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Taxation on Import of Services
CA G Praveenkumar
21st March, 2012
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BEST DREAM
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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
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DEFINITIONS
Taxable Service
Person
Person shall include any company or association or body of individuals, whether incorporated or not
Notified Service – Section 68(2)
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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
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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
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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
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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
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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…
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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
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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
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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
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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)
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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
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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
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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
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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
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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
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Corruption free Society…
Knowledge of tax, tax administration
and end use of funds
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Queries….?