Queries on taxation and service tax liabilities, addressed by Abhishek Jain and Achal Chawla of EY
This is with reference to your query, published in The Financial Express on 21 November 2014, wherein you have opined that service tax would not be applicable on intermediary services provided by a commission agent located outside India. Going by common sense, if a tax payer has no office outside India, he will be receiving services in India, may be online and/or by post, as the service provider is acting on behalf of the tax payer and not on behalf of the buyer. On what basis services received in India are not taxable under service tax?
As per the Finance Act, 1994, service tax is levied at the rate of 12.36% on the value of services provided in India. In order to determine whether the services have been provided in India or not, Place of Provision of Service Rules, 2012 (POS Rules) have been introduced. As per Rule 9 of POS, in case of provision of intermediary services, place of provision of service shall be the place of service provider. In our reply to the query, commission agents were providing intermediary services and were located outside India. Hence, by virtue of Rule 9 the place of provision of services would be outside India. Therefore, since the services will be deemed to be provided outside India, such services would not be subject to service tax in India.
Liability to collect tax is on service provider
I am providing intermediary services of marketing and promotion of goods of foreign suppliers on a commission basis. I understand that post October 1, I am required to pay service tax on the services provided by me. The foreign suppliers have refused to pay me the amount of service tax charged by me. Since I cannot recover service tax from foreign suppliers, how can I collect and deposit the service tax with the authorities?
The liability to pay the service tax is on the service provider. In the instant case, you being a service provider are required to pay service tax on the services provided by you. Collection of the service tax from the foreign supplier would depend on the terms of the contract between you and the supplier.
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