1. Taxation: Service tax on fees paid to agents abroad

Taxation: Service tax on fees paid to agents abroad

Queries on taxation and service tax liabilities...

Published: November 21, 2014 12:24 AM

We are a seafood exporting company. Our products such as prawn and shrimp. are exported across the globe. In many cases, customers are found through commission agents. These agents are having their offices in countries such as the US, Singapore, and so on. They do not have a place of business in India. These agents liaison with customers on our behalf and if the deal is successful and payment is realised for such export, then, we pay them a commission in USD/Euro. Please suggest if service tax is payable under the reverse charge mechanism on the commission paid to such agents.

Foreign agents outside India are carrying out an activity of securing orders for your company for a consideration (i.e. commission). Service tax applicability on the services provided by your agents would depend on whether service is provided in India or not based on the Place of Provision of Service Rules, 2012 (POS Rules). Since your agents are assisting you in securing orders, services provided by them would qualify as intermediary services in terms of POS Rules. As per Rule 9 of POS Rules, place of provision of intermediary service shall be the place of location of such service provider. In your case, since agents are located outside India, services shall be deemed to be provided outside India. Thus, service tax would not be payable on such services.

Tax on intermediary services rendered prior to October

Based on your query, we understand that you completed the provision of services before October 1 and the payment for such services is yet to be received. As per Point of Taxation Rules, 2011 (POTR), point of taxation (POT) means the point in time when a service shall be deemed to have been provided. Thus, in order to determine whether service tax is payable or not in your case, it is necessary to determine the POT. As per Rule 3 of POTR, POT is the date of invoice or date or payment, whichever is earlier. In your case since, you have not received the payment as yet, POT would depend upon when you have raised the invoice. If you have raised the invoice before October 1, then services would be deemed to have been provided prior to October 1 and in such a scenario service tax would not be payable. However, if invoice is raised on or after October 1, then service tax would be payable.

Further, in case the invoice is raised after 30 days of completion of provision of service, then POT will be the day when provision of such services was completed. If you have raised the invoice after 30 days of completion of service, your POT would be before October 1 (as your services were completed during that period) and you would not be required to pay service tax.

Basis your query, we understand that you completed the provision of services before October 1 and the payment for such services is yet to be received. As per Point of Taxation Rules, 2011 (POTR), point of taxation (POT) means the point in time when a service shall be deemed to have been provided. Thus, in order to determine whether service tax is payable or not in your case, it is necessary to determine the POT. As per Rule 3 of POTR, POT is the date of invoice or date or payment whichever is earlier. In your case since, you have not received the payment as yet, POT would depend upon when you have raised the invoice. If you have raised the invoice before October 1, then services would be deemed to be provided prior to October 1 and in such a scenario service tax would not be payable. However, if invoice is raised on or after October 1, then service tax would be payable as services would be considered to be provided on October 1.

Further, in case the invoice is raised after 30 days of completion of provision of service, then POT will be the day when provision of such services was completed. If you have raised the invoice after 30 days of completion of service, your POT would be before October 1 (as your services were completed during that period) and you would not be required to pay service tax.

Queries on taxation and service tax liabilities, addressed by Abhishek Jain and Achal Chawla of EY

The replies do not constitute professional advice. Neither EY nor FE is liable for any action taken on the basis of these replies. Readers may mail their queries to sme@expressindia.com

Tags: Service Tax
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