Sunday, December 19, 2010

Constitutionality of taxing services provided and received outside India

What is Section 66A?
The Finance Act, 1994 was amended by the Finance Act, 2006 with a view to replace the Explanation under Section 65(105) with the new Section 66A, which came into force on 18.4.2006. The Central Government also introduced the Taxation of Services (Provided from outside and Received in India) Rules, 2006[1] under Section 66A. This new section, along with the rules, shows the intention of the Central Government to tax services rendered by non-resident persons from outside India (i.e. outside the territorial limits of India) to a person in India.

As per these new provisions, if a taxable service is rendered by a person outside India and if the said service is received by a person in India or by a person located in India, the person in India shall be deemed to be the provider of such service, for the purposes of payment of service tax.Section 66A is based on the reverse charge method, where a legal fiction is created by which the recipient of service is made liable to pay the tax as if he alone had provided the services domestically. In such a case, the recipient of service is treated as ‘deemed service provider’.

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