Taxability of commission received from foreign company

[Asked by Guest]

A pvt ltd company received commission in foreign exchange from foreign principals. Does it attract service tax. 1. The foreign principal has no office in India. 2. The agent has no authority to sign any contract on behalf of the foreign principal.

Dear Sri Ajay, You have not clearly mentioned the nature of service rendered by you to get commission in foreign currency from your principals. Normally, Foreign Company appoints agents in India to procure Orders from Indian buyers for which the foreign company pays commission to the Indian Agent. In such a situation, the services are covered under the scope of 'Business Auxilliary Services' and service tax is payable on the commission as the exemption is available only for export of services. The Department will not treat this activity as 'export services'. However, you may contest the issue on the ground that the services are rendered partly in India and delivered partly in foreign country. i.e. the activity of procuring the orders is a part of services rendered in India and forwarding the same to the foreign client for execution of the order is to be considered as 'Partly delivered outside India'. Only on sending the details of orders procured to the foreign client , the service is fully completed. However, you may not succeed in the Adjudication by the Division level but you may succeed in Tribunal. Advised accordingly s. gokarnesan

[Madhukar N Hiregange]

The service could be considered to be an export of servcies as the service is delivered outside India used outside India to convert inot an order, amount received in CFE and the recipeint is outside India. The BAS category specifies that where the recipient is outside India the same would be a export. Department however has been raising SCN to recover such amounts recived. Even it were to be paid the liability in my view is only from 19.4.2006 and not earlier.

AI Summary

Service tax on cross-border commissions may apply unless characterised as export of services delivered and used outside India.
Taxability hinges on whether commission for procuring orders in India is classifiable as Business Auxiliary Services-generally taxable-or as an export of services delivered and used outside India. Departments commonly issue show-cause notices to recover tax on foreign-exchange commissions; taxpayers may argue delivery outside India and challenge liability on appeal.