Cenvat Credit of Service Tax paid on Commission to Foreign Agents

[dharmendra more]

Dear Experts,

We are a manufacturer of PVC films. We are paying commission to overseas agents on our exports. Excise Department has issued us notice for demand of service tax on commission paid to overseas agents.Can anyone clarify us on below mentioned queries :

 1. Commission paid to overseas agents attracts service tax ?

 

2. Service tax paid on commission to overseas agents can be taken as cenvat credit to pay excise duty and/or service tax on output services. If yes any notification available. 

 

3. Any exemption available on payment of service tax on commission paid to overseas agents.If yes any notification available.

 

Kindly guide us.

[Sucheta Agrawal]

Dear Mr. Dharmendra,

1. Ans Yes commission paid to overseas agent come under the category of Business Auxilliary Services definition and attract service tax.

But this service will come under Export of service Rule, Rule 3(1)(iii) and u may claim refund as per the rules prescribed.

in the case of Blue Star Ltd v. CCE, (2008 (3) TMI 32 - CESTAT BANGALORE) and some other cases will be applicable in your case.

2. No actually in this case CENVAT Credit not applicable, u may claim the refund only

3. no exemption available, only refund available.   

• Refer CBEC Circular No. B1/6/2005-TRU dated 27.7.2005 wherein, in para 26, it was clarified that an explanation had been inserted to  Section 65 (105) by virtue of which, services provided by a service provider who is situated outside India to a recipient of such service who is based in India would be taxable service in the hands of the recipient.  From the said circular, it is clear that the  earliest point in time when liability in respect of service rendered overseas was sought to be cast upon the recipient, was 16.6.2005 and not prior thereto. Service Tax payable as per Section 66(A) of Finance Act, 2006 (reverse charnge mechanism)
• The same is not treated as output service as per Rule 5 of Taxation of Services Rules , 2006 and is eligible for credit.

With Regards,

A Ravindra Babu

[sv bhasker]

Sir,

Question1- Yes, under reverse charge mechanism

Question-2-Yes, sales commission is an input service as per Rule 2(l) of  CCR, 2004

Question-3  exemption is there under Notification No. 18/2009  7/7/2009 upto 1% of FOB, by follwing the procedure therein.

[P Ovhal]

I agree with Mr. Bhasker,

It better that you can avail Service Tax Exemption under Notification No. 18/2009

Step 1) File form Exp-I to Your juridictional Asst. Commissioner of Service Tax / Central Excise

Step 2) File form Exp-II half yearly.

AI Summary

Reverse charge on overseas agent commission: service tax liability with limited exemption and refund routes under export rules.
Commission paid to overseas agents is taxable under the Reverse Charge Mechanism and export-of-service rules; treatment of Cenvat credit is disputed-some authorities advise only refund under export rules while others classify such commission as an Input Service eligible for Cenvat credit rather than an output service. Export-related exemption procedures and prescribed form-based filings are indicated as the available procedural routes for relief.