Friday October 5, 02:08 AM
Do software firms with HQs abroad need to pay service tax in India?
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By Saloni Roy & Anirban Ganguly
We are a company that develops software for mobile telephones manufactured by subsidiaries of our parent company at various locations outside India. We receive the payment for software development in foreign currency. We also receive technical and managerial support services from our parent company, headquartered abroad. For the managerial support, we remit monthly fees to our parent company. Kindly advice if we are required to pay service tax for the development of software. Also, is there any service tax implication for the managerial and technical support services received from our parent company? 'Consulting engineering services' as defined under the Finance Act 1994 specifically excludes services in relation to computer software. The software development, therefore, would be outside the purview of service tax at present. The technical and managerial support that you receive, from your parent company could fall under the category of 'management or business consultant's service'. As per the provisions specified in section 66A read with Import Rules, the services provided from outside India and received in India would attract service tax in the hands of the recipient of service located in India. In the present case, your company located in India receives the service and hence, the same is liable to service tax. We are a FMCG company that deals with consumer goods with a chain of retail stores in India. We have entered into an agreement with an apparel designer company to provide space as well as store, display, promote and sell the products on behalf of the designer company. We would receive a variable commission depending upon the quantum of sales made during a particular month. Please advice, if we would be liable to pay service tax on the payments that we receive. The consideration that you receive for providing space for display, sale and promotion of the products that belong to the designer company would be liable to service tax under the category of 'Business Auxiliary Services', being services rendered in relation to promotion or marketing for sale of the products provided by the designer company. Thus, you would be liable to pay service tax on the variable commission received for the above services. We are a leading IT company with our headquarters in Bangalore and offices in Gurgaon, Kolkata and Mumbai. We have entered into an agreement with a senior corporate trainer based in the UK for training our personnel in our various offices in India in managerial skills. Also, we send our personnel abroad for training organised by various overseas corporate training establishments. We receive invoices in foreign currency on a periodic basis from these service providers. Kindly advice, if there are any service tax implications on the said transactions. The training service that you are provided by the UK-based corporate trainer should not be taxable under 'commercial coaching services' as the same would not qualify as a taxable service. An individual trainer is excluded from the taxable service category of commercial coaching services. However, the services that you receive from overseas training establishments would qualify as 'commercial coaching services'. However, as per the Import Rules and Sec 66A of the Finance Act-as the service provided by the corporate training company is performed outside India, the condition specified under Import Rules for the service to qualify as import of services will not get fulfilled. In light of the same, you will not be liable to pay service tax for the training services that are described by you. We are a Thailand-based construction company and have entered into a joint-venture (JV) with a Bangalore-based company for investing in real estate in India. The JV has acquired 650 acres of land in Mangalore for construction of residential complexes. In this connection, the services of a Thai architect were availed of. Kindly advice if there would be any service tax implications on the JV for the payments made in dollars to the architect. The services rendered by the architect would be covered under the category of 'architect's services' as per service tax laws. The possibility of discharging the service-tax liability for the services received by the JV would depend upon the fulfillment of conditions specified under the Import Rules. It appears from the facts stated above that the architect's services are provided from outside India in relation to designing the construction of a residential complex situated in India. Therefore, according to the Import Rules since the property is located in India, the JV would be liable to pay service tax for the architect's services received by it. -Respondents are senior professionals at Ernst & Young. The replies do not constitute professional advice, but are based on interpretation of facts available in readers' queries to the professionals. Neither Ernst & Young nor this publication are liable for any action taken on the basis of this information
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