Service tax is applicable on advance payment to companies

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We are a market research agency engaged in conducting corporate surveys. We have received advance payments in May 2008 in respect of a project where our work will commence only in August 2008. We would like to know when we would be required to pay service tax on such advance receipts, for services to be provided on a later date.

Service tax is levied on receipt of consideration for taxable services provided or to be provided. Accordingly, service tax becomes due for payment as soon as payments are received, irrespective of the time of actual rendering of services. Even if payments are received in advance for services yet to be provided, service tax becomes payable on the basis of the month of receipt of consideration. Therefore, you would be required to deposit service tax in respect of such advance payments received in May, latest by June 5, 2008. In case of e-payment of service tax, the due date would be June 6, 2008.

We are a company engaged in import of metal alloy products used in a variety of manufacturing activities. We intend to participate in an upcoming promotional fair organised by a trade organisation. For this, we need to import certain samples of our products for exhibition, which would be re-exported after the event is over. Is customs duty necessarily payable on such temporary imports for exhibition purposes?

The Government of India is a signatory to the international ATA Carnet convention, under which temporary import of goods into India for exhibition purposes is exempt from the payment of customs duty. The ATA Carnet is required to be guaranteed by the Federation of Indian Chambers of Commerce and Industry, which has been appointed by the government as the sole guarantor of ATA Carnet in India. The imported goods are required to be re-exported within six months from the date of import, unless they are sold in India upon payment of applicable customs duties. Further, the re-export would be required to be in terms of export regulations and compliance requirements under Indian customs laws, as applicable on your products. Accordingly, you may import goods for exhibition purposes without payment of any duty and re-export them under the ATA Carnet convention.

We are a company engaged in the manufacture of garments in our facility at Gurgaon. We have recently received an order for garments from an export house based in Mumbai. We have been asked by the customer not to charge central sales tax (CST) on the sale, as the garments purchased from us would be exported by him. We are aware that CST is not payable on export sales, but is the same applicable when sales are made to an exporter within India?

When a dealer purchases goods for the purpose of export, CST is exempt on the sale of same goods immediately preceding the actual export of goods. For this purpose, the purchasing dealer is required to issue a statutory declaration in ‘Form H’ to the selling dealer. The purchasing dealer is eligible to issue ‘Form H’ only if he purchases goods after and in order to meet the requirements of an existing export order, and does not undertake any further processing or modification of the goods. Therefore, in case the export house is in a position to issue ‘Form H’, you may not charge CST on such sales, subject to fulfilment of prescribed conditions and statutory obligations.

We are an IT company rendering software development and call-centre services to clients in India and abroad. We have decided to rent out premises constructed recently to another company rendering BPO-related services. We understand there would be service tax liability on letting out of the premises. We would like to know if we could avail cenvat credit of service tax paid on the services used for constructing the said premises, for payment of service tax on the rental income.

The premises let out by you would be chargeable to service tax under ‘Renting of immovable property service’. As per the Cenvat Credit Rules, there is no restriction on availing the credit of service tax on construction of premises if it can be established that it was directly or indirectly related to the output service. However, the authorities have clarified in a communication dated January 4, 2008 that ‘commercial or industrial construction service’ is an input service for the output, namely the immovable property. Since the immovable property is neither subject to excise duty nor service tax, input credit of service tax cannot be taken for set off against ‘Renting of immovable property service’. This view has neither been substantiated judicially, nor has it been endorsed by legal experts. Accordingly, till this position is settled, you may consider availing the credit of service tax paid on procurement of construction service, but may not utilise this towards payment of service tax on renting of the premises, with an appropriate disclosure to the jurisdictional service tax authorities.