Service Tax Exempt on Foreign Commission

[RAM SHARMA]

Dear Experts,We want to avail service tax exemption under notification no. 18/2009 dt. 7th july 2009 amended notification no. 42/2012 dt. 29th june 2012. I am little confuse in one condition which is mention both the notification is given below :-

         1)The exemption shall be limited to one percent of the free on board value of export goods for which the said service has been used.(As per not. 18/2009)

        2)The exemption shall be limited to the service tax calculated on a value of ten percent of the free on board value of export goods for which the said service has been used. (As per not. 42/2012)

Please interpret above two condition with example.

Thanks & Regards

[MUKUND THAKKAR]

Dear Ram sharma,

if your paying commission on over seas in such condition you have to shown your commission value in shipping bill. same amount is exempted up to 10% out of what commission you had paid. example you are paying 5000 $ as commission out of 500$ is exempted from service tax payments. so you have to pay the service tax on 4500$ only.

[YAGAY andSUN]

Dear Ram,

As per RBI guideline, 12.50% commission allowed provided it should be mentioned on the Shipping Bill, it means even after paying this commission to the commission agent in foreign country you would be eligible for availing export promotion scheme benefits on the Gross amount of FOB mentioned in the S/B.

Provisions pertaining to applicability of Service Tax and availment of exemption have already been clarified by Mr. Mukund and we have nothing to add in the same.

Regards

YAGAY and SUN

(Management and Indirect Tax Consultants)

[RAM SHARMA]

Dear Sir,What is the meaning of the exemtion of 1% of free on board value of export goods for which the said service has been used (As per not.18/2009)Secondaly, what percentage of service tax will be exempted on 10% value. Pl. Advice.Thanks&Regards

[Madhukar N Hiregange]

This exemption was put in place when the basic rate of ST was 10%. Therefore if on a consignment of ₹ 1 Lakhs- ST exempted is ₹ 1000/- or ST i.e.12.36x 10% of FOB 1 Lakh = ₹ 1236.

In this case ₹ 1000/- only.

If the rate of commission is 8% or below that the whole commission is exempted.

[Ravi Kumar Somani]

Dear Mr. Ram Sharma,

Notification No. 18/2009 is not in effect anymore. So the relevant notification applicable in this regard shall be Notification No. 42/2012. The intention of this notification is to ensure that no huge commissions are paid to foreign commission agents because of which the value for the purpose of calculating service tax is restricted to 10% of the FOB value of export goods. In essence you can claim exemption as follows:

1. Actual Commission paid * 12.36%; or

2. 10% of FOB value * 12.36%

(Whichever is lower)

In order to claim full exemption of service tax paid on commission, it needs to be ensured that commission paid to foreign agents is less than or equal to 10% of FOB value of goods. If it exceeds then the service tax department does not exemption on the excess amount.

[yash arya]

Dear sirs,

Wef 1-10-14, in respect of intermediary services including commission agents dealing in goods are covered under Rule9(c) of PoP rules and the place of provision of service shall be the location of service provider. As such, commission paid to foreign agents is outside the ST net. Please clarify if the Notification 42/2012 is still valid/ to be withdrawn???

AI Summary

Service tax exemption on foreign commission - limited to lower of actual tax paid or tax on capped FOB value. Exemption for service tax on commission to foreign agents is limited: claimants must show commission on the shipping bill, and the exempt amount is the lower of service tax on actual commission paid and service tax computed on a capped fraction of the FOB value of exported goods; full exemption requires commission not to exceed that capped FOB proportion. The later notification replaces the earlier percentage of FOB formulation, and there is an outstanding issue whether place of provision changes for intermediary services remove such commissions from the service tax net.