Dear Mr Agarwal,
Whether or not service tax is payable on commission paid to procureorders from abroad is a moot point.The Section 66-A, which seeks to bring payments in respect of suchservices within the ST net by introducing the mechanism of ReverseCharge, has been held to be constitutionally valid by the Delhi HighCourt in Crafts Ltd. v. Union of India [2006] 5 STT 338.In the Orient case, the assessee had availed the services of acommission agent situated in a foreign country for procuringbusiness of export of goods from India to other foreign countries.The revenue contended that the services of the commission agent weretaxable in India, while the petitioner maintained that theseservices were not liable to service tax. Under the circumstances,the assessee had filed the writ petition challenging theconstitutional validity of section 66A.Note that this case did not deal with whether M/s Orient Craft wasliable to pay ST or not; the court was approached merely to decidewhether Section 66-A was unconstitutional. To make out his case thepetitioner said that u/s 66-A, an Indian going abroad and having ahair cut there will become liable to pay service tax in India.The court wasn't convinced by such arguments; the hair cut you hadwhile on a vacation abroad cannot be said to have been "received" inIndia. The court ruled that there was nothing unconstitutional inthis scheme of things. Charging ST on the service receiver when theservice is provided from a country other than where the servicereceiver is located is a well-accepted international practice.But still there's a glimmer of hope for exporters who pay commissionabroad. Read the following extract of the judgement:[However, it was still open to the assessee to contend that he hadnot RECEIVED the services of the commission agent in India but itwas a matter to be decided on merits and that could only be decidedby the Assessing Officer or any appellate authority in the event theassessee was sought to be taxed on that aspect.]The operative word here is "received". Can an exporter payingcommission to someone abroad for booking orders for him be said tohave "received" those business auxiliary services u/s 65(105)(zzb)in India?The Import of Services Rules issued vide Notification no 11/2006dated 19.04.2006 do not enlighten us how to determine whether aservice has been "received" in India. But I think the fact that thebeneficiary of a service is located in India does not by itself meanthat service has been received in India.But most exporters I know are depositing ST on foreign commission.But Section 66-A was introduced only on 18.04.2006. So if at all youare liable to pay ST under the tax-shift mechanism, it would be fromthat date only. I think you can certainly object to the demandraised for years earlier than 2006-07.
Thanks,
CA Sanjeev Bedi
--- In , "Naresh Agarwal" wrote:>> Dear All>>>> Please give your replies on the following :>>>> One of my client has received a notice from Service Tax departmentdemanding> service tax to the tune of Rs 6.5 lacs under Business Auxillaryservice.As> per the notice they have demaded this on the following ground:>>>> The company has paid commission for procuring orders from USA &CANADA for> the F.Y. 2002-03, 03-04, 04-05 , 05-06 & 06-07. According to thenotice they> have mentioned that as per rule 2(1)(d) of the service tax rules1994, any> service provided by a person who is non resident or does not haveany> office in India than the person responsible for receiving thetaxable> service in India is liable for payment of service tax.>>>> In my view the above services are not lable to service tax as per> notification 11/2006 dt 19.04.2006. Please advise accordingly withsuitable> case laws.>http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/message/25655
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