Applicability of service tax - commission paid in foreign currency

[JOSHIL JAIN]

Dear Sir, One of my client is paying commission to agents of foreign buyers. These agents are based in foreign. Their offices are not situated in India. Now as there is amendment in Export of service rules 2005 w.e.f. 1st March 2007, " substitute the words 'delivered outside India and used outside India' with the words 'provided from India and used outside India ' whether service tax is applicable to my client. Whether now he has to deposit service tax on the commission paid to these foreign agents. Commission to these agents are paid in foreign currency. Please Advise.

[Vijay Chitte]

Yes, In your case you are liable to pay service tax towards import of service, Not on export of service, you will require to gate a service tax registration from service tax department. In cases where services are provided by a service provider who is situated outsidet india to the recipient of such service who is based in india, such services would be taxable at the hands of the recipient. In such cases, the service is deemed to be provided by the service receipient having his place of business or place of permenent establishment in inida. However, Notification 25/2005-ST dated 07/06/2005 exempts taxable sevices received and consumed india by an individual, NOT in the coures of commerce or industry or any other business.

AI Summary

Import of services liability: recipient must pay service tax when foreign providers supply services to an Indian recipient.
Where services are provided by a service provider situated outside India to a recipient based in India, the payment is treated as import of service and taxable on the recipient, who must obtain service tax registration and discharge tax on imported taxable services; an exemption exists for services received and consumed in India by an individual not in the course of commerce or business.