service tax liability

first of all clarify whether you r providing services to ur US based parent co. or the other co. directly.............. secondly which of ur co. wud raise the invoice to the client co. ........ u can see Service Tax (Determination of Value) Rules, 2006 for the same
..............the value of consideration is equals to gross amount charged by the service provider from the service reciever ....... so the above details r required

gaurav gupta

Hi Gourav,
Thanks for the reply. The very pertinent questions that you have raised are still not finalised. But tentatively the plan is,

                                         PLAN I

- we shall directly provide services to the Delhi co. (for which we shall enter in to an agreement ditrectly with the delhi co.not in any way bringing in to picture the US parent)

- We shall directly raise A PART of the invoice (which really would be what our US parent intends to remunerate us with i.e. cost + certain %) And the remaining part i.e. US parents margin the US parent will directly invoice to the US parent of the Delhi co. This I THINK can avoid tax being levied on the US parents revenue.


                                        PLAN II

- we shall act as an agent of the US parent . The agreement would be b/w the our US Parent and the Delhi Co.

-we shall raise the invoice (cost plus certain %) on our US parent.And the US parent will raise invoice on the Delhi co. which would include their margin .

                                              Which plan according to you would reduce the tax liability. or Can you suggest a better plan.

Hi Prince

Second proviso of Section 66A reads as below.
"Provided further that where the provider of the service has his business establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided."

Hence in this transaction, US parent company is directly concerned with the provision of Service and hence is provider of Taxable Service. As the US parent company is having permanent establishment in a country other than India, the Indian Service recipient, being located in India, will be liable to pay Service Tax. (as per Rule 3(iii) of Import Rule).
In the given case, the Delhi based office will be liable to pay service tax on gross amount charged i.e. $10000/-. But if US parent company is raising invoice on the another US company, it will not be consider as import of Service as the service recipient is not located in India and hence there will be no Service Tax.

When Indian subsidiary will raise an invoice on its US Parent company of $6000 for Services provided by it, the same will not qualify for Export of Service, being the service is not delivered and used outside India (as per Rule 3(2)(a) of Export of Service Rule 2005). So the Indian Subsidiary will charge Service Tax on invoices raised on its parent company.

Summary of above
I
i. US parent company raising invoice on Indian company at Delhi for $10000.
     Indian Company will be liable to pay Service Tax on the same.
               
                    OR

ii. US parent company raising invoice on another US company for Service provided in India for $10000.
     Transaction will not be liable to Service Tax as recipient of Service is not located in India


II Invoice raised by Indian subsidiary on its US parent company for $6000.
     Transaction will attract Service Tax.


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