No service tax on repairs abroad

We are an airline company. For the purpose of maintenance and repair of specified spare parts of our airplanes, we have entered into an agreement with an overseas company. Under this agreement, we would send the parts that are required to be repaired to the company's service centre in Singapore. These would be returned to us after repair. Would we be required to pay service tax in relation to the repair services, as a recipient of services imported in India?

Under the above agreement, services received by you from the overseas company are in the nature of repair and maintenance of goods, and are covered under the taxable category of 'management, maintenance or repair services'.

Since such services are provided by a person based abroad and received by a person based in India, it would be subject to service tax only if it is considered as an import under the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 (Import Rules).

Since the services under the above agreement are performed wholly outside India, they would not be considered as imports under the said rules. Hence, there is no liability to pay service tax in relation to these repair activities.

Our company has developed an Information Technology Park (ITP). We had availed the services of contractors for the construction of the ITP and reimbursed service tax to them as part of their payment. Subsequently, we have leased out various units in the ITP. The lease agreements require us to maintain the premises and also provide the required amenities. In return, we recover charges for lease rentals and for the maintenance of the ITP. Would these charges be subject to service tax? If yes, can we claim input credits on the service tax paid by us to the contractors for construction of the ITP?

It is understood that the activities carried out by the company comprises leasing of premises and provision of maintenance services in relation to such premises, and that it recovers separate charges for providing such services.

Leasing of immovable property is not a taxable service under service tax law. However, maintenance of immovable property is covered under the category of "management, maintenance or repair services" and is hence charged to service tax.

In terms of the CENVAT Credit Rules, 2004, only those input services which are used in the provision of taxable output services are eligible for availing input tax credits.

In the present case, the service of construction, which is the input service for the construction of ITP, cannot be said to be under the provisions of taxable output service, that is, maintenance of the property. It is therefore advised that since the input service relates to the construction work alone, it would not be eligible as an offset against the service tax on maintenance.

The writer is leader, indirect tax practice, PwC. Readers can send their queries to taxqueries@business-standard.com