Service tax on trading/commission (like high sea sales)

Queries 1131 views 5 replies

Davkan

30 Points Joined October 2015

Dear Experts,

I need some suggestion as a typical questions has been posted to me by my client.

There are 3 parties involved.

A - USA Supplier (from whom good will be taken)

B - Myclient (acting as Importer, Mediator)

C - Final consumer

Process is:-

1. C places order to B giving him Rs 10,000 for some product.

2. B places that order with A with Bill Name as C. (thus B paid $100 approx Rs 7000 to A by debit card)

3. B uses 3rd party customs clearance agent to clear product from customs and product will be sent to C by that customs clearing agent as product is billed on name of C.

4. Thus B earns Rs 3000 minus agent charges as earning.

Questuons:

1. Is servive tax applicable on this transaction?

2. Is VAT applicable on this transaction?

3. Is this is known as High Sea Sale (proper procedure)?

4. Is there any liability on this transaction?

Thanks in advance

Replies (5)

Karthik.V.Kulkarni

Chartered Accountant

594 Points Joined December 2012

Yes this transaction of B is liable to service tax only. Service tax has to be paid on the comission charges.

Davkan

30 Points Joined October 2015

Thanks for your response. But is service tax applicable on trading activity? isnt this business is similar to trading activity?

Im confused. So, a little bit clarification will be highly helpful

Karthik.V.Kulkarni

Chartered Accountant

594 Points Joined December 2012

The transaction between A and C is of trading activity where as B is acting as an agent of C and procuring goods from A. Thus thr transaction which B has entered into with C is chargeable to service tax. It is agency service as you are in india you are liable to service tax. Here A has no role to play while determining what activity it is. Yes ofcourse you procure goods only and no other relationship is present with A. But what is liable to tax is transacion between B and C not A and B.

Harshal Fifadra

Chartered Accountant

1489 Points Joined August 2011

1. Yes, service tax is applicable on the transaction which has been entered into between B and C. i.e on the agency charges. 2. No VAT is applicable 3. VAT is not applicable since it is transaction of sale in the course of import and not a high seas sale. There is a pre dated PO from the customer basis which your client ordered goods from USA for ultimately selling goods to your client's customer. The transfer of property in the goods imported is taking place after the goods have crossed the custom frontiers of India and hence it is a transaction of sale in the course of import. Please refer to section 5(1) and section 5(2) of the CST act, 1956 for further information. 4. There is a service tax liability in this transaction.

Davkan

30 Points Joined October 2015

Dear Sir, Thanks for your response.

I have read section 5(1) and section 5(2) of the CST act, 1956.

In additon to this, i also want to add that:-

1. The item my client B has ordered from A (supplier), is on name of C (its not on my client's name). It means transfer of goods to Final customer C is taking place before it even reaches custom frontiers of India.

2. You have mentioned above "VAT is not applicable since it is transaction of sale in the course of import and not a high seas sale". Then what all the documents my client should ensure to save for relating the transactions details.

Regards

Davkan