Treatment of Service Receiver and Service Provider

[Asked by Guest]

If an Indian Company charteres a Foreign airlines (does not have a permanent establishment in India) to Import goods on behalf of another Indian company, a) Who will be treated as a Service Receiver and Service Provider.

[Surender Gupta]

In this case, a small change in the facts would change the entire situation. However apparently, the Indian Company who enters into agreement with and makes payment to the foreign airline shall be liable to pay service tax.

Indian company who imports goods on behalf of another indian company should be treated as Service Provider as per Service Tax Act (Import of Services). Further no input credit would be allowed against the payment made by the indian company chartering the foreign airlines. Further when indian company raises the bill on the main company on who;s behalf the goods have been imported, the service tax at the normal rate should be charged and paid to the govt. i.e that company would be paying twice (i.e as service receiver and secondly as service provider).

AI Summary

Service tax on chartered foreign airline services: Indian contracting company treated as liable provider and must charge tax.
The Indian company that contracts with and pays the foreign airline is treated as the taxable intermediary: it is liable to account for service tax on the imported service, cannot claim input credit for the payment to the foreign carrier, and must charge service tax when billing the principal Indian company, thereby creating potential double tax exposure.