Business development charges paid to foreign company or firm and levialibility of service tax thereon.

[samiuddin ansari]

Hello Sir,

My friend is having casting unit and sometimes he receives services of foreign person or firm for the business development purpose so as to increase customer base at foreign country including technical know how services. The Audit team of the Central Excise and Service Tax (Now CGST) has instructed him to pay the service tax at appropriate rate on such service charges borne by you as the service provider is situated at non-taxable territory or out of India. It is fact that Invoices were raised by the foreign firm for such services provided by them to his firm. The Audit team further held that since the service receiver is in the taxable territory and service provider is out of taxable territory, hence liability to pay the service tax lies on service receiver in terms of the provisions of place of provisions of services or RCM i.e. reverse charge mechanism.

We solicits your valuable views with supportive circulars or instructions of the Govt in the matter.

Thanks with regards,

S.N.Ansari.

[samiuddin ansari]

Instructions or suggestions on the matter is still awaited. It is requested to kindly share your views with supportive circulars or instructions of the Govt.

With regard

S.N.Ansari.

AI Summary

Reverse charge mechanism may require recipient to pay service tax on cross border business development and technical services. Where a foreign provider supplies business development and technical know how services to an Indian recipient, the audit treats the transaction as one where the provider is outside the taxable territory and the recipient is within it, and therefore asserts recipient liability for service tax under the reverse charge mechanism based on place of provision rules; the document records invoices from the foreign firm and requests authoritative circulars or instructions confirming this tax treatment.