issue would have a huge bearing upon the entire IT sector in India. In fact, this would also have impact on other download-based services like books, movies, games and music and hence appropriate clarity becomes more important.
Another critical issue requiring immediate clarity is the interpretation of the word ‘intermediary’. Under the Place of Provision of Service Rules, 2012, the place of provision of services qualifying as “intermediary services” would also be the location of the service provider. “intermediary” has been defined as “….who arranges or facilitates a provision of a service (hereinafter called the ‘main’ service) between two or more persons….”. It is not clear as to whether mere intention to arrange or facilitate a main service by way of introduction of a prospective vendor and customer (irrespective of whether the vendor or customer fructifies or not) is sufficient to qualify as ‘intermediary’ – if yes, then a host of marketing and sales promotion services provided by companies in India for their principals abroad would become liable to service tax. Many service providers located aboard engage the services of their group companies or even third parties located in India to promote and market their service offerings to customers in India. These sales and marketing companies in India typically undertake a host of marketing and sales promotion activities (such as road shows, customer events, door to door marketing etc) with a view to identify prospective customers for the overseas principals and the leads, if any, are passed on to the service provider abroad. Under the earlier service tax law these sales and marketing services were treated as “exports” based on the location of the main service provider abroad and service tax was not paid thereon. If this tax position has to change, it would lead to huge ramifications for the trade, particularly where such service providers earn valuable foreign exchange for the country.
It is earnestly hoped that these two critical conundrums under the new service tax regime be appropriately dealt with in the forthcoming Budget.
The author is leader, indirect tax, BMR Advisors. The views are personal. With inputs from Puneet Bansal,