are we liable to pay service tax for web servers located in

Import of IT services does come into the service tax net however Could not understand the technical terms used like Linode, AWS, Mailchimp and other services This is included in Category C of the service tax, in my opinion your CA is right in pointing out that service tax needs to be paid. The rules classify all taxable services in three categories, namely (i) Services in relation to immovable property (ii) Services to be performed in India and (iii) Services received by recipient located in India. The classification is same as per export of Service Rules. Who is liable for Service tax? As per Rule 2(1)(d)(iv) of Service tax Rules (amended w.e.f. 19-4-2006), person liable for paying the service tax means - in relation to any taxable service provided or to be provided by any person from a country other than India and received by any person in India under section 66A of the Act, the recipient of such service. Para 4.2 of MF (DR) circular No. 81/4/2006-TRU dated 19-4-2006 states as follows, ‘Internationally, services provided by a foreign supplier to a domestic customer are subjected to VAT/GST under reverse charge or tax shift mechanism. Under the reverse charge method, a legal fiction is created treating as if the recipient had himself provided the services domestically and accordingly, the recipient of services is treated as deemed service provider’. However you can claim this as input credit for output services you would provide using the input services.

Thanks a lot Prasad.

As regard to your query - Linode, AWS, Mailchimp are the overseas companies that provide servers (networked computers) to host our software product.

One more question - how would you explain last sentence of your post to a layman. "However you can claim this as input credit for output services you would provide using the input services". How we can claim this and what benefit shall accrue to us from this.

Anil if you are also a provider of output service and have service tax liablity, the amounts paid for import of service can be used to discharge the liablity of the output service. or let me put it in other way. you are using a service which is provided from outside India and if you are providing a service in India for which you are collecting ST from your customers. This amount of tax paid on services from outside India can be used to adjust your liablity arising out of your business in India. Hope I am clairyfing your question.