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?

AI Summary

Place of provision determines service tax on sales promotion and commission for foreign principals; pure agent treatment may exempt reimbursements.
Sales promotion and commission services performed in India for a foreign principal are prima facie Business Auxiliary Services provided within the taxable territory when the supplier has a permanent establishment or services are rendered in India, attracting service tax. Alternatively, export of service treatment may apply if place-of-provision rules (including place of recipient and Rule 6A) locate the supply outside India. Reimbursed promotion expenses may qualify as payments to a pure agent under valuation rules if prescribed conditions are met. Where multiple POP rules conflict, Rule 14 directs applying the later rule among those of equal weight.