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Service Tax- Place of Provision of Services Rules, 2012

CA JaiKishan 
on 21 August 2015

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Introduction:

Service Tax is very important source of revenue for the Central Government. Therefore it has been tried to increase the tax base by introducing negative tax regime with effect from 01.07.2012. From this date onwards, the services which are not mentioned in the negative list as provided under section 66D of the Finance Act or not made specifically exempt, shall be taxable services.

It is therefore important to understand the place of provision of these taxable services. This is even more important in case of import or export of services.

Before 01.07.2012, i.e., before the introduction of negative tax regime, there were two sets of rules in this regard, namely,

i. Export of Services Rules, 2005 and
ii. Taxation of Services (Provided from outside India and received in India) Rules, 2006.

Now, from 01.07.2012, the Place of Provision of Services Rules, 2012 (hereinafter referred to as “the PPS Rules”) have been notified.

Before analysing these PPS Rules, let us first have a look at the basic provisions of law in this regard.

Provisions of Section 66B:

As per the provisions of this section, there shall be levied service tax at the rate of 14% (12.36% before 01-06-2015) on value of all services (other than those specified in the negative list) provided or agreed to be provided in the taxable territory by one person to another and collected in such a manner as may be prescribed.

Provisions of Section 66C:

As per the provisions of this section, having regard to the nature and description of various services, the Central Government my determine the place where such services are provided or agreed to be provided or deemed to have been agreed to be provided. It also says that any rule made in this regard shall not be invalid merely on the ground that the service provider or the service receiver or both are located at a place being outside the taxable territory.

Taking the authority from the said Section 66C and Section 94 of the Finance Act, the above PPS Rules have been notified and have been made effective from 01.07.2012 by suppressing the earlier Export of Services Rules, 2005 and Taxation of Services (Provided from outside India and received in India) Rules, 2006.

It is now important to know, what is meant by ‘taxable territory’.

Provisions of Section 65B (52):

As per clause (52) of Section 65B of the Finance Act, ‘taxable territory’ means the territory to which the provisions of this Chapter apply. Meaning thereby, the territory to which the provisions of Chapter V of Finance Act, 1994 apply; will be the taxable territory for the purpose of levy of service tax.

Now, if we see the provisions of Section 64 (1) of the Finance Act, 1994, it says that the provisions of Chapter V will come into force to the whole of India except the state of Jammu and Kashmir.

Thus, from the combined reading of the provisions of Section 66B, Section 65B (52) and 64 (1) of the Finance Act, 1994, it is clear that the whole of India, except the state of Jammu and Kashmir is the ‘Taxable Territory’ for the purpose of levy of service tax.   

Let us now analyse the Place of Provision of Services Rules, 2012 (the PPS Rules for short):

Location of Service Provider and Service Receiver [Rule 2 (h) & (i)]:

As per the said rule, the locations of service provider and service receiver will be determined as under:

Sub-Clause

Location of Service Provider

(clause (h) of Rule 2)

Location of Service Receiver

(clause (i) of Rule 2)

(a)

In case of single or centralised registration: The premises for which such registration has been obtained

In case of single or centralised registration: The premises for which such registration has been obtained

(b)

When not covered in (a) above:

When not covered in (a) above:

(i)

The location of his business establishment; or

The location of his business establishment; or

(ii)

The place from where the services are provided (other than the place of business establishment), the location of fixed establishment elsewhere; or

The place at which the services are used (other than the place of business establishment), the location of fixed establishment elsewhere; or

(iii)

In case of services provided from more than one establishment (whether business or fixed establishment), the establishment most directly concerned with the provision of services; and

In case of services used at more than one establishment (whether business or fixed establishment), the establishment most directly concerned with the use of services; and

(iv)

In absence of (i) (ii) or (iii) above, his usual place of residence or its place of registration or constitution.

In absence of (i) (ii) or (iii) above, his usual place of residence or its place of registration or constitution.

Place of provision of Service-in general [Rule 3]:

As per the said Rule, generally, the location of recipient of service shall be the place of provision of service. But where, the location of recipient of service is not available in the ordinary course of business, the place of provision of service shall be the location of the provider of service.  

Place of provision of in case of performance based services [Rule 4]:

As per the said Rule, in case of performance based services, the place of provision of service shall be determined as under:

Condition

Place of provision of service

Services provided in respect of goods that are required to be made physically available by the recipient of service to the provider of service (or the person working on behalf of such provider of service)

The place where the services are actually performed.

Services provided from a remote location by way of electronic means.

The place where the goods are situated (except where the goods temporarily imported into India for repairs and are exported after such repairs without being put to use in taxable territory) at the time of provision of service.

Services provided to an individual, which require the physical presence of the individual or a person acting on his behalf with the provider of service.

The place where the services are actually performed.

Place of provision of service in other cases:

The place of provision of service in other cases shall be determined as under:

Rule

Condition

Place of provision of service

5

Services provided directly in relation to immovable property.

[This includes the services provided by experts, estate agents, or by hotel, inn, guest house, club in relation to providing of accommodation or composite by whatever name called, or grant of rights to use immovable property or services of carrying out construction or its co-ordination, including the services of architects, interior decorators etc.]

The place where the immovable property is located or intended to be located.

6

Services in relation to events.

[This includes admission to, organisation of, a cultural, artistic, sporting, scientific, educational or entertainment event, or a celebration, conference, fair, exhibition or similar events, and services ancillary to such admission].

The place where such an event is held.

7

When service is provided at more than one location

The location in the taxable territory where the greatest proportion of service is provided.

8

When provided and recipient of service are located in taxable territory.

The location of the recipient of service.

9

In case of services provided by:

(a)

A banking company or a financial institution or a NBFC

The location of provider of service.

(b)

A service provider in relation to online information, database access or retrieval services

The location of provider of service.

(c)

An intermediary [a broker, an agent or any other person by whatever name called, who arranges or facilitates the main service or the supply of goods between two or more persons, but does not include a person who provides the main service or supplies the goods on his account].

The location of provider of service.

(d)

Hirer of all means of transport (other than an aircraft or a vessel except yachts) up to a period of one month.

The location of provider of service.

10

Provider of goods transportation services (other than by mail or courier)

Place of destination of goods

[In case of services provided by goods transportation agency- the location of the person liable to pay tax].

11

Provider of passenger transportation services

Where the passenger embarks (boards) on a conveyance for a continuous journey (i.e., the journey which has no stopover between any of the legs of the journey for which one or more than one ticket/invoice is issued at the same time by one or more service providers either themselves or through their agents).

12

Provider of services on board a conveyance during the course of a passenger transport operation (including the services intended to be wholly or substantially consumed while on board)

The first scheduled point of departure of the conveyance for the journey.

14

Notwithstanding anything contained in any of the above rules, where the provision of service is, prima facie determinable in terms of more than one rule.

The place in accordance with the rule that occurs later among the rules that merit equal consideration.

Further, Rule 13 confers powers to the Central Government to notify any description of service or the circumstances in which the place of provision of service shall be the place of effective use or enjoyment of a service, with the object of preventing double or non-taxation of a provision of service or for uniform application of rules.

Conclusion:

The above analysis of the provisions of Place of Provision of Services Rules, 2012 and other connected provisions of law it is clear that the legislature has tried to increase the tax base as far as service tax is concerned. Secondly, the above rules framed are the step towards minimising the litigation and bringing clarity in the minds of both the tax payers and tax administrators.

The author is a practising CA based at Indore (MP) and can be reached at Email: jkamghani@rediffmail.com or website: www.jkmanghni.wix.com/jkmanghani 


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