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Service tax on comission

aishwarya s raghavan (student) (224 Points)

29 March 2013

Dear All!

Please let me know if service tax is applicable in this case and reverse charge will apply or not.

The company is doing marketing service in India for a foreign company and receives comission for the same. Is service tax applicable on such comission and whether reverse charge would apply as well.

Thanks in advance!

The company is rendering marketing service in India for the foreign company

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7 Replies

Vaibhav Pitliya (Student CA Final ) (71 Points)
Replied 29 March 2013

Hello...

If service is exported, there is no service tax liability. If the services are exported, the Cenvat credit is not required to be reversed. Assessee can utilise credit for payment of service tax on other services.

Basic principle of taxation is that ‘goods and services should be exported, taxes are not to be exported’. Another principle is that service tax can be levied only if service is provided or received or consumed in India.

Thanks...

Asif Khan (Taxation executive) (410 Points)
Replied 30 March 2013

There are some questions-

Is the foreign company owning any office in india?

Is the Indian company recieving commission in Foreign currency?

aishwarya s raghavan (student) (224 Points)
Replied 30 March 2013

Yes, sir the company is an Indian co. and the comission is billed in foreign currency and receipt is done in foreign currency.

Asif Khan (Taxation executive) (410 Points)
Replied 30 March 2013

Then

In the present case service tax is not applicable by virtue of export of service rules 2005 which states if following conditions are fulfilled a) such services is provided from India & used outside India b) payment for such services is received by the services provider in convertible foreign exchange.

Hope Its clear @ Aishwarya..

aishwarya s raghavan (student) (224 Points)
Replied 30 March 2013

But thn Asif, with effect from 1st july, 2012 its taxable na?

Asif Khan (Taxation executive) (410 Points)
Replied 30 March 2013

Dear Aishwarya,

According to the ‘Education Guide’ released by the Central Board of Excise and Customs (CBEC) on 20th June 2012, export of services shall now be governed by new provisions in the Service Tax Rules 1994, namely rule 6A. The essential requisites for a service to be designated as an export service are:

It must be a service as defined under sub-section 44 of section 65B

It must be provided by a service provider located in the taxable territory

It must be provided to a service receiver located outside India

It must not be a service specified in the negative list

It must be provided at a place that is outside India

The payment for such service is received by the service provider in convertible foreign exchange

The service provider and service receiver are not merely establishments of a distinct person by virtue of item (b) of Explanation 2 of clause 44 of section 65B of the Act.

The answer to all questions above must be yes to avail the status of export of service, says the CBEC.