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TMI BlogIntermediary, for Service Tax LawX X X X Extracts X X X X X X X X Extracts X X X X ..... Intermediary, for Service Tax Law - By: - Smitesh Desai - Service Tax - Dated:- 29-7-2014 - - Imagine a situation when an Indian Manufacturer has appointed an agent for carrying out certain functions such as Sales or Sales Promotion etc. The Manufacturer is located in India. If the agent is also located in India, then the agent is liable for service tax. Obviously he would pass on the tax burden to the Manufacturer. If the agent is located abroad (say UK), then the Indian Manufacturer is liable for service tax under Reverse Charge Mechanism. Tax burden and Tax payment, both fall upon the Indian Manufacturer. This happens because, under Rule 2(1)(d)(G) of the Service Tax Rules, 1994 , Person Liable for Paying Service Tax is defined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as follows: in relation to any taxable service provided or agreed to be provided by any person which is located in a non-taxable territory (UK agent) and received by any person located in the taxable territory (India), the recipient of such service (Indian Manufacturer) Now let s complicate this picture further. The UK agent wants to appoint a sub-agent. If he appoints the sub-agent by himself, the Indian Manufacturer is not bothered financially speaking. The Indian Manufacturer may or may not know about the appointment or the identity of the sub-agent. This is known as a bipartite arrangement between the UK agent and his sub-agent. Since the sub-agent does not render service to the Indian Manufacturer directly, Reverse Charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mechanism does not set in. Further complexity: The UK agent appoints the sub-agent with the concurrence of the Indian Manufacturer. The arrangement is now tripartite, in nature. The Indian Manufacturer makes payment of sub-agency commission. Reverse Charge Mechanism comes into play. But Budget 2014 has played a master stroke: The definition of Intermediary in Place of Provision of Services Rules, 2012 , reads as follows: Wef 1/x/2014 (f) intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the 'main' service) or a supply of goods (addition by Budget 2014), between two or more persons, but does not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clude a person who provides the main service or supplies the goods on his account; This is the master stroke, when read alongwith Place of Provision of Service Rules. Place of provision of specified services.- 09. The place of provision of following services shall be the location of the service provider :- (a) Services provided by a banking company, or a financial institution, or a non-banking financial company, to account holders; (b) Online information and database access or retrieval services; (c) Intermediary services (sub-agent) ; (d) .......... A combined reading of these provisions leads to the inescapable conclusions that the sub-agent is deemed to provide service in UK. Accordingly he is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of Reverse Charge Mechanism, as far as the Indian Manufacturer is concerned. What about the UK agent? The Indian Manufacturer remains liable for service tax in relation to this service, under Reverse Charge Mechanism. Isn t the UK agent also an Intermediary? And hence out of Reverse Charge Mechanism? Like the sub-agent? No. Because the definition of Intermediary excludes ....a person who provides the main service or supplies the goods on his account What is the objective of such an elaborate taxing (UK agent) and exempting (sub-agent) amendment? To set right situations such as Paul Merchants Limited v/s CCE Chandigarh 2012 (12) TMI 424 - CESTAT, DELHI (LB). Back home, when an Indian Agent provides Business Auxiliary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services to a foreign client, even after 1/x/2014, he will remain exempt, by virtue of export . But if the Indian Agent appoints a sub-agent, whether under bipartite agreement or tripartite agreement, that sub-agent will be liable for service tax by himself. You should also read: (h) location of the service provider means- (a). where the service provider has obtained a single registration, whether centralized or otherwise, the premises for which such registration has been obtained; (b). where the service provider is not covered under sub-clause (a) (sub-agent): (i) the location of his business establishment; or (ii) where the services are provided from a place other than the business establishment, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is to say, a fixed establishment elsewhere, the location of such establishment; or (iii) where services are provided from more than one establishment, whether business or fixed, the establishment most directly concerned with the provision of the service; and (iv) in the absence of such places, the usual place of residence of the service provider. Place of provision generally.- 03. The place of provision of a service shall be the location of the recipient of service (Indian Manufacturer vis-vis UK agent): Provided that in case the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the provider of service. - Reply By Jatin Gupta a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s = Dear sir, Please explain me the concept of Service Tax on Intermediary service. when a service provider qualify as Intermediary service provider ? For Example :- In case of import- A importer(X) hire an Indian logistic company (Y) for import of goods from US. The Indian logistic company hire a company (Z) in US for performing all the task/job in US then Z raised it bill ( including profit share ) to Y. and then Y charge consolidated amount from X for service perform by himself in India and by Z in US after inclusion of some profit share and collect the said amount. after collection Y pay amount to Z for service perform by Z in US . Now my question is 1. whether Y is an Intermediary ? if yes then whether on principal to principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or principal to agent basis ? If no then Why ? 2. whether Y is require to pay Service tax under Reverse charge mechanism for imports of service ? If yes/No then why? 3. whether Y is also render a service to Z i.e. Collection service ? If yes then are y is require to charge service tax ? 4. If Y collect ₹ 1000 i.e. ((210+90)+40+60)=400 (Rs.40 is profit share charged by Z in his invoice and ₹ 60 is profit share charged by Y on invoice of Z)for service perform by Z in US and ₹ 340+70+90+100=600 for service performed by himself in India (Rs.70 is for Freight and ₹ 90 shown as reimbursement of expense and ₹ 100 is profit share ).On what amount Y is require to charge service tax from X. Dated: 23-7-2015 - Schol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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