Hi
One of our clients are engaged in the business of clearing and forwarding agents of a foreign principal.
The remuneration is as a percentage on the total freight collected / collectible on behalf of the principal. Service tax is not collected from the principal. But it is paid on the remuneration received from the principal and service tax is an expense for the company.
The agents have engaged a sub-agents in one of the port, in which they are acting as agents of the foreign principal. The sub-agents charge service tax on the remuneration.
As per the agency agreement, all the expenses incurred by the agent for the sailing will be reimbursed by the principal. Hence, the principal is reimbursing the sub-agency fees also (including the service tax portion).
The agents are also availing input credit on the service tax paid to the sub-agents.
Now the question is.
Is the availment of input credit of service tax by the agents correct?
If yes, please clarify how they can avail input credit when it is getting reimbursed?
If no, pls explain as to why can't they avail input credit.
Pls support the reply with reference to sections or case laws.
CAclubindia
