Place of Provision of Service
As per section 65B, service tax is payable when service is provided in taxable territory. Place of Provision of Service is relevant for export and import of service, services provided to and from SEZ and J&K. It is also relevant to determine whether service is provided in ‘taxable territory’.
Section 66C authorises Central Government to make rules to determine place of provision of service.
1 Taxable Territory
¨ Service tax payable when service provided in taxable territory.
¨ Broadly, India plus 200 nautical miles inside the sea minus J&K is covered under ‘taxable territory’.
¨ Section 64(1) of Finance Act, 1994 states that this chapter (i.e. Chapter V of Finance Act, 1994) applies to the whole of India except State of Jammu and Kashmir.
2 India [section 65B(27)]
(a) the territory of the Union as referred to in clauses (2) and (3) of article 1 of the Constitution (excluding J&K);
(b) its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976;
(c) the seabed and the subsoil underlying the territorial waters;
(d) the air space above its territory and territorial waters; and
(e) the installations, structures and vessels located in the continental shelf of India and the exclusive economic zone of India (already covered in ‘b’).
3 Territorial waters and EEZ
¨ Territorial waters cover upto 12 nautical miles inside sea from baseline.
¨ Exclusive Economic Zone (EEZ) is upto 200 nautical miles inside sea from baseline.
¨ Beyond EEZ, there is high seas – free for all countries of the World.
4 SEZ is part of ‘India’ for service tax
¨ As per section 2(i) of SEZ Act, “Domestic Tariff Area” means the whole of India (including the territorial waters and continental shelf) but does not include the areas of the Special Economic Zones.
¨ However, the definition under service tax includes ‘SEZ’ also
5 Place of Provision of Services Rules
¨ Service taxable if provided in taxable territory
¨ Whether service provided in taxable territory would be decided on basis of Place of Provision of Services Rules
¨ Relevance in case of import and export of service, service to and from J&K (and in some cases SEZ also).
6 Location of Service Provider and Service Receiver
¨ The Rules are made with reference to location of service provider and receiver. Hence, these terms have been defined in Rules.
¨ Normally – place where service tax registration has been obtained is location of service provider or service receiver
¨ For example, if registration is obtained in Mumbai, that will be location of service provider even if the property which is rented is in Bangalore or the construction activity is undertaken in Ahmedabad.
¨ If registration not obtained – then location of business establishment where service is provided or received is location of service provider/receiver (This can happen in cases like Government or charitable organisations)
¨ If that is not place where service provided/received, then location of fixed establishment where service is provided/received is location of service provider/receiver (e.g. when service provide or receiver is outside taxable territory
¨ If service is provided from or received at two or more establishments, then establishment most directly concerned with provision/use of service would be location of service provider/receiver.
¨ If no such place, then usual place of residence of service provide/receiver is location of service provider/receiver (e.g. NRI, foreign resident person)
7 Later Rule prevails over earlier rule
¨ Place of Provision of Services Rules specify the place of provision of service in various situations.
¨ Subsequent specific Rules would prevail over earlier rules [Rule 14] – Latter the better.
¨ Hence in following discussions, rules are discussed in reverse sequence.
8 Rule in respect of some specific services
¨ Specific provisions made in respect of transport of goods and passengers, services provided on board a conveyance, services of Banks to account holders, Online Information and Data Access or Retrieval, Services of Banks and FI to account holders, intermediary of services (not of goods) [Rules 9 to12]
9 General Sequence of Rules in other cases
¨ Taxable territory (India) is place of provision if both service provider and receiver in taxable territory rule 8 (even if service is provided outside the taxable territory) (Issue debatable)
¨ Taxable territory is place of provision of service, if even partly it is in taxable territory as per rules 4, 5 or 6 [Rule 7]
¨ Services relating to admission or organisation of events – where the event takes place [rule 6]
¨ Services relating to immovable property – where immovable property is situated [Rule 5]
¨ Performance on goods or performance where physical presence of service receiver is required – place of performance of service [Rule 4]
¨ Location of service receiver is place of provision of service if no other rule applies [Rule 3]. This is residual rule.
10 Services provided on board a conveyance
¨ Services provided on board a conveyance – first scheduled point of departure of that conveyance for the journey [Rule 12]
¨ If aircraft or ship starts from India and goes to New York via London, India will be Place of Provision of Service.
¨ These cover services like movie/music/video/software games etc., if charged separately [but not casino as that is gambling and is in in negative list]
11 Passenger transportation service
¨ Place where passenger embarks on the conveyance for a continuous journey is place of provision of service [rule 11]
¨ Part of continuous journey may be outside India if it is part of continuous journey even if stopover for fuelling or embarking/disembarking of passengers.
¨ If aircraft commences its journey from San Francisco, arrives at Delhi and then reaches Mumbai, San Francisco (USA) will be treated as place of provision of service.
12 Goods Transport Service
¨ Destination is Place of Provision of Service in case of goods transportation (except GTA, mail or courier) [rule 10]
¨ In case of GTA, person paying freight to transporter is liable (If he is not individual or HUF).
