foreign service provider can raise bill in Indian rupees?, Service Tax

[Yatin Bhopi]

Dear experts,

We are going to receive “On-Site Methodology and Software Training” in India by Foreign Service provider. They are going to raise bill in Indian Rupees. As a recipient of service we are going to pay service tax under reverse charge.

My query is

1. Is there any compulsion to raise bills in freely convertible currency(USD/EURO) if billed from outside India.
2. Under “Commercial training or coaching service” classification of service is correct? Since this service is not added in our registration certificate we need to amend our registration certificate.

Please let me know your opinion

Posts / Replies

[KASTURI SETHI]

Dear Yatin Bhopi Ji,

Regarding first query, may I know why Foreign Service Provider is interested in raising bill in Indian Currency, especially, in view of the fact that the value of Indian currency is much lower than US Dollar and EURO.

Service is properly classified under the category of erstwhile "Commercial Training or Coaching Services" specified under Section 65 (105)(zzc). Registration Certificate is required to be amended.

[YAGAY AND SUN]

Under the Place of Service Rules there is no compulsion to raise invoice in FCC. But there is no mention about this aspect in the Master Directions issued by RBI in RBI/FED/2015-16/12 FED Master Direction No. 17/2015-16 January 1, 2016.

Further classification of services has no relevance in the Negative List Regime. If you are not able to classify it appropriately then classify it in Services Other than 119 service category and pay the tax, if applicable.

For FEMA provisions please get it cross checked from your A.D.

[Ganeshan Kalyani]

The said service is not covered under reverse charge mechanism. Hence you cannot make payment under reverse charge. But since the provider is based outside India then the service amounts to import of service and you will have to make the payment of service tax.

[KASTURI SETHI]

I fully agree with the views of Sh.Ganeshan Kalyani, Sir. I also agree with the views of M/s.YAGAY AND SUN, Sirs, but with one exception. With due honour to M/S.YAGAY AND SUN, I take the liberty to express my views as under:-:-

1. Even after 1.7.12, proper classification of services is very crucial inasmuch as some services are eligible for abatement, some have been specified under RCM and even in Place of Provision Services Rules, 2012 some services have been specified to determine the "Place of Provision".

2. It appears to me that foreign based service provider would not be interested in raising bill in Indian Currency.

3. The questioner's service is covered at Serial No.10 of Notification No.30/12-ST dated 20.6.2012 as amended.

[Ganeshan Kalyani]

Yes sir the classification of service is very much essential to get benefit of exemption and abatement. Though it is now for statistical purpose but its importance is still there. Thanks.

[KASTURI SETHI]

Dear Sh. Ganeshan Kalyani,

Whether it is Central Excise or Service Tax, mis-classification of goods or service can cause monetary loss to the assessee and the Govt.

[Ganeshan Kalyani]

I am in agreement with the views shared by you.

[Mahir S]

You are Liable to Pay service tax And its mandatory to charge Service tax in billed Amt.

The billing currency amt. can be raised in foreign currency or INR but You have Discharge your liability and pay service tax in INR under reverse charge mechanism.

2) You need not amend your registration certificate for purpose of service tax payments to be made under reverse charge mechanism.

[Akash Deep]

Dear Yatin Bhopi Ji,

You need to churn out lot more facts to opine on this query correctly.

your liability to pay tax to the central government would depend on the fact whether the transaction amounts to import of services or not. No doubt provision of taxable service by any person located in non- taxable territory to a person in taxable territory is covered under Notification No. 30/2012 and subject matter of reverse charge mechanism casting 100% liability on service recipient.

As you have not provided whether the service provider is a company or an individual i would assume that it is a company. As you have stated that they are willing to raise bill in Indian currency, i would further assume that service provider is a foreign company incorporated in a foreign country. i further assume that such service provider is not registered with service tax department and not having any business establishment or fixed establishment in taxable territory. as the discussion would go further, you would see why all this crucial information is required.

