Service tax on royalty payment to non resident

Service tax on payment of Royalty under reverse charge will be depends on the place of provisions of supply rule. If as per rule place of provision is in India then it will be taxable. Prima facie in majority cases royalty payment made to non-resident is taxable under reverse charge. However you also have to check customs duty perspective, if such royalty is relating to some import.

In case if service tax is applicable on such royalty payment then availability of cenvat will be depends on whether such royalty payment is for taxable output service or not. If on the output side if your entire service is taxable or liable for excise duty in case of manufacture, then you will able to claim cenvat credit. Please refer Rule 6(3) of CENVAT Credit Rule on same.

Dear Sir,

 Thank you for your response, I don’t get clarity from your response for the issue I am facing. To seek further clarification as to whether service tax is applicable on royalty, the following information is furnished.

• Ours is a manufacturing company.
• The royalty is for transfer of technology or for process improvement.
• The technology in question is transferred by the parent company, located in foreign country, to is subsidiary in India

Please clarify as to whether it attracts service tax and it so under what provision (section, rule, etc.)?

Whether Such transfer of technology is for any Imported equipment/software/hardware? which is installed in India.  Since there was a recent ruling on valuation of imported equipments where royalty is considered as a part of value of import on which customs duty levied.

No Sir, we brought the equipment seven years back only. only production process. 

Then only service tax will be applicable, as Place of provision will be in India.

Cenvat credit as menteioned earlier will depends on the taxability of output services/goods.