Exporters urge govt to keep foreign office activities of Indian cos out of purview of service tax.

The pharma exporters in the country have asked the union finance ministry to keep the activities of the foreign offices of the Indian pharma companies out of the purview of service tax as the activities carried out by the foreign offices for the Indian parent firms are not services in true sense of the term because the exporters need to establish non-trading representative offices abroad to boost the exports.

The industry's demand in this regard comes in the background of the fact that the service tax department has initiated inquiry into the pharma industry and is seeking to collect tax on activities of the foreign offices of the Indian firms.

Driving home the point that the activities carried out by the foreign offices for the Indian parent firms are not services, DB Mody, Pharmexcil's panel chief for foreign trade policy and indirect taxation, said that the fact is that the setting up of the foreign office is a need, if not compulsion, to increase the exports. These offices are essentially not revenue generating and therefore Indian parent companies have to necessarily fund their activities.

Exporters argue that the payment from the Indian head office to representative office abroad to facilitate payment for running the operations and carrying out the activities are being wrongly interpreted by service tax department as payment for service. Amendments to definition of 'service' made by Finance Act 2013 are also being wrongly interpreted as that any payment made as above also constitutes service and hence reverse charge under section 66 B is applicable. Clarity in terms of amendments to section 66 B should be made to include that payment to own branch and liaison office outside India are not covered under service tax, exporters argued.

Vehemently opposing the levy of service tax on the Imprest remittance by Indian parent company, the exporters said that since services are provided outside India, performed outside India and consumed and utilised outside India, these services are directly linked to the export business situated outside India. So, a specific notification or amendment is required to confirm that all payment made outside India for services meant exclusively for the purpose of export should be exempted from service tax.

Even though the government is not hinting to increase cost for exporters, unclear provisions are creating confusions within the departments, exporters said.

Source : pharmabiz.com