Intermediary Service provided to a Foreign client for supply of goods outside the taxable terrotory of India

[Vinay Kunte]

Intermediary Service provided to a Foreign client for supply of goods to a Foreign client by the Provider of Service located in Taxable territory of India

As per the amendment to Rule 2 and effectively Rule 9 (c) of PPS Rules 2012, the Income from Intermediary Service for supply of goods (Commission) is taxable w.e.f. 1st Oct. 2014.
If the supply of the goods is affected by a foreign client of the intermediary located in India to a Customer outside the taxable territory of India, will the service be taxable even though the recipient of Service is outside the Taxable Territory of India and the Supply of Goods is done to the third party Customer outside the taxable territory of India?
Can anybody give a factual explanation on the Taxability of the subject Intermediary Service?

[CSSANJAY MALHOTRA]

Rule 9 of Place of Provision of Service Rules defines the "Location of Service Provider" as the place for the purpose of discharge of Service Tax Liability in specified cases mentioned therein. Further Rule 9(c) includes the "Intermediary" which has been amended vide Notification No. 14/2014-Service Tax dated 11.07.14 (applicable from 01.10.2014)

(a) in rule 2 for clause (f), the following clause shall be substituted, namely:-
"Intermediary""means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the "main" service) or a supply of goods, between two or more persons, but does not include a person who provides the main service or supplies the goods on his account;‘;

Submission: With the change in the definition of Intermediary, if the commission agent or person arranging or facilitating service or supply of goods between two or more persons : IF SITUATED OUTSIDE INDIA and providing services therefrom is exempted from Service Tax i.e. Reverse Charge is not applicable.

Prior to Change in definition Commission agents were based for e.g. in USA and goods were shipped in Europe directly from India, then Indian Company has to pay Service Tax under Reverse Charge and after amendment from 1.10.14 exemption exists.

Your issue is similar to above. Intermediary if located in India has to pay service tax irrespective of whether the supply of goods takes place from India to Overseas OR from one country outside India to another country outside India.

[Vinay Kunte]

Thank you for the illustrated reply.

[DR.MARIAPPAN GOVINDARAJAN]

The views of Sanjay Malhotra is correct.

AI Summary

Intermediary service location determines taxability: intermediaries in India attract service tax even for overseas supplies. The amended Place of Provision of Service Rules extend the definition of intermediary to persons who arrange or facilitate services or supplies of goods. The decisive factor is the location of the service provider: intermediaries located in India are liable to service tax on commission for arranging supplies even when the recipient and the goods' supply are outside India; intermediaries located outside India providing services from abroad are not liable and reverse charge does not apply.