Service tax on supervision job of group co in India

[Guest]

We are a MNC Co.One Customer in Europe placed a Purchase Order to our Spain establishment (like Name ABC-Spain-Group Co).But ABC-Spain is importing that material from India (Bhilai).For making that material our Co (ABC-India-Group Co) delivering supervision service to Bhilai supplier.We will bill to our Group Co ABC-Spain in Euro.Will it attaract service tax or it would be export service (POP).

[Rajagopalan Ranganathan]

Sir,

Since supervisory service is done in taxable territory and the service provider (ABC-India-Group Co.) is also located in the taxable territory you are liable to pay service tax on the service provided by you.

As per Rule 3 of Place of Provision Services Rules, 2012 "the place of provision of a service shall be the location of the recipient of service."

According to rule of the above mentioned rules "the place of provision of following services shall be the location where the services are actually performed, namely:-

(a) services provided in respect of goods that are required to be made physically available by the recipient of service to the provider of service, or to a person acting on behalf of the provider of service, in order to provide the service.

In view of the above you are liable to pay service tax on the service provided by you.

[Guest]

Dear Sir

Thank you very much for sharing your knowledge. Though POP is a thorny issue please clear me one thing our ABC-Spain-Group Co has no permanent establishment in India & ABC India have the address of the location of the recipient of service & ultimately service on the goods will be consumed out the India territory (Spain), it seems to be a deemed export service against foreign currency. Looking forward to your valuable input.

Best regards

Partha

[KASTURI SETHI]

Sh.Partha Ji,

Logically you are right but as per Place of Provision of Services Rules, 2012, I support the views of Sh.Ranganathan Sir.

[DR.MARIAPPAN GOVINDARAJAN]

Shri Renganathan gives a splendid explanation.

[Rajagopalan Ranganathan]

Sir,

ABC-India Group Co. provides the supervision service to Bhilai Supplier who export the product in respect of which ABC-India Group Co. provided the service. Therefore ABC-India Group Co. has to discharge the service tax liability since both ABC-India Group Co. and Bhilai Supplier are located in taxable territory (India). It is for Bhilai supplier to claim the refund of service tax paid on the input service under rule 5 of Cenvat Credit Rules, 2004 provide he is not able utilize such credit for discharging duty on his final products/output service. ABC-India Group Co. cannot escape from discharging service tax liability on the ground third party (Bhilai Supplier) is exporting the goods in respect of which supervising service was provided by ABC-India Group Co. This is my opinion.

[Ganeshan Kalyani]

I agree with the views of Sri Rajagopalan Sir . Thanks.

[YAGAY andSUN]

Whatever service tax will be chargable, allowable as CENVAT Credit.

[Guest]

Dear Rajagopalan Sir

Thank you very much for your valuable reply. One clarification from my side in relation one your observation "It is for Bhilai supplier to claim the refund of service tax paid on the input service under rule 5 of Cenvat Credit Rules, 2004" As there is no MOM or legal contract for delivering supervision job to Bhilai supplier (no money transaction).ABC India delivering supervision job as request from your group co. ABC Spain.It is a special type of Machinery whose technical knowhow only we are having so there is no chance of input to be claimed by Bhilai.Other thing please clear me the service tax to be deposited can be claimed as input as we are the recipient of the service (POP).

Best regards

Partha

[Rajagopalan Ranganathan]

Sir,

As per rule 4 of Place of Provision of Services Rules, 2012 which deals with Place of provision of performance based services, "the place of provision of following services shall be the location where the services are actually performed, namely:-

(a) services provided in respect of goods that are required to be made physically available by the recipient of service to the provider of service, or to a person acting on behalf of the provider of service, in order to provide the service.

Here ABC-India Group Co. is provider of service and ABC-Spain Group Co. is the receiver of the service. Receiver of service has made physically available the goods on which the taxable service is performed at Bhilai. Therefore the location where the service is actually performed is Bhilai which is within taxable territory. Since you have said that you are raising the invoice on ABC-Spain Group Co. it will amount to export of service. However I want to know in whose name the export documents are filed. Reverse charge is not applicable in the case of export of service.

As per rule 6A of Service Tax Rules, 1994 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 (Negative List),

(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

In your case since place of provision of service is India as discussed above clause (d) of rule 6A is not satisfied. Therefore it cannot be treated as export of service and hence no claim of refund under rule 5 of Cenvat Credit Rules 2004 will be entertained by the Department. If the machinery/equipment is exported to ABC-Spain Group Co by the manufacturer of the said goods he can claim the refund of service tax paid on input service used in the manufacture of said goods. Another thing which will be relevant is who place the order for manufacture of the goods on Bhilai manufacturer. It is you or ABC-Spain Group Co.

Since reverse charge mechanism is not applicable you need not pay the service tax and the person who avails the service is liable to pay the service tax. Since the person who avails the service is ABC-Spain Group Co. who is located out side taxable territory please take up this issue for clarification by the Department.

AI Summary

Place of provision of service determines taxability; supervision performed in India remains taxable despite foreign billing. Where supervisory services are physically performed in India on goods made available by the recipient, the place of provision is India and Indian service tax applies even if billed to an overseas group affiliate; export-of-service treatment (and refund under Cenvat rules) is unavailable if the place of provision remains in India, and entitlement to credit or refund depends on utilization, documentary support and whether the exporter/recipient can claim input credits.