Calculation of service tax under reverse charge mechanism

Service tax is calculated on payment made to foreign service provider in Indian Currency. No grossing up is to be done,

Ok. Though this seems correct but can you just elaborate on the issue any further citing relevant circular/statory provision under the Act so that I can link it up.... I would also like to draw your attention to Sec 67 which I stated above wherein it is mentioned that in case the gross amount charged is inclusive of service tax, the service tax should be computed by grossing up...

To my understanding, the service provider is located outside India and thus not having any service tax registration in India. So, the service receiver is deemed to have provided the service and thus the liability to service tax thereon rests on him. Also, being a service receipient, he shall be allowed the credit of service tax paid under such reverse charge mechanism........ Pls clarify???

Dear Sarthak,

In my view, according to newly inserted sectio 67A, the value of service in case of import of service will not be the actual amount paid to the service provider in INR. The exchange rate as prescribed under the customs Act (not  RBI) as on the date of provision of service is relevant. 

Now, the calculated value is the value inclusive of service tax and as rightly pointed by you, the service tax is to be paid by way of grossing up (back calculation i.e. value/112.36 * 12.36

Yes, after making payment of service tax vide GAR -7 Challan under reverse charge, you may take the cenvat credit for the same, if the service is otherwise eligible 'input service'

Regards,

Manoj Agarwal

Dear CA Kedar,

If your client is located in a 'Non Taxable Territory' then by application or reverse charge, the service tax is to be paid by the service recipient. If in Taxable Territory (In India minus J&K), then your client as service provider is liable to pay tax . For further clarification, if any, kindly contact.

Regards,

Manoj AGarwal,

ServiceTaxExpert @ yahoo.com