Share dividend

[jitendra Gupta]

The unit has incurred expenditure in foreign currency for making payment of divident on its share/dibentures to the foreing parties. As per Section 66A of the Finance Act,1994 unit has to pay service tax on reverse method. Whether this particulars transaction attarct levy of service tax? If so, under which service?

[Sucheta Agrawal]

Dear Mr. Gupta,

This particular transactuion not attract levy of service tax as firstly this service not fall in the definetion of service. As per the reverse method the receiver should be based in india as per clause (b) of sub-section (1) of section 66A provide that "  received by a person (hereinafter referred to as the recipient) who has his place of    business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purposes of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of this Chapter shall apply:

Provided that where the recipient of the service is an individual and such service received by him is otherwise than for the purpose of use in any business or commerce, the provisions of this sub-section shall not apply:

Provided further that  where  the provider of the service has his business establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided."

Thus in this case service not directly received by the recipient in India both the provider and receiver is in foreign country thus no question of reverse charges has been arised. 

 

AI Summary

Reverse charge service tax inapplicable when both provider and recipient are abroad; dividend payments to foreign parties not taxable. Dividend or debenture payment services made in foreign currency to foreign parties are not taxable under the reverse charge because the recipient is not located in India and the service is not received or used in India; the reverse charge applies only where the recipient has a place of business, fixed establishment, permanent address or usual residence in India, and special rules about individual non business use and provider establishment location are exceptions applicable in other circumstances.