JUNE 06, 2016

By K Srinivasan

IN order to promote Exports, Government of India has announced big relief to Industries in India by exempting the Service Tax on Commission paid to Overseas agent for Export of goods vide Notification No.14/2014-ST, dated 11.07.2014 which came into effect from 01.10.2014. Even earlier, there was exemption for commission paid to overseas agent for export of goods, but it was conditional up to certain prescribed limit and upon fulfillment of certain conditions.

Taxation of commission agents for supply of goods, i.e. for imports was outside the purview of Taxation till 30.09.2014. Section 2 (f) of Place of Provision of Rules read with Taxation Guide 5.9.6 clearly excluded commission agents for supply of goods before 01.10.2014. However, it had under its ambit commission agent for supply of services. The provision governing Place of Provision of Services namely Rule 9(C) dealing with "intermediary service" however remained unchanged since the definition of "intermediary" figuring under Rule 2(f) of the said rules was suitably amended by Notification No.14/2014-ST, dated 11.05.2014 so as to bring under the ambit of taxation "commission agents" for supply of goods in addition to supply of services.

Taxation of Commission agent service dealing in goods was governed by Rule 3 of Place of Provision of Services Rules, 2012 up to 30.09.2014 as per which service will be deemed to be provided at the location of service recipient which is a true reflection of the actual position of the transaction in the sense that the services were received only outside India by the Foreign Suppliers provided by the Indian Commission Agents. Whereas with effect from 01.10.2014, Government of India has shifted the place of provision of the said service as the location of the service provider instead of location of the service recipient by bringing them under the ambit of Rule 2(f) of the said rules within the ­­­­­­­­­­­­­­­confines of the definition of "intermediary" and thereby made Rule 9(c) applicable to them over riding the earlier applicability of Rule 3 under which the location of the recipient was the place of provision of service. By this there is much dismay among such commission agents over the taxability of the said service since there is a 360- degree shift in the position of the Government with regard to the taxability of the subject service.

While the intention of the Government may be good in wanting to incentivize Exports by exempting the commission paid from Service Tax which was otherwise taxable on reverse charge basis, there was also an unintended hardship created for the import agents who were earlier exempted from levy of service tax, since they were earning their income in foreign exchange for the exchequer by way of Inward Foreign Remittance and therefore conformed to the norms of Exports including the fulfillment of the condition of delivery of the service actually to a person located outside India. In the above process of change, the position of the import agents got overturned and they were made liable to pay service tax with effect from 01.10.2014 for simply no fault of theirs. They continue to render the same service and earn the same benefit for the Government in Foreign Exchange. That being the case, it would appear that by the above action of the Government in carrying out amendments to provide relief to the Export Agents, the Import agents got thrown away like babies with the bath water. Perhaps the Government would like to take a re-look at the above unintended hardship created by the above changes for the following reasons:-

+ It runs counter to the fact of actual place of provision of the said service namely, outside India by deeming fiction created to shift the real place of provisions of service to an unreal place and the Spirit of Export of service which ensues earning of foreign exchange. Further, these type of changes may come in the way of preparation for the introduction of a fair and sound GST regime.

+ To encourage exports, it was perhaps not the intention of the Government to discourage the import agents who continue to earn foreign exchange on their commission income for the exchequer. It is fine if the policy of the Government is to discourage Imports without upsetting the position of the potential foreign exchange earners in the bargain. It is the hope of those that the Government will take a relook at the above changes in a positive manner.

(The author is Assistant Commissioner, Service Tax, Chennai and the views expressed are strictly personal.)