Liability of Service Tax - Management Consultant

[Asked by Guest]

A is a Management Consultant based in India, rendering services to his overseas clients like market survey, sourcing Indian partners for JV's, market analysis, giving expert opinion about Indian industry etc. For this, he is getting payment in US$ into his bank account. Pls inform about his service tax liability in light of new regulations. Thanks !!

[Surender Gupta]

From the query it appears that the service is taxable as Market Research Agency falling under the second category of export of service tax rules. I.e. if partly or wholly provided outside India. In your case, since service is wholly provided in India and than delivered to outside India, it shall be liable to tax despite the fact that payment is received in foreign exchange.

Thanks for your reply classifying the service as "Market Research". However, one further clarification is reqd. My understanding of Export of Goods & Services Rules 2005 is that, in case of services like Market Research, in case such services are : a) Delivered outside India and used in business or other purpose outside India, and b) Payment for such service is recd in convertible forex; then such services will be treated as Export and thus not liable to service tax. Further, in case the service is treated as Mgmt consultancy of Business Auxillary/ Business Support, even then the service will be treated as "Export" in case the above TWO conditions are fulfilled. Please confirm if my understanding on this issue is correct.

[Surender Gupta]

Export of Service Rules, 2005 have been amended with effect from 19-4-2006 and accordingly, your understanding is correct.

AI Summary

Export of services treatment: services delivered abroad and paid in convertible forex exempt from service tax.
A service provided from India will qualify as an export and be outside service tax if the service is delivered and used outside India and payment is received in convertible foreign exchange; this applies to services classed as market research, management consultancy or business support, and supersedes prior views that services wholly performed in India are taxable despite foreign receipt.