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Service tax is payable by provider of online database access services
July, 26th 2016

We have a website where some foreign companies place their advertisements. For this they pay us in foreign exchange. Are we required to pay service tax?
I believe these advertisements provide access to the website of the advertisers in the sense that anyone who clicks on the advertisement will be directed to the website of the advertiser. In my opinion, the service will fall under “online information and database access or retrieval services”, which means providing data or information, retrievable or otherwise, to any person, in electronic form through a computer network. That service is covered under Rule 9(b) of the Place of Provision of Services Rules, 2012 and so, the place of provision of that service shall be the location of the service provider. So, the service is taxable and as the service provider, you have to discharge the tax liability.

We are manufacturers of conductors. We have received a letter of credit in our favour in US dollars from the merchant exporters, who have the export order. They have made out a shipping bill showing their name as exporter and our name as manufacturer. We wish to know whether an inland LC can be opened in US dollars, whether this is third party export and whether it can be counted as our exports.
In my opinion, inland LCs may be expressed in foreign currency but the payments must be settled in rupees and the manner of arriving at the rupee equivalent must be explicit in the LC. The transaction falls within the definition of third party exports. It will be counted as export of the party who realises payment in foreign currency, but you can count the exports towards discharge of export obligations against authorisations issued to you.

We receive commission in US dollars from foreign suppliers of goods, for sales leads provided by us. The sellers and buyers are foreigners and the transactions take place outside India. Is service tax applicable on sales commission received from foreign suppliers in US dollars?

You are an intermediary who facilitates the supply of goods between two or more persons. Your service is covered under Rule 9 (c) of Place of Provision of Services Rules, 2002 and so, the place of provision of that service is the location of the service provider. The service is taxable and as service provider you have to discharge the tax liability.

Is service tax payable on foreign remittance for franchise fees for a franchise I intend to take from an organisation in the US? The franchisor will provide only training programmes and related material, not physical assets.
Since the foreign party grants you representational rights to provide services or undertake any process identified with the franchisor, the service is taxable. In accordance with S.No.10 of the Table annexed to notification 30/2012-ST dated June 20, 2012, as receiver of the franchise service in India you have to discharge 100 per cent of the service tax liability under reverse charge mechanism.

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