Live Course on Drafting of Appeal and Reply of Penalty Notice by CA Sachin Sinha. Register Now!!

Vert urgent..!!!!!

22 December 2011

Heyy ppl it wud be really gr8 if ul can jus help me out with this query.

A US company has to provide services to an Indian person A. the US Co has outsourced it to an Indian Co B. so is the company B liable to service tax or is it export of services hence not liable to ST. is there a possibilty that the Co B is indirectly providing services to Co A hence liable to ST. or not liable to ST since providing services to a foreign co.

I wud like to know the liabilty of tax in d hands of the Co B and whether Co A will be liable to ST since its import of services for it.

Reply
Follow
Share

5 Replies

shivaprakash (CA-Final) (100 Points)
Replied 22 December 2011

here company A is a foreign company and company B is an indian company

Company A is providing services to Mr.A, Mr.A has to pay the service tax because service provider is a foreign company.

and Company B is not liable to service tax as it is a Export of service, it doesnt matter its routed through the foreigh company, because the revenue to indian govt will not be affected.

service tax for company A depends on its resident country rules

Regit (CA.Final) (320 Points)
Replied 22 December 2011

It is somewhat complicated to Explain..

Treat this as two different contracts:

Contract 1: Foreign Co enters into contract with Mr.A (Indian Resident).

-Here Mr.A while paying amount to that foreign company, Mr.A will be treated as as if he was provideing service in india, and should deduct Service Tax at prevailing rates in India and pay it to the government. This is called 'REVERSE CHARGE MECHANISM'.

Contract.2: Foreign Company outsource to Indian Company

-This is an ordinary contract where the Indian Company usually charges Service Tax.

--Sugestions are Invited

Bhanu Prakash Rao (Think Beyond Stay Ahead...!) (1064 Points)
Replied 22 December 2011

hi Roshini please provide the nature of service i.e, whether it comes under service tax net.

1)In the above case the service provider is in India and service consumer also in India so its chargeable if that service is covered under service tax net.

2) Billing of the service also considered in the above case

regards.

Prasad (Sr. Manager) (617 Points)
Replied 22 December 2011

Dear Roshini

Firstly assuming that it is a taxable service which you are talking about.

Refering Circular 141 - regarding export of service rules. since the final benefit or usage is in India it is taxable in India.

this Paragrph from the circular should clear your doubts;" In the stated Circular it was inter-alia, clarified that the words, “used outside India” should be interpreted to mean that “the benefit of the service should accrue outside India”. It is well known that services, being largely intangibles, are capable of being paid from one place and actually used at another place. Such arrangements commonly exist where the services are procured centrally eg audit, advertisement, consultancy, Business Auxiliary Services. For example, it is possible to obtain a consultancy report from a service provider in India, which may be used either at the location of the customer or in any other place outside India or even in India. In a situation where the consultancy, though paid by a client located outside India, is actually used in respect of a project or an activity in India the service cannot be said to be used outside India."