The foreign agents provide service to the exporters. However the services are provided outside India. They meet the prospective buyer outside India, they promote the products of the exporter outside India. For Service Tax to be leviable and payable, the services must be provided “in India”, except in the state of Jammu & Kashmir. When the services are provided outside India, provisions of service tax is not applicable. Merely because the exporter is in India, or payment is being made from India, service tax does not become leviable. Section 64(1) of the Finance Act, 1994 reads as,
“This Chapter extends to whole of India except the state of Jammu & Kashmir.”
Thus the chapter of service tax does not extend to a place outside India. While explaining the applicability of Service Tax in the state of Jammu & Kashmir, the board explained,
“The matter has been examined. At present the levy of service tax extends to the whole of India except the State of Jammu and Kashmir. The expression “India” includes the territorial waters of India. Indian territorial waters extend up to twelve nautical miles from the Indian land mass. Chapter V of the Finance Act which governs the levy of Service Tax has not extended to the levy to designated areas in the Continental Shelf and the Exclusive Economic Zone of India (as has been done in case of Central Excise vide Notification No. 166/87-C.E., dated 11-6-87 and in case of Customs by Notification Nos. 11/87-Cus., Dated 14-1-87 & 64/97-Cus., dated 1-12-97). It is, therefore, clarified that the services provided beyond the territorial waters of India are not liable to Service Tax as provisions of Service tax have not been extended to such areas so far.”
This circular clearly accepts the position that if the Services are provided outside India, service tax is not leviable.
It is immaterial as to where is the person located, who is providing the service. What is relevant is, “where the services are being provided”. The department has given following clarification in the frequently asked questions,
“The service provided by a person having its business premises in the state of Jammu & Kashmir, and providing taxable services to his clients in the other part of the country would be liable for payment of service tax. A person having his office in any of the other Indian states, who provides service to a person in the state of Jammu & Kashmir, would not be liable to pay the service tax.”
This view explained one thing, which must be understood. This tax is not a tax on a person, or on a business establishment; but it is a tax on the services provided. Thus it becomes extremely necessary to understand as to at what place services has been provided. If the services has been provided in a place where the provisions of Service Tax extends, tax is payable otherwise tax is not payable.
In case of commissions agents, with respect to the export trade, the services are provided outside India. The agents provide services to the person outside India. When services are provided outside India, where the provision of service tax doesn’t stand, no service tax is payable.
Section 66A reads as,
“SECTION [66A. Charge of service tax on services received from outside India. — (1) Where any service specified in clause (105) of section 65 is, —
(a) provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and
(b) received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India,
such service shall, for the purposes of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of this Chapter shall apply :”
The section is very clear in saying that in this particular circumstances, provision of this chapter (provisions of service tax) shall apply. The section is not levying a new tax. Section 66A merely shifts the burden of payment of service tax from the service provider to service receiver in a particular circumstances. The burden must exist before it can be shifted. When there is no burden of service tax, there is no question of shifting it on any other person.
In Orient Craft Limited v. UOI, the Delhi High Court held that when the services received outside India, service tax is not leviable. It is leviable only when services are received in India. It said,
“4.?The contention of the learned counsel for the Petitioner based on the interpretation of Section 66A of the Act, is that any Service that is obtained by a person who has a fixed place of business or fixed establishment or permanent address in India is liable to tax for services availed by him in a foreign country. By way of an example, learned counsel for the Petitioner has cited that if such a person in India goes abroad, and has a hair cut, he would be liable to pay service tax in India on the basis of Section 66A of the Act.
5.?We are not at all convinced by this argument of learned counsel for the Petitioner. The Rules that have been framed by the Central Government make it absolutely clear that taxable service provided from outside India and received in India is liable to Service Tax. In the example given by the learned counsel for the Petitioner, there is no question on the service of a haircut having been received in India.”
In view of these, it is absolutely clear that when services are not received in india, service tax is not payable. In this particular case, such services are not received in India, and hence Service Tax is not payable.
Written by:- Advocate Rajesh Kumar. The author can be contacted on The author can be contacted on firstname.lastname@example.org , Web: www.rajeshkumar.co.in