Service tax on indian service provider, foreign client

Queries 1209 views 2 replies

nandan

Consultant

25 Points Joined April 2013

An Indian Contracting company (X) is executing an export project in India (manufacturing of an equipment). They have placed an order for a part of it to a foreign company (Y) for supply and installation of materials under the foreign companys supervision. The foreign company supplies its materials, sends a supervisor and then places an order on an India company (Z) for the execution of the service part. 1) How are the srvice tax applied?. 2) Can Y take the order for material supplies and supervision services in USD and ask 'X' to place the order for service part directly to an Indian company to avoid and reduce taxation?. Please suggest. Matter urgent.

Replies (2)

Madhukar N Hiregange

Chartered Accountant

39039 Points Joined September 2008

How is it that a project is an export one where the installation is in India I am not clear.

For services provided by foreign co - supervision etc- liability oin reverse charge will be on receiver in India. For servioces provided in India there wouldbe ST on the provider in India.

nandan

Consultant

25 Points Joined April 2013

Dear Mr. Hiregange,

Thank you for your reply. To answer to your question,

1.) This is a large order for equipments to be used for a project in Europe. An Indian company (X) has secured the order for it.

2) These equipments needs installation of same items whih are not available in India and so they needs to be imported from abroad and installed in India. So the order for these items needs to be placed abroad to a foreign company (Y). Installation needs to be orderd on them for guarantee purpose.

3) Since the installation of these items are labor intensive, the foreign company will send 1 or 2 supervisory personel to oversee the work and they have to subcontract the installation work to an Indian contractor (Z).

My questions were:-

1) 'X' Places an order on Y for Supply of materials, Supervision Services and Installation Work. 'Y' Places an order to Indian Company 'Z' for installation work.

What are the taxes in these orders?

From my knowledge 'Z' raises a service tax invoice to 'Y' who has to pay the entire amount including the service tax to 'Z'. 'Z' pays service tax to govt.

Then 'Y' raises an invoice to 'X' which is for installation srvice + supervision charges. Since it is an invoice in USD it will not have any service tax component. But then 'X' pays service tax for the total amount as the service receiver.

Here the service tax is paid 2 times?. is this correct.

For materials there are no taxes involved as materials are shipped on CIF basis and customs clearance is done by 'X'.

I had suggested to company 'Y' the following:-

Charge the supervision cost alongwith the materials as free supervision for materials supplied.

Ask company 'X' to place an order to company 'Z' directly and 'Y' to take commisision from 'Z' for technical services. In this case what all would be tax issues?.

Thanks in advance

Nandan