Service Tax on Commission Agent

Amendment in Place of Provision of Service Rules, 2012 –
Specifically covering Commission Agent for Sale of Goods
August 08, 2014
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Contact Person: Sandeep Bansal, Mob.: +91-9818399157, Email : [email protected]
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Amendment in Service Tax Provisions
The Finance Budget 2014-15 was announced in July, 2014. It contained various
amendments to Service Tax Act but a major change that will affect the Trading
Companies who are acting as commission agent in India is change in definition of
Intermediary.
A.
EARLIER POSITION: Service Tax follows the concept of negative list, means if any service not
defined in negative list shall be chargeable to Service Tax. Service of
commission agent is not included in negative list, so it is chargeable to service
Tax.
However, services provided by commission agent for sale of goods were
governed by general Rule 3 of Place of Provision of Service Rules, 2012 and as
per Rule 3 the place of provision of a service shall be the location of the
recipient of the services.
EXPORT OF SERVICES: Rule 6A of The Service Tax Rules, 1994 provides
conditions to be met to treat any service as Export of Services:
(a) The provider of service is located in the taxable territory;
(b) The recipient of the service is located outside India;
(c) The service is not a service specified in the section 66D of the Act;
(d) The place of provision of the service is outside India;
(e) The payment for such services has been received by the provider of
service in convertible foreign exchange, and
(f) The provider of service and recipient of service are not merely
establishments of a distinct person in accordance with item (b) of
Explanation 3 of clause (44) of section 65B of the Act.
In case services are covered under the provision of Export of Services then
these are considered as exempt services.
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Since most of the Trading Companies were providing services as commission
agent for sale of goods to group companies located outside India. These
services were not included in the definition of “Intermediary” and therefore
these were governed by Rule 3 of Place of Provision of Service Rules, 2012
and the place of provision of the service shall be the location of the recipient
of the services i.e. Location of Group Company located outside India. If other
conditions of export of services were met then these services of Commission
Agent are exempted from the Service Tax.
Clause 2(f) of Place of Provision of Service Rules, 2012 defines
Intermediary as follows:
"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) between two or more persons, but does not include a
person who provides the main service on his account.
The definition of "Intermediary" does not include the services provided by
commission agent for sale of goods. Same stand has been clarified by Para
5.9.6 of Guidance Note issued by the Service Tax Department on June 20,
2012 that the agents‟ who were marketing/assisting in supplying of goods
should not be considered as an “Intermediary”.
As per Place of Provision of Service Rules, 2012, Rule 9 covers the
“Intermediary”
Services
and
as
such
for
services
provided
by
"Intermediary", the place of provision of service shall be the location of the
service provider.
Since as per earlier position, commission agent for sale of goods were
excluded from the definition of “Intermediary”, therefore services provided by
commission agent for sale of goods were not governed by Rule 9 of Place of
Provision of Service Rules, 2012.
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B.
POSITION AFTER AMENDMENT (EFFECTIVE FROM OCTOBER 01, 2014):
Place of Provision of Service Rules, 2012 are amended vide Notification No.
14/2014 dated July 11, 2014. The definition of the “Intermediary” under
Rule 2(f) has been amended as follows:
"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 or supplies the
goods on his account.
Existing Definition
"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) between two or
more persons, but does not include a
person who provides the main service on
his account.
New Definition
"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 or supplies
the goods on his account.
The effect of this amendment is that a Commission Agent for goods is also
covered in the definition of “Intermediary”, whereas earlier only commission
agents for services were covered in the definition of Intermediary. These new
provision will be applicable with effect from October 01, 2014.
From October 01, 2014, the services provided by commission agent for sale of
goods are also included in the definition of “Intermediary” and Intermediary
services are governed by Rule 9 of Place of Provision of Service Rules, 2012 and as
per Rule 9 the place of provision of service shall be the location of the service
provider.
Commission Agent services will not be able to meet one condition of Export of
Services i.e. The place of provision of the service is outside India (Refer clause d of
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Rule 6A of Service Tax Rules, 1994). So, the services of Commission agent located
in India shall be taxable and benefit of export of services will not be available.
In reverse case if, Indian Company take service of Commission agent outside India,
can take benefit of export of services while paying commission to Agent.
Disclaimer: Information in this note is intended to provide only a general
update of the subjects covered. It is not intended to be a substitute for
detailed research or the exercise of professional judgment. KNM accepts no
responsibility for loss arising from any action taken or not taken by anyone
using this publication.
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Relevant Provision of Law
 Rule 2(f) of The Place of Provision of Service Rules, 2012
"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 or supplies the goods on his
account.
 Rule 9 of The Place of Provision of Service Rules, 2012 - Place of provision of
Specified Services: The place of provision of following services shall be the location of the service
provider: a) Services provided by a banking company, or a financial institution, or a nonbanking financial company, to account holders;
b) Online information and database access or retrieval services;
c) Intermediary services;
d) Service consisting of hiring of all means of transport other than,i.
ii.
Aircrafts; and
vessels except yachts
up to a period of one month.
 Rule 3 of The Place of Provision of Service Rules, 2012 – Place of Provision
Generally
The place of provision of a service shall be the location of the recipient of service.
Provided that in case the location of the service receiver is not available in the
ordinary course of business, the place of provision shall be the location of the
provider of service.
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 Rule 6A of The Service Tax Rules, 1994 – Export of Services
(1) The provision of any service provided or agreed to be provided shall be
treated as export of service when,
(a) The provider of service is located in the taxable territory;
(b) The recipient of the service is located outside India;
(c) The service is not a service specified in the section 66D of the
Act;
(d) The place of provision of the service is outside India;
(e) The payment for such services has been received by the
provider of service in convertible foreign exchange, and
(f) The provider of service and recipient of service are not merely
establishments of a distinct person in accordance with item (b)
of Explanation 3 of clause (44) of section 65B of the Act.
(2) Where any service is exported, the Central Government may, by notification,
grant rebate of service tax or duty paid on input services or inputs, as the
case may be, used in providing such service and the rebate shall be allowed
subject to such safeguards, conditions and limitations, as may be specified,
by the Central Government, by notification.
 Para 5.9.6 of Guidance Note issued by the Service Tax Department on June
20, 2012 explaining “Intermediary Services”
Generally, an “intermediary” is a person who arranges or facilitates a supply of
goods, or a provision of service, or both, between two persons, without material
alteration or further processing. Thus, an intermediary is involved with two
supplies at any one time:
(i)
(ii)
the supply between the principal and the third party; and
the supply of his own service (agency service) to his principal, for which a fee
or commission is usually charged.
For the purpose of this rule, an intermediary in respect of goods (such as a
commission agent i.e. a buying or selling agent, or a stockbroker) is excluded by
definition.
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