Service Tax Liability on ECB Loan Gurantee Fee paid to Parient company

[MITSUI PRIME ADVANCED]

Dear Sir,

We have taken loan from Japan for set up Manufacturing  unit in India, Load provider is Co-operation society, Japan and our Parient Company provided Loan guarantee to co-operation Society, on Indian company Behalf, and Indian company paid Loan guarantee Commission to Parent  company , Japan, in this case subsidiary company i.e. Indian company liable for service tax .

Please provide your valuable advice. 

Regards

Arjun Sachdeva

[YAGAY and SUN]

Yes, it is payable under Reverse Charge Mechanism w.e.f. 01-07-2012 and up-to 30-06-2012 Section 66A was applicable.

AI Summary

Reverse Charge Mechanism requires subsidiary to pay service tax on loan guarantee commission remitted to foreign parent.
Payment of loan guarantee commission by an Indian subsidiary to its foreign parent for guaranteeing external borrowings is taxable and the Indian recipient must account for service tax; since the mid 2012 amendment the tax is to be discharged by the Indian recipient under the Reverse Charge Mechanism, whereas earlier the prior statutory regime applied.