Taxation on Import of Services

CA G Praveenkumar

21st March, 2012

BEST DREAM

IMPORTANCE OF SECTION 66A

Foreign remittance towards technical or professional services

Indian trader receiving the services of a foreign bank inrelation to trade activity

Second edition of IPL organized by South Africa on behalf ofBCCI

Indian trader participating in Trade fair at South Africa andMiddle east

Shahrukh khan receives treatment from doctors practicing atUS

DEFINITIONS

Taxable Service

Person

Person shall include any company or association or body of individuals, whether incorporated or not

Notified Service – Section 68(2)

LEGALITY

Act having extra territorial jurisdiction:

Section 64(1) of the Finance Act, 1994 extends to whole ofIndia except the state of Jammu & Kashmir

Poppat Lal Shah Vs. State of Madras 1953 SCR 677

Article 245(2) of the Constitution:

“No law made by the Parliament shall be invalid on theground that it will have extra-territorial Jurisdiction.

Parliament may enact a legislation having extra-territorial application – Fatma Bibi Ahmed Patel Vs.State of Gujarat (2008) 6 SCC 789

LEGALITY CONT…

Constitutional validity of levy of Service Tax on Import of Service

- Entry No.83 or Entry No.97 of List I i.e. Union List of Seventh Schedule

Can tax be levied when Service Provider is Outside India..?

what cannot be done directly cannot be done indirectly

SCOPE FOR TAXING

Innovations by Financial wizards under any uniform create excellent opportunities for tax collection

Delay in settlement or disposing of conflicting claims is a primary enemy of justice and peace in the community

HISTORY

Bird’s eye view of levy and its changes

Date Introduction Impact

16th October, 1998 Insertion of Sub section (2) in Section 68 for “granting Central Government to notify taxable services for which Service Tax is to be paid by any person notified”

No notification has been issued in this regard

28th February, 1999 Notification No.1/99 introduced “proviso to rule 6(i) to make person authorised by the non-resident liable to pay service tax”

Relevant services not notified and accordingly levy of Service Tax cannot be upheld

16th August, 2002 Amendment to rule2(1)(d)(iv) vide Notification No.12/2002 “to make recipient in India liable to pay service tax”

Relevant services not yet notified

01st January, 2005 Notification No.36/2004 issued notifying taxable services and persons liable to pay service tax

Notification issued only for the purpose of section 68 (2)

16th June, 2005 Explanation inserted to section 65(105)

Mere explanation with out amending charging section

18th April, 2006 Insertion of section 66A and Rules viz. Taxation of Services (provided from outside India and received in India), 2006

Appropriate for levy. Article 265 – No tax shall be levied or collected except by authority of law

HISTORY CONT…

PRESENT FORM OF SECTION 66A

Section 66A (1) – Charge of Service Tax on services received from outside India

Coverage: any service specified in clause (105) of Section 65

Provided by: A Person who has a place of business/Fixed establishment/Permanent address in a country other than India

Received by: A Person who has a place of business/Fixed establishment/Permanent address in India

PRESENT FORM OF SECTION 66A CONT..

Such service for the purpose of this section, be the taxable service

And such taxable service shall be treated as if the recipient had himself provided the service in India

And accordingly all the provisions of this chapter shall apply

If the service recipient is an Individual and such service is for personal use, provisions of section 66A (1) shall not apply

PRESENT FORM OF SECTION 66A CONT..

If the service provider has his business establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided

Section 66A(2)- person having permanent establishment in India and elsewhere, such permanent establishments shall be treated as separate persons

THE TAXATION OF SERVICES (PROVIDED FROM

OUTSIDE INDIA AND RECEIVED IN INDIA) RULES, 2006

Taxable services as per Rule 3 of the above rules is as below:

I. Services provided in relation to immovable property situated in India. Currently 18 services notified

II. Services performed in India, even part performance in India is sufficient. Currently 45 services notified

III. Services other than above 63 which have been covered in clause(105) of section 65 excluding: Sub clauses (zzzo) and (zzzv)

THE TAXATION OF SERVICES (PROVIDED FROM

OUTSIDE INDIA AND RECEIVED IN INDIA) RULES, 2006CONT…

Rule 4 – recipient of service provided from outside India and received in India shall apply for reigstration

Rule 5 – taxable services POI&RII shall not to be treated as Output service for the purpose of availing cenvat on inputs or service tax paid on input services under Cenvatcredit rules, 2004

CASE LAW REFERENCE

Indian national ship owners association vs.

Union of India

Shobha Developers Ltd. vs. CCE Bangalore

Management consultancy vs. legal services

Cummins Generator Technologies India Ltd. vs.

CCE & Customs, Aurangabad

Royalty as consideration for Consulting Engineer

service

POINT OF TAXATION RULES, 2012

Amendment effected thru Notification 4/2012

Rule 7- Determination of POT for specified services or persons shall be:

Date of making payment

If payment not made within six months, POT shall be the date of Invoice

For Associated Enterprises, if the Service provider is outside India POT shall be date of booking expense or making payment which ever is earlier

DISCLOSURE IN ST3

ST3 Form a statutory document

Disclosure towards

Taxable and exempted activity

Taxable category wise amount billed/billable

Service Tax there upon

Liability as a provider/recipient

Advance payments if any

Application of Rule 6(3) of Cenvat credit Rules, 2004

Procedural aspects

EXEMPTIONS

Exemption Details

05/2011 dated 01st March, 2011 Business exhibitions organized

abroad – unconditional

18/2009 dated 07th July, 2009 GTA services, Commission paid to

the agent – conditonal

Example:

FOB value: 1000/-

Commission @10%: 100/-

S.Tax @12.36%: 12.36/-

Exemption upto 1% :10/-

Net tax payable: 2.36/-

17/2009 dated 07th July, 2009 Services used for export of goods –

conditional

Corruption free Society…

Knowledge of tax, tax administration

and end use of funds

Queries….?

Thank you…

gellapraveen@gmail.com