Service tax is levied on all services provided within India, except for specific exclusions. Whether, a particular service is provided within India is determined by Place of Provision of Services Rules, 2012 (POS Rules). Recently, vide Union Budget 2014, an amendment has been introduced in POS Rules, based on which services of an intermediary/commission agent facilitating supply of goods between two persons would be deemed to be provided at the location of the service provider (as per the definition of the term 'intermediary' amended under POS Rules). In other words, if the commission agent is based out of India, its services would be deemed to be provided in India and hence, would be taxable. Please note that the amendment is effective from October 1. It appears that services provided to you essentially involve facilitation of sale of goods by foreign clients to Indian customers. In such a case, services provided that you should attract service tax at 12.36%. Also, you should be eligible to avail of Cenvat credit of service tax paid on input services and offset against this output service tax liability.
Cenvat credit under reverse charge
We are a manufacturing entity making certain overseas payments. We have received an invoice dated for August 2014 on which we have deposited service tax under reverse charge within August itself. We have not made the payment to the vendor for the invoice amount. We wanted to take credit of such payment for the liability of August as we have a substantial liability to be paid. However, our consultant has informed us that we cannot take the credit in August as the payment to the vendor has not been made. Please advise if we are eligible to avail of credit of service tax deposited against the output tax liability for August 2014.
Rule 4(7) of the Cenvat Credit Rules, 2004 (the Credit Rules) allows credit to service recipient when invoice/bill/challan for the input service is received. However, with effect from 11 July 2014 the proviso to Rule 4(7) allows credit to a service recipient at the time of depositing the service tax paid under reverse charge. Since the whole service tax liability would be on you to discharge, you would be eligible to avail of credit at the time of depositing service tax i.e., you would be eligible to claim the credit against output liability of August.
Intermediary services taxable from Oct
We are a wholly-owned subsidiary of a German entity, promoting their products in India. Our scope of work involves soliciting business for products from customers in India, negotiating with the customers, and maintaining customer relationships for securing future orders. We are treating these services as an export of service for the purpose of service tax and claiming service tax refund of the Cenvat credit of input services used for such export of service.
Our consultant has informed us that as per amendment introduced in the Budget this year, we shall be covered under the definition of intermediary and hence be liable to service tax. Please brief us whether we can utilise the cenvat credit of the amount claimed by us under refund and those still under processing against our output service tax liability
Vide Notification no. 14/2014-ST dated 11 July 2014, the definition of intermediary has been revised, which now includes a person who arranges or facilitates a provision of goods. It appears that your consultant has correctly advised you to discharge service tax on the fee charged by you for the services mentioned. As per the Cenvat Credit Rules, a service provider exporting any taxable service may either claim a refund of the Cenvat credit availed of or utilise such Cenvat credit against its output service tax liability on domestic services. Also, there is no time limit of utilisation of availed cenvat credit.
Since your services would now be taxable, you may withdraw the current refund applications and utilise the claimed amount for payment of output service tax liability which shall arise as an intermediary. This treatment can be done only if the Cenvat credit refund has not been granted as on date. Please note that this amendment would become effective from October 1 from when you can take this forward.
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