Commission paid by exporters exempted from service tax

As per Clause G of Rule 2(1)(i) of Service tax Rules, in relation to taxable services provided or agreed to be provided by any person located in non taxable territory and received by person in taxable territory, the recipient of service shall be liable to pay service tax. 

Hence in respect of commission on exports payable to person located outside India, service tax liability shall fall upon exporter.

However vide notification 42/2012 dated 29-06-2012, specific exemption has been provided to exporters subject to certain conditons

Notification 42/2012 dated 29-06-2012

Service tax on a commission up to 10% of FOB value of goods exported has been exempted in respect of commission agents located outside India and engaged under a contract or agreement or any other document who causes sale of goods

Conditions

(1) The exporter shall declare the amount of commission paid or payable to the commission agent in the shipping bill or bill of export, as the case may be.

(2) The exemption shall be limited to the service tax calculated on a value of ten per cent of the free on board value of export goods for which the said service has been used.

(3) The exemption shall not be available on the export of canalised item, project export, or export financed under lines of credit extended by the Government of India or EXIM Bank, or export made by Indian partner in a company with equity participation in an overseas joint venture or wholly owned subsidiary

(4) The exporter shall submit with the half-yearly return after certification of the same as specified in clause (g) of the proviso—

(i) the original documents showing actual payment of commission to the commission agent; (As per format of EXP4 only self attested copy of shipping bill to be given) and

(ii) a copy (self attested) of the agreement or contract entered into between the commission agent located outside India and the exporter in relation to sale of export goods outside India:

Further Conditions for Exporter:

1. Information to AC or DC before hand in Form EXP 3

2. Return to be filed in Form EXP4 half yearly till 15th October and 15th April

3. Is Holder of IEC Code

4. Holds Membership of Export Promotion Council sponsored by Ministery of Commerce or Ministery of Textiles

5. Has Obtained Service Tax Registeration

6. Invoice/Bill/Challan is name of exporter

7. Service tax on commission exceeding 10% of FOB value is paid with in time limits under Rule6 i.e. till 5th/6th day of next month/quarter in respect of mannual/electronic payment.