Service tax on non-compete fee
If a company pays another consideration as part of an agreement to refrain from competing with it in any specified products, services or geography, that consideration is known as non-compete fee and it will be subject to service tax.
By virtue of a non-compete agreement one party agrees, for consideration, not to compete with the other in any specified products, services, geographical location or in any other manner. Such action on the part of one person ia also an activity for consideration and will be covered by the declared services.
Department vide its educational guide, dated 20/06/2012, has clarified the nature of this service as under:-
Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to an act
In terms of this entry the following activities if carried out by a person for another for consideration would be treated as provision of service.
- Agreeing to the obligation to refrain from an act
- Agreeing to the obligation to tolerate an act or a situation
- Agreeing to the obligation to do an act
Liability under reverse charge
Wherever the service provider is located outside the taxable territory but the service is being provided in taxable territory, in terms of place of provision of services rules,2012, the tax shall be payable by the service receiver.
Place of provision of services rules, 2012
As per rule 3 of the place of provision of services rules, 2012 place of provision of such services shall be the place where the receiver of service is located.