LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

Service tax on services rendered abroad

bhaskar (Consultant) (87 Points)

09 February 2015

SIR/Madam,

My client has an office in hyderabad and a branch in malaysia. The malaysia branch have sent machinery to a client in Nepal and for the installation of the machinery , the employees from India have gone to nepal and have rendered their services. The malaysia office is reimbursing the Indian employee expenses who have gone to Nepal for installation.NOw, The query is will there be any service tax portion applicable as Indian office is charging the malaysian office for the expenses.

As per my understanding, the service tax in India would be applicable only if both the service proivider and the service receiver is in the taxable territory. So ,in this case Indian office is not liable to charge service tax.

Is this correct?

Reply
Follow
Share

3 Replies

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 09 February 2015

Transactions should be considered as export of service by virtue of place of provision of service rules, 2012. As per Rule 4 of POPS Rules, 2012, place of provision is deemed to be place where the service actually performed. Since in your case, service provided by Indian Employees in Nepal for installation of machinery, therefore place of provision of service is deemed to be Nepal. In total, the reimbursement of employee expenses by Malaysia whether with or without margin shall be considered as export of service and no service tax applicable thereon subject to fulfillment of other provisions of Exportof service rules, 2005.

Thanks and Regards,

Manoj B. Gavali

Shubham Murarka (CA Finalist) (21 Points)
Replied 09 February 2015

In this case if the malaysia office is reimbursing the Indian employee only the expenses, then this an activity without consideration. Hence it is not a service and no question of service tax arrises. But if Indian employees are getting some consideration then this is a service.

As per Place of provision of service rules, 2012, rule no. 4(a), the place of provision of service provided in respect of goods that are required to be made physically available by the recipient of service to the provider of service, or to a person acting on behalf of the provider of service, in order to provide the service shall be the location where the services are actually performed. In this case the service is actually performed in Nepal in relation to the machinary. Therefore according to above rule place of provision of service is Nepal, which is a non taxable teritory. According to charging section of Finance act,1994 section 66B, service tax shall be levied on the value of all services provided in the taxable territory by one person to another. Thus here service tax shall not be levied as the place of provision of service is in the non taxable territory.

Hence in this case service tax shall not be levied irrespective of the fact that whether the Indian employee are getting some consideration or not.

Thanks and regards

Shubham Murarka