 65B and Rule 6 of the Service Tax Rules) makes **provision of service without consideration** taxable **only if the service is between related parties or in the course of business** under **valuation rules**.

In your case:

* If the Indian agent is providing services **on behalf of** the Chinese supplier (and you, the importer, are not directly paying), then **technically, the Chinese party is the service provider**, and **you are the service recipient**.
* If the Indian agent is a **branch or liaison office** of the foreign supplier, **their services are considered as provided by the foreign entity**, and **you may be liable under reverse charge mechanism**.

#### 3. **Reverse Charge Mechanism (RCM):**

Under Rule 2(1)(d) of Service Tax Rules (in force during that period), **import of services** (like installation services from a foreign service provider) makes **the service recipient liable** to pay Service Tax under **RCM**.

So:

* If the Indian agent is acting **on behalf of the foreign supplier**, **you must pay service tax under RCM**, even if you haven’t paid separately for installation.
* The **value of the service** would be based on **valuation rules** – even if nil consideration is paid, **a notional value** may be attributed based on fair market value.

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### ❓ **Can Service Tax Be Avoided?**

If all the following are true, **you may have a case** to contest liability:

1. The Indian agent is acting **independently** and not on behalf of the Chinese supplier.
2. No separate **consideration** is paid or payable for the installation.
3. There is **no agreement** for installation services with the Indian agent.
4. The installation service is done **as part of the sale contract** (i.e. FOC installation included in the machine cost) — then the **entire value may be considered as import of goods**, not service.

However, if the auditor finds that the installation was a **separate service**, or was **performed by a related party**, or that **you received a service from a foreign provider**, you would be **liable to pay Service Tax under RCM**.

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### ✅ **Recommended Action:**

* Review your **PO/contract** — does it mention installation as a free or bundled service?
* Check if the Indian agent is a **related party or PE (permanent establishment)** of the Chinese supplier.
* If liable under RCM, **self-assess and pay** service tax to avoid penalties.
* If disputable, consider filing a **reply to the auditor with contract details** and legal position.

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Let me know if you want help drafting a reply to the excise auditor or need references to the exact legal provisions.

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