export of services, Service Tax

[M S DAGAR]

Nature of service: ABC company ( herein referred as “company” ) , company is incorporated under Companies Act, 1956 has entered into an agreement with a foreign company (XYZ1, XYZ 2 , XYZ3) a company duly organized under the laws of the state of for eg (1) USA (2) Middle East (3) France, etc. XYZ has appointed company for the solicitation of the exclusive customers in the territory of India to purchase the products and services. Within the scope of agreement the company shall actively and vigorously develop, promote and facilitate the sale of products and services in India being provided by XYZ. Consideration on sale of PRODUCTS: 1. Company receives charges /commission ( in foreign currency directly from foreign Company) for rendering services to the foreign company located outside India against an Invoice in Foreign currency. 2. Company receives charges /commission ( in foreign currency directly from foreign Company) for rendering services to the foreign company located outside India (but with a PE in India) against an Invoice in Foreign . 3. In addition to point 1 & 2 Company also receives commission from the customer (Primarily PSU’s) as Indian agent commission (IAC) @ 1% to 0.25 % Invoices in foreign currency converted and paid in equivalent Indian Rupees by the customer . 4. Further Company provides services to the foreign company including pre sales , technical support, preparation of tender documents , followup during the tender process and post sales support. Point no1,2,3 are with subject to PRODUCT , SOFWARE sold/outright purchase. Consideration on sale of Service and Consultancy by a foreign company to the customer : 5. Company receives charges /commission ( in foreign currency directly from foreign Company) for rendering services to the foreign company located outside India against an Invoice in Foreign currency. - the services tax ( on the total contract amount) is included in the contract and paid by customer directly. 6. Company receives charges /commission ( in foreign currency directly from foreign Company) for rendering services to the foreign company located outside India (but with a PE) in India against an Invoice in Foreign currency.-the services tax ( on the total contract amount) is included in the contract and paid by foreign company’s PE or office in India. 7. In addition to point 1 & 2 Company also receives commission from the customer (Primarily PSU’s) as Indian agent commission (IAC) @ 1% to 0.25 % Invoices in foreign currency converted and paid in equivalent Indian Rupees by the customer. 8. The company may also receive retainer from Foreign company ( having a PE in India or Not having a PE in India ) on quarterly basis . Example on sale of PRODUCTS Customer ( generally PSU , private companies) places an order on XYZ Total Order amount 1000 USD Product amount 950 USD Installation & commissioning 50 USD including service tax ABC commission 2 % on total order amount in USD 1.5% paid by XYZ 0.5% paid by customer Example sale of Service and Consultancy by a foreign company to the customer Customer ( generally PSU , private companies) places an order on XYZ Total Order amount 1103 USD ( including service tax on the complete order) Consultancy service amount 1000 USD Service tax 103 USD paid by either the customer or Foreign company directly ABC commission 2 % on consultancy service amount of USD 1000. 1.5% paid by XYZ 0.5% paid by custom.

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[Ramanujam Varadarajan]

Export of Service Rules, 2005 explain the basis and conditions of treating a service as export of service.  One of the important conditions under the Rules is that the payments should be received in convertibel foreign exchange.  On a broad basis, in respect of your activiteis rendered to XYZ would qualify as export, if the amounts are received on foreign exchange.  Agreement specifying nature of activities rendered and terms/mode of payments are critical factors in this case.