Service tax on reverse tax mechanism

Dear Mr. Sunil,

The Notification No.30/2012-ST, merely states that the liability is required to be discharged by the service recipient, in case the taxable services are provided from a non-taxable territory. It does not talk about taxability, instead it only specifies the person liable to pay Service Tax.

But the chargeability of Service Tax is determined by Sec.66B, that excludes Negative List from taxability.

Hence, if the service is not taxable by virtue of Sec.66B, it cannot be taxed, even if provided from outside
India and received in India.

Pls specify, if you are still not clear.

Dear Mr. Vikas,

Thanks. However on reading section 66B I would have interpreted that services, even if not in negative list, would not be taxable if place of provision is determined as J&K and outside of India. Therefore if you stay in a hotel abroad whether it is above or below Rs.1000, as hotel is situated outside the taxable teritory, it should not be taxable if provided and availed abroad even if receiver is from India or a Business in India paying for the individual who uses the hotel. Even foreigner pays service tax at hotel in India.

i would have interpreted Section 68 as the fixing of the person liable to pay the service tax. However if you have to read the notification no. 30 / 2012 it states in respect of  any taxable services  provided or agreed to be provided  by any person who is located in a non-taxable territory and received by any person located in the taxable territory"

I would assume that first run test of whether it is an activity for consideration and / or declared service, then whether in negative list and then the place of provision to see if it is taxable u/s 66B and then apply section 68(2) for which you have notification 30/2012. The problem is that the notification 15/2012 for section 68(2) does not seem to be rescinded and for section 68 (2) it reads"in respect of  any taxable services  provided or agreed to be provided  by any person who is located in a non-taxable territory and received by any person located in the taxable territory"

This apparently shows the departments intent to tax all services provided by people in J&K and outside India to a business in India and it seems that section 66B is applicable only to services provided by the service providers in India and note to those in J&K and outside India.

Dear Mr. Sunil,

I would appreciate that you are reading alot...

But I would like to clarify certain things-

1.Tax liability can only be determined vide Sec.66B;

2.Person liable to pay such tax is determined vide Sec.68;

3.Whether the services are provided in India is determined vide Place of Provision Rules, 2012 (POPSR);

4.The value for which the service tax is liable to be paid is determined vide Service Tax (Determination of Value) Rules, 2006;

Now, as the queries are posed -

1. Hotel Accomodation: If you stay in a foreign hotel, then the same service would be covered by Rule 5 of the POPSR, meaning location of property is outside India, hence, place of provision is outside India, hence, by virtue of Sec.66B, the service is provided outside India, hence would not be taxable.

2.Services in J&K: Yes, if the place of provision is in India & received from J&K, then the said service would be taxable by virtue of Sec.66B and the liability would be on Service Recipient vide Sec.68(2).

Hope this is suffice. If you need further assistance, then you may further raise a query in this relation.

Thanks. Actually I did the reading for another reason to test for export of services for my agency services as intermediary for services and it tests that I am liable to pay tax as a provider of service even if I cause a sale of service even though the service provider and service receiver are out of taxable territory. Strange. If I cause sale for goods then it is the other way round. Even if I cause sale of goods for a foreign party in India then it is an export and not taxable. Looks like whenever I cause sale of goods I should keep xerox record of invoice and b/l to prove that they are goods.

Whenever we ask a service receiver to send us remittance for our bill from abroad, we always get minimum $ 30 less. We ask them to pay into our Bank's foreign account with some other Bank abroad who is designated as Intermediary in SWIFT remittances. Our bank gives us a certificate of $30 less than amount sent by the foreigner. Foreigner pays our full money + his bank charges to his bank. They show us proof. This money seems to be getting deducted from our remittance before it reaches the account of our bank and we do not know who keeps it. It could be possible that the intermediary bank keeps it. Maybe there must be a charge in between for using the Fedwire System or SWIFT for money transfer. In previous situation when tax was payable on cash basis, we used to account only the money received in INR after conversion and Foreign Inward Remittance certificate as the value of our service exported. Now with Point of Taxation we have to pay irrespective of receipt and when we receive we receive less. Is the charges deducted taken as:-

1) A charge against transaction in money and therefore exempt

2) If the intermediary took it, would it be also deemed as a service provided out of taxable territory as place of provision rule suggests that if intermediary service is at location of provider?

Basically service receiver and provider are both in non taxable territory. The action of sending the money is of the buyer to whom we provide the service. Having received or wanting to receive the service, he is liable to deliver the money to us and therefore any service for sending the money to us is a service being given to him whether it is his bank (remitting bank) or the intermediary. His bank charged him. The intermediary or the system yet in between has not charged him but deducted from our money.  Therefore the receiver and provider are both outside taxable territory and the service should not be taxed. Only problem is that we suffered the deduction. Does that make us the service receiver and would we have to bear tax on the disappearing money? The circular of the department seems to be more for the NRIs thatn the businesses receiving services.

In case we call for money via Pay Pal, do we have to pay the service tax on their intermediary charges? Do we have to pay for the conversion of money. They always give account of transferring dollars after their charges but eventually in our bank the rupee comes. We do not know who does the conversion.

Sir,

We have a vendor engaged in civil construction in at plant , where as in WO the Steel , Cement , Water & Electricity is under our scope and under his scope manpower & sand then do we have to considered it under RCM and what will be rate of Service Tax .

With Regards,