CA Jigar Parikh Partner K. G. Patel & Co. Chartered Accountants

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CA Jigar ParikhPartnerK. G. Patel & Co.Chartered Accountants

Place of Provision of Service Rules, 201227 June 2014

Performance

Destination

Location

Baroda Branch of WIRC of ICAI

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PoPS Rules

Way forward

Discussion

Background

Frame work

Contents

K. G. Patel & Co. Chartered Accountants 3

Export / Import Rules Place of Provision of Service

Location of Service Recipient Location of Service Recipient

Place of Performance Place of Performance

Location of Immovable Property Location of Immovable Property

Location of Events

Multi-location Performance

Location of Service provider and Recipient

Specified Services

Transportation of Goods

Passenger Transportation

On Board a Conveyance

Parameters – For determining jurisdiction of provision of service


SNAPSHOT

General Rule

• B2Btransactions:Location ofrecipient• B2Ctransactions:Location ofprovider

Specific Rules

• Performance based services• Services relating toimmovable property• Services relating to event• Banking, online,intermediary, transport hiring(up to 1 month) services• Goods transportationservices• Passenger transportationservices• Services provided on boardof conveyance

Other aspects• Services provided atmore than onelocation• Services provided innon-taxable territoryand service providerand recipientlocated in taxableterritory