Is Service Tax Applicable for Services Rendered to a Foreign University?

[Guest]

Hello! I have a question about our overseas education business. We are an overseas education agency based in India and we market Foreign Universities that provide education courses in the UK & USA to Indian Students. For every student recruited from India by our agency, we receive commission in foreign exchange from the said Foreign Universities.

Please keep in mind that we do not charge service tax to the foreign universities, as they do not allow us to do so since they are based in the UK & USA. Thus I have the following questions under the below scenario for exemption of service tax.

As a result:

1. Is service tax applicable on the commission payment made to us in foreign exchange or are we exempt from it?
2. If service tax is levied on our foreign commissions then what date would this be applicable from?
3. If we have to pay service tax OUT OF POCKET on our commission payment made to us in foreign exchange, then this leads to double taxation as explained here: For Every Student Commission of ₹ 10,000 we pay OUT OF Pocket ₹ 1,500 as Service Tax. Additionally, on the balance ₹ 8,500 assuming we have expenses of ₹ 1,500 then we also pay income tax on the profit of ₹ 7,000 as well. Isn’t this double taxation?
4. As a result of this double taxation, can we get rebate or refund from the Service Tax Department. If so, under what scheme?

Thanks for your help!

Kunal

[Ganeshan Kalyani]

In my view service tax is applicbale. The service is provided taxable territory I.e. India. Hence liable to tax .

There is no double taxation. One is income tax and another is Service tax.

[Guest]

Thank You for your response.

If Service Tax is applicable to us, then would this be from 01/07/2012 onwardds or from the 01/10/2014 onwards?

[Ganeshan Kalyani]

What is the date referred by you means ?

[Rajagopalan Ranganathan]

Sir,

Rule 6A of Service tax Rules, 1994 defines export of service as :-

"RULE 6A. (1) The provision of any service provided or agreed to be provided shall be treated as export of service when,-

(a) the provider of service is located in the taxable territory ,

(b) the recipient of service is located outside India,

(c) the service is not a service specified in the section 66D of the Act,

(d) the place of provision of the service is outside India,

(e) the payment for such service has been received by the provider of service in convertible foreign exchange, and

(f) the provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of ²[Explanation 3] of clause (44) of section 65B of the Act

Since you are providing service to foreign universities and you are getting commission in freely convertible foreign exchange what you are doing is export of service. Hence you are not liable to pay any service tax on the commission earned by you.

However, if you charge any fee from the Indian students who aspire to join foreign universities then you have to pay service tax on the amount of fee collected from Indian students for giving advise to them and facilitating them to join foreign universities. In your case you are getting commission from foreign universities only and service provided by nyou amounts to export of service and you need not pay any service tax.

[Guest]

Dear Mr. Kalyani,

Thank You very much for your reply. In relation to your query, I would like to kindly inform that from 01/07/2012 the service tax department began taxing intermediary of services. And from 01/10/2014 the service tax department began taxing intermediary of goods.

Quick Question: Would our business be classified as intermediary of services?

[Guest]

Dear Mr. Ranganathan,

Thank You for your email to clarify my question.

In relation to your point on the Export of Services, I would like to kindly inform that some people are saying my business qualifies as intermediary under Place of Provision of Services Rules, 2012 - Point No. 9 (c) - Intermediary Services and as a result Place of Provision of Services is considered as India. Is this accurate?

[Ganeshan Kalyani]

"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) between two or more persons, but does not include a person who provides the main service on his account.;

AI Summary

Export of service exemption applies to commission received in foreign exchange unless intermediary classification makes place of provision India. Qualification for export of service depends on the provider being located in India, the recipient being outside India, payment received in convertible foreign exchange, and the place of provision being outside India; commissions received from foreign universities in foreign exchange are presented as export of service and not taxable, but classification as an intermediary can make the place of provision India and render such receipts taxable.