Service tax on cost of sales promotion in India for a foreign principle

[Vinay Kunte]

A company enters into a agreement for sales promotion in India for the products of its foreign client in addition to the commission of sales of products by the said client in India. Will the Cost reimbursed by the client for sales promotion in India attract Service Tax for Sales Promotion and Market development done India for that foreign client?

The commission will be paid on Sales of product in India by the client in convertible foreign currency, can that be treated as export of service under new rules?

[Rajagopalan Ranganathan]

Sir,

     "Business Auxiliary Service means any service in relation to promotion or marketing or sale of goods produced or provided by or belonging to the client. From the description given by you it appears that you are providing "Business Auxiliary Service" to your foreign client.  The said service is provided by a service provider, i.e., you in India  and you have a permanent establishment in India.  Therefor the service rendered by you is within India and hence it cannot be treated as export for the reason that the place of provision of service should be outside the taxable area, that is, a foreign country or State of Jammu & Kashmir.  therefore you are liable to pay service tax on the fee received by you for sales promotion and market development service.  You also required to pay service tax on commission earned by you for sales of the product.

[sanjeev bajaj]

I have different opinion on this. It can be viewed as:-

1. There are two services ie, sales promotion and commission on sales of products.

2. As per Rule 3 of the Place of Provision Rules, the place of provision of services is the location of the recipient as the foreign company does not have any business or fixed establishment in taxable territory.

3. It does not fall under any Rule 4 to 12 of pop.

4. It attracts Rule 6A of Service Tax Rules, 1994 for export of services.

Further, the reimbursement of sales promotion expenses can also be treated as reimbursement to pure agent if it fulfils the requirement of Rule 5 of Service Tax(Determination of Value) Rules, 2006.The facts has to be analysed properly,

I propose for views whether similar or different and discussion on the subject with more disclosure on facts,

 

[Vinay Kunte]

Then you both for your valuable views.

From the comments it is clear that both the Service activities - Sales Promotion in India and Commission on Sales will have to treated in the same manner. So either both would be taxable ot both can be treated as export of service.

I believe, the decision in case of Microsoft Corporation Vs Comm. Service Tax Delhi, will provide the correct direction in case of difference in view.

Please provide further guidance in case you can explain any further.

 

[Vinay Kunte]

Thank you.

[LAKSHMINARAYANAN TR]

As per POPRule 14 - Order of Rule,

14. Notwithstanding anything stated in any rule, where the provision of a service is, prima facie, determinable in terms of more than one rule, it shall be determined in accordance with the rule that occurs later among the rules that merit equal consideration

if we apply Rule 14

out of Rule 3 - Place of Recipient

          Rule 4 - Where goods are made physically available

          Rule 9(c) - Intermediary Services

which are applicable in the instant discussion,

Rule 9(c) occurs later might attract and accordingly ST might attract.

Any other expert views may please be provided for better understanding.

[Vinay Kunte]

Thank you for the valuable guidance.

AI Summary

Debate Over Service Tax on Reimbursed Promotion Costs in India: Export Status Under Rule 6A Questioned A company engaged in sales promotion in India for a foreign client seeks clarification on whether the cost reimbursed for such promotion is subject to service tax. One participant argues that since the service is provided in India, it does not qualify as an export and is taxable. Another suggests the service could be seen as an export under Rule 6A of Service Tax Rules, 1994, considering the foreign recipient's location. The discussion highlights differing interpretations of service tax applicability, referencing various rules and seeking further expert opinions for clarity.