Service tax on extra receipt due to foreifn exchange variation

[Sanjeev Sharma]

If we receive an extra amount due to foreign exchange variation, then whether service tax is payable on that extra amount received on account of fluctuation ? Similarly, for amount short received due to foreifn exchange variation ?? 

[CASeetharaman KC]

The answer to this question would depend on whether the amount received in the first place was subject to service tax or not. If the original amount received was taxable then the extra amount received on fluctuation in exchange rates would also be taxable

[Mahesh Bandre]

Dear Mr. Seetharaman,

 

Assuming the receipts are against taxable services only. You mean to say, excess amount received on account of exchange difference is towards taxable services rendered? is it? 

Once value of any taxable service has been determined in accordance with section 67A (w.e.f.28.05.2012) by applying an exchange rate in accordance with its explanation, on the relevant point (date) of taxation when the service has been provided or agreed to be provided. The value of service u/s 66B read with 67A get finality. Subsequent gain or loss arising on account of exchange rate fluctuations would not impact value of the service. Thus, no service can be levied or refunded arising out of such gain or loss. In my humble understanding, there is no provision in the Act to tax such a gain.

[Mahir S]

Sir, As per Section 67A of Finance Act, 1994, rate of exchange, shall be the rate of rate of exchange in force or as applicable at the time when the taxable service has been provided or agreed to be provided and as per Explanation to the said Section, “rate of exchange” means the rate of exchange referred to in the Explanation to section 14 of the Customs Act, 1962 (52 of 1962).

In other words, the exchange rate to be taken for arriving at the taxable value should be the rate of exchange as notified vide Customs Notifications (N.T.) issued from time to time.

Therefore, any extra amount earned due to fluctuation in rate of exchange is irrelevant after the rate of exchange notified by Customs notification has been taken into consideration.

Hello, Whether, the gain be taxed u/s 73A of the Finance Act, 1994? Please share case laws (post May 2012), if any, that the amount is not taxable under the Act., once value of service has been correctly reported in line with section 67A.

[Mahir S]

Vide Notification No. 19/2014-ST dated 25.08.2014, Central Government has amended Service Tax Rules, 1994 whereby a new Rule, Rule 11 has been inserted w.e.f. 01.10.2014 for determination of rate of exchange. According to this rule, the rate of exchange for determination of value of taxable service shall be the applicable rate of exchange as per the generally accepted accounting principles on the date when point of taxation arises in terms of the Point of Taxation Rules, 2011.

Thus, rate of exchange shall be taken as the applicable rate of exchange as per generally accepted accounting principles (GAAP) on the date on which point of taxation arises as per Point of Taxation Rules, 2011.

The following events would, therefore be relevant for the rate of exchange -

• Date of Point of Taxation
• Exchange rate on POT date as per GAAP

AI Summary

Exchange rate determination under service tax: GAAP-based rate at point of taxation makes later forex gains irrelevant.
When the taxable value of a service is fixed using the exchange rate applicable at the point of taxation, that valuation is final and subsequent foreign exchange gains or losses do not affect the service tax liability; a rule provides that the exchange rate for valuation is the rate determined under generally accepted accounting principles on the point-of-taxation date.