Clarification on service tax – Where is service receiver located abroad?

Here is an opinion on Service tax. I am quite confused. Could someone throw more light on the subject? What exactly is the right interpretation?

“Services to foreign organisations may not be chargeable to service tax in some cases. To understand this, let’s take an example.

A foreign entity has retained you to provide advisory services in India. You visit and advise their grantees / partners in India, and report back to the client. The foreign entity does not have an office in India. Therefore, your contract is signed with the main office. Your fees also come from abroad. Will this be chargeable to service tax?

No. In most cases, service tax is now charged based on location of the receiver of services. In this case, the receiver is located abroad. Therefore, this service is not taxable. It does not matter that the service is actually performed in India.”

Would be grateful for a response and guidance

Joe D’Souza

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2 Responses to Clarification on service tax – Where is service receiver located abroad?

  1. Ramakrishnan says:

    I concur with Mr.Mittal: I am currently part of a project which is offering a consultancy for a Canada based organization, with the research service being offered in India. We obtained multiple opinions on this, and the consensus was that even if the results of the service were being consumed outside India, if the service and activities were primarily being conducted in India, service tax needed to be charged.
    Ramakrishnan

  2. Subhash Mittal says:

    Dear Mr D’souza,

    Post 1-7-2012, place of provision of service has become quite important to determine the applicability of Service tax. As per S. 66B service tax would be levied on value of all services , other than those specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another.

    In view of the above, taxable territory is very important to determine the applicability of service tax. To help determine the same, the Dept. has also brought out Place of Service rules 2012. In a recent case involving Infosys Supreme Court has clearly stated that it is important not only where service is rec’d but also where the benefits of service will be consumed.

    In view of the same, I believe service tax would become applicable in the given situation, assuming that the benefit of the advice being given is being consumed in India.

    However I look forward to hearing alternative opinions.

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