Service tax on commission received from

abroad for sale of goods in India

November 15, 2014
New rule introduced from Oct 14 includes commission agent of goods as intermediary and hence
any commission received by commission agent for sale of foreign goods (even in India) would
be taxable because taxable territory in case of Rule 9 will be that of service provider i.e. India.
This article is to collect thorough knowledge of new implication from 01/10/2014 of service
tax on commission received from abroad for sale of goods in India. The article will also throw
light on question Whether collections received on wards 01/10/2014 i.r.t. invoices raised and
services provided in FY 13-14 i.e. on or before March 2014, are taxable or not, by virtue of the
amended POT Rules.
Nature of Business in consideration: Foreign companies selling goods in India and paying
commission to their agents in India. The transaction of sale of goods takes place between two
independent companies one foreign and other Indian whereas agent [hereinafter called as
agents to simplify] in between receives commission in India for representation of client or any
other service in relation to sale of goods of foreign company.
Law:
There are 10 POT Rules, however, Rule 7 is a specific rule applicable to the agents. i.e. Rule
7 (a) (b)
Rule 7 (a) Notwithstanding anything contained in these rules, the point of taxation in respect
of (a) the services covered by sub-rule (1) of rule 3 of Export of Services Rules, 2005, shall be
the date on which payment is received or made, as the case may be. Meaning thereby, the agents
service will be taxed on payment basis.
Provided that in case of Rule 7(a), where payment is not received within the period specified by
the Reserve Bank of India, the point of taxation shall be determined, as if this rule does not
exist.
Rule 7 (b) Notwithstanding anything contained in these rules, the point of taxation
in respect of (b) the persons required to pay tax as recipients under the rules made in
this regard in respect of services notified u/s 68(2) of the Finance Act, 1994 shall be the date on
which payment is received or made, as the case may be. Meaning thereby, the agents service
will be taxed on payment basis.
Provided that Rule 7 (b) where the payment is not made within a period of six months of the date
of invoice, the point of taxation shall be determined as if this rule does not exist.

THE ABOVE EXISTED till 01/10/2014 AND BY INTRODUCTION OF NEW POT

RULES VIDE NOTIFICATION 13/2014, DATED 15/10/2014, THE NEW POSITION OF
LAW follows; The changes are highlighted as RED
POINT OF TAXATION RULES;
Rule 7 (a) Notwithstanding anything contained in Rule 3,4 or 8, the point of taxation in
respect of (a) the services covered by sub-rule (1) of rule 3 of Export of Services Rules,
2005, shall be the date on which payment is received or made, as the case may be. Meaning
thereby, the agents service will be taxed on payment basis.
Provided that where the payment is not made within a period of three months of the date of
invoice, the point of taxation shall be the date immediately following the said period of three
months.
Rule 7 (b) Notwithstanding anything contained in Rule 3,4 or 8, the point of taxation in
respect of (b) the persons required to pay tax as recipients under the rules made in
this regard in respect of services notified u/s 68(2) of the Finance Act, 1994 shall be the date on
which payment is received or made, as the case may be. Meaning thereby, the agents service
will be taxed on payment basis.
Provided that Rule 7 (b) where the payment is not made within a period of six months of the date
of invoice, the point of taxation shall be determined as if this rule does not exist.
10. Notwithstanding anything contained in the first proviso to rule 7, if the invoice in respect of
a service, for which point of taxation is determinable under rule 7 has been issued before the 1st
day of October, 2014 but payment has not been made as on the said day, the point of taxation
shall,
(a) if payment is made within a period of six months of the date of invoice, be the date on which
payment is made;
(b) if payment is not made within a period of six months of the date of invoice, be
determined as if rule 7 and this rule do not exist..
PLACE OF PROVISION OF SERVICES RULES:
Rule 2. (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 between two or more persons, but does not include a person who provides
the main service on his account.; (the word supply of goods are added by Noti. No. 14/2014,
dated 15/10/2014 w.e.f. 01/10/2014)
Rule 4. Place of provision of performance based services.- The place of provision of following
services shall be the location where the services are actually performed, namely
(a) services provided in respect of goods that are required to be made physically
available by the recipient of service to the provider of service, or to a person acting
on behalf of the provider of service, in order to provide the service:
Provided that when such services are provided from a remote location by way of electronic
means the place of provision shall be the location where goods are situated at the time of
provision of service:

Rule 9. Place of provision of specified services.- The place of provision of following services
shall be the location of the service provider (c) Intermediary services.
COMMENTS:
The POT Rule 7 (a) and (b) are amended w.e.f. 01/10/2014 along their respective provisions i.e.
(First and Second Proviso to Rule 7, as it existed on or before 01/10/2014). Further, Rule 10 is
newly added. However, as clearly worded Rule 10, Notwithstanding anything contained in the
first provisoto rule 7, it is clear that Rule 10 and first proviso to Rule 7 (a) are applicable to
Export of Services.
As the place of provision of service is in India, the agents services are not export of services
and hence, Rule 7(a) and or Rule 10 are not applicable.
Unlike Rule 10 introduced which overrides Proviso to Rule 7 (a), no other rule is introduced to
override Rule 7 (b) and second proviso.
Therefore, the agent shall decide their case as per Rule 7(b) read with second proviso, as
amended, which is worded as where the payment is not made within a period of six months of the
date of invoice, the point of taxation shall be determined as if this rule does not exist. Therefore,
the point of taxation is to be decided as per Rule 3 (as Rule 4 and Rule 8 are rules that apply to
specific situations and not to our client.) i.e. earlier of INVOICE DATE OR ADVANCE OR
PAYMENT RECEIVED.
Noting above points and also noting that definition of intermediary is amended w.e.f. 01/10/2014
only to include intermediaries who arranges or facilitates sale of goods but does not include a
person who provides the main service on his account, the Indian commission agents selling
goods of foreign parties are not intermediaries and Rule 9 being a specific rule, overrides other
rules and further, as the economic activities took place in India i.e. Both sale of goods and
receipt of commission. Receipt of income in foreign currency is no more a stipulation now for a
cross-boarder service to become taxable.
However, the Rule 9 applies w.e.f. 01/10/2014 and not before, in other words, services provided
on or before 01/10/2014 by such Indian intermediaries selling goods of foreign parties where not
subject to Rule 9 of POP and hence, services provided by them on or before 01/10/2014 were not
taxed, as being performance based services their POP was not India (noting that a commission
agent provides services to his Principal, as also clarified by the Guidance Note).
Interpretation that old collections realized after 01/10/2014 becomes taxable can not be
sustained, as it will be against the very purpose of introduction of the amendment notification 13
and 14 of 2014.
CA SANJAY JOSHI