Service Tax applicability on Maintenance services

[Guest]

A US based company has supplied various equipments in the past to various customers in India. Later on it forms a 100% subsidiary company in India,which is pvt ltd co. The Indian company undertakes the maintenance of the equipment controlled/in consulation with the foregin company earlier supplied by the foreign holding company and invoices the holding company for the service charges. Now the issue is whether service tax is payable on the maintenance serivces. I understand that as per the Export of services Rules the Indian company is not liable to pay service tax because In relation to services listed in Annexure 4.2, the following conditions need to be satisfied to fall under Export of services. 1. Taxable services must have been performed either fully or in part, outside India. In this case, both the foreign as well the Indian company is performing the service. Hence the service is performed in part outside India. 2. service is delivered and used outside India. The ultimate user is the foreign company . 3. payment received in foreign exchange. Kindly advice if my thinking is correct.

[Madhukar N Hiregange]

For maintenacne the conditions are that the performance of the service should be at least partially outside India in addtion to delivery of service outside India and usage outside India. All the above three conditions are not met therefore the same cannotbe considered as an export of servcies.

[Surender Gupta]

I agree with the reply of Mr. Madhukar N Hiregange. You are not entitled to get the exemption under Export of Services Rules, 2005.

[Guest]

I understand from the query that the new subsidiary company in India, undertakes the maintenance services in India on behalf of the foreign holding company and get the service charges from the holding company by raising the bill on the holding company. Though payment is received in foreign convertiable currency, the same cannot be treated as export of services as long as the maintenance service is wholly rendered in India for the clients in India. Hence, service tax is payable on the value of services done within India. Advised accordingly. S. Gokarnesan Advocate

AI Summary

Export of services: maintenance wholly rendered in India remains taxable under service tax; payment in foreign exchange insufficient. The Export of Services rules require that a taxable service be performed at least partly outside India, be delivered to and used outside India, and be paid in foreign exchange; maintenance services wholly rendered in India fail these criteria and therefore are not export of services, making them subject to service tax on the value of services performed in India.