¨ If person paying freight to GTA is outside taxable territory (like Nepal, Bhutan, J&K, Bangladesh), then GTA is liable to pay service tax.
13 Location of service provider in case of some specific services
¨ Location of service provider is place of provision of service, in case of (a) bank, FI or NBFC to account holders (b) Online information and database access or retrieval services (c) Intermediary in case of services and (d) hiring of means transport upto one month (renting) [Rule 9]
14 Services of Bank, FI or NBFC to account holders
¨ Services to NRE and NRO accounts covered under this rule 9
¨ Services of leasing, merchant banking, forex broking, asset management, bankers to issue not covered under this head – in case of these service residuary rule 3 applies i.e. location of service receiver is place of provision of service
15 Location of intermediary is place of provision of his service
¨ “Intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of service between two or more persons [Rule 2(f)]
¨ Provision applies only when intermediary is for services (not when it is for goods or immovable property).
¨ Security is goods and hence Stock Broker will not get covered under rule 9.
16 Which intermediaries are covered?
¨ Travel agent, tour operator (if only acting as agent), stock broker
¨ Commission agent of services (not when it is for goods or immovable property)
¨ Freight forwarder may act on his own or may be an intermediary, depending on nature of his service (See discussions under Freight Forwarder’ in ‘Other Services’).
¨ Call centers are not ‘intermediary’
17 When service provider and receiver both in taxable territory
¨ Location of service receiver will be the place of provision of service [rule 8] This rule overrides rules 3 to 7 as per rule 14.
¨ Service in relation to performance (Rule 4) or immovable property (rule 5) or event (rule 6) may be taxable even when the performance, immovable property or event outside taxable territory as rule 8 overrides rules 3 to 7.
18 Is Rule 8 valid?
¨ Reason given for rule 8 (in the Guidance Note issued by CBE&C on 20-6-2012) is that such service may not be taxed outside India (may not be necessarily so)
¨ As per section 66B, service is taxable when provided in taxable territory, while as per rule 8, service can be taxed even if provided outside taxable territory
¨ It is well settled that section prevails over rules. Hence, rule 8 can be challenged.
19 Location when services under rule 4, 5 or 6 provided at different place
¨ Where any service in rule 4, 5, or 6 is provided at more than one location, including a location in the taxable territory, place of provision is location in the taxable territory where the greatest proportion of the service is provided [Rule 7]
¨ e…g. testing done at various places and report submitted at different place.
¨ If even small part of service in relation to performance or immovable property or event is done in India, entire service will be taxable.
¨ If the separate establishments in different countries provide separate service, then invoices can be raised individually in different territories and then rule 7 will not apply.
20 Services relating to events
¨ Services relating to admission or organisation of events – the Place of Provision of Service is where the event takes place [rule 6]
¨ Cultural, sporting, educational, entertainment, exhibition, conference, fairs covered under this head
21 Services relating to immovable property
¨ In case of Services relating to immovable property, place of provision of service is where property is located (Rule 5).
¨ Services provided in this regard by experts and estate agents, hotel accommodation, grant of rights to use immovable property, construction work, architects or interior decorators
¨ Maintenance of immovable property, security, architectural services, legal services in respect of transfer, renting, survey, hotel accommodation etc.
¨ This provision is comparable to rule 3(i) of earlier Export of Service and Import of Service Rules.
22 Performance on goods related services
¨ Performance based services relating to goods – place of provision of service is where service is actually performed [rule 4(a)]
¨ In case of service provided from remote location, where goods are situated is place of provision of service [These would cover computer based services].
¨ This provision is comparable to rule 3(ii) of earlier Export of Service and Import of Service Rules.
23 Examples of performance based services
¨ These relate to goods and would cover services like repairs, reconditioning, storage, warehousing, courier, cargo handling, technical testing, dry cleaning, erection commissioning, annual maintenance contract
¨ It cannot cover consultancy or market research service as any performance on goods is not required
24 Where physical presence of service receiver required
¨ Where physical presence of service receiver (who is individual) is required, place where service is performed will be place of provision of service [Rule 4(b)]
¨ Cosmetic surgery, beauty treatment
¨ Training of a person is performance based as physical presence of trainee is required. Hence location of training is place of provision as per rule 4(b)
¨ Thus, if training is conducted outside India, then Place of Provision of Service is outside India and then not subject to service tax..
25 Residuary Rule
¨ Location of service receiver is place of provision of service if no other rule applies[Rule 3]. This is residual rule.
¨ Commission Agents of goods, stock brokers, management and technical consultancy services, Banking services (other than those to account holders), market research should get covered under this rule.
¨ Advertisement on TV/Radio published in Indian TV– should come under rule 3 and not taxable if service receiver is outside India.
¨ This provision is comparable to rule 3(iii) of earlier Export of Service and Import of Service Rules.
26 Place of Provision to avoid double taxation or non-taxation
¨ Government can notify any description of service or circumstances in which place of provision shall be place of effective use and enjoyment of a service [Rule 13].