Now a day, where the ambiguities and problems in service tax are being settling down, two burning issues are still puzzling both the service provider and service receiver with regard to “Export of Services” and “Import of Services” respectively.
In this article we shall focus on Scope and dimensions of Import of Service on which recipient of services is liable to pay service tax in accordance with Section 66A of Chapter V of Finance Act, 1994, read with Rules [Taxation of Services (Taxation of Services (Provided from Outside India and received in India) Rules, 2006, (hereinafter referred as Import Rules)].
In this article we shall not discuss the purpose and login behind classification of services into three categories in Rule 3 of Import Rules, but we shall discuss the scope and depth of Section 66A itself.
Sub section (2) of section 66A read as:
“Where a person is carrying on a business through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purposes of this section.
Explanation 1. — A person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country.
Explanation 2. —Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted. ”
The provisions of Sub Section 2 of Section 66A are applicable to “Service Provider” as well as “Recipient of Such Services”
For an example XYZ Ltd. a company incorporated in India is having its branch office (P/E) in USA. Now this P/E of XYZ Ltd. receives some services from a service provider situated in USA itself. In these circumstances, a question is bound to arisen that whether XYZ Ltd. is liable to pay service tax in India as per the provisions of Section 66A?
In terms of provisions of Sub-section 2 of section 66A, the P/E of XYZ Ltd.in USA and XYZ Ltd.in India both shall be treated as separate persons. Therefore, the P/E of XYZ Ltd. is to be treated as person situated out of India.
Accordingly the XYZ Ltd. shall not be liable to pay any service tax on services received by its P/E situated in USA. Further this situation will not change merely because, payment is booked in the accounts of XYZ Ltd.in India.
If we take another example where ABC Ltd.incorporated in India does not have any office (P/E) in England. Now, ABC Ltd. receives services of “Management Consultancy” from a firm situated in England for a project proposed to be established in England or elsewhere.
In this case, ABC Ltd. would liable to pay service tax in the capacity of recipient of services in accordance with Section 66A read with Rules.
Similarly, there may be various permutation / combinations in which service tax liability is to be determined after considering the statutory provisions carefully.
(Also see: Ready Reckoner on “Import of Services”)
Surender Gupta, FCA