It may be noted that any provision of service between two person whether both located in taxable territory or service provider located in non -taxable territory and service receiver located in taxable territory (import off service) would be taxable if place of provision of service is within taxable territory.

In case of service received by you (i.e. coaching service) place of provisions of such service is to be determined as per Rule 4(b) of the POP Rules. service of coaching (nothing but a session of knowledge imparting with instruction of putting that knowledge in practice) requires physical presence of the service receiver or the individual acting on behalf of service receiver. As per Rule 4(b) place where the service are actually performed shall be the place of provisions of service. In the instant case the place of provision of service is with in India except Jammu and Kashmir (again assuming services are not being provided in Jammu and Kashmir) there shall be levy of service tax on such provision of services.

Now the Question remains is whether service provider or service recipient is liable to pay service tax to the central government. in this transaction location of service receiver is not in dispute. Phrase "location of service provider" has been defined under Rule 2(h) of POP. (a) of 2(h) provides that where service provider has taken service tax registration single or centralised, the premises for which such registration has been obtained shall be the location of service provider.

Now in your case if the service provider is a foreign company there are chances that it may have its own branch in India and such branch may have its registration with service tax department. if this is the case location of service provider shall be within taxable territory and the transaction in this situation shall never be import of services. that means you would not be liable to pay tax under reverse charge mechanism. if the service provider is not having registration with service tax department but have business establishment or fixed establishment from where they are providing services, such business establishment or fixed establishment shall location of service provider. if such business establishment or fixed establishment are located on taxable territory, again this transaction would not amount to import of services, meaning you have no liability to pay service tax under reverse charge.

Term business establishment or fixed establishment is not defied under service tax law and are of wide amplitude. i am not taking the definitions provided in education guide as it has no statutory force but even there it can be seen that terms are of wide scope and would highly depend on facts and circumstances of the particular case.

In your case reverse charge would be applicable if service provider company has no service tax registration in India except Jammu and Kashmir, and no business or fixed establishment in taxable territory and the company is incorporated and registered in a foreign country.

The sole point of above discussion is that you need to look at above aspect before assuming liability under reverse charge and amending your registration certificate. the fact that they are more willing to raise bill in Indian currency gives my doubt more weight that they may have an establishment which may qualify as a business establishment or fixed establishment in India.

if ultimately if comes out that service provider is located in non-taxable territory, you need to pay service tax under reverse charge mechanism and amend your registration certificate also. There is no compulsion that a foreign service provider must raise bill in foreign currency only.

Raising invoices in local currency by foreign company is some times a stratgic step if the service provider is willing to invest money in that country only and thus willing to expand its business. it insures unhindered cash flow. Here again to invest and generating more business such company must have a face in that country and such face may or may not qualify as business establishment or fixed establishment.

Regards

Akash Deep

[KASTURI SETHI]

Dear Sh.Akash Deep,

All-round analysis and so hard work, especially, in the event of questioner's silence on the replies, is really appreciating and matchless. Enriched my knowledge on the other aspects of the issue. Thanks a lot for devoting so much time.

[Akash Deep]

Dear Kasturi Sir,

your welcome.

[Yatin Bhopi]

thanks a lot to all for your detailed clarifications

Extremely sorry for not replying early since I was on leave.

Service provider is located in Singapore and a company. They have their branch in India . but they have not registered under Service Tax. Now they are raising bill in USD and from Singapore only.

please let me know whether I need to amend my registration certificate to pay service tax under reverse charge? or since they have their branch in India (Delhi) this will not considered as a import of service.(whole service will be provided by Singapore company. and Delhi branch is not in picture at all)

[Ganeshan Kalyani]

Go through Akash ji reply which answers your question. 'If foreign service provider has office in India it will never be import of service'. Thanks.

[KASTURI SETHI]

Dear Yatin Bhopi,

You may be on leave but at least you should have disclosed full facts at the first instance. The whole scenario has changed now. Credit goes to Sh.Akash Deep Expert who covered all possibilities of your query and replied accurately on all aspects. But it is against etiquette on your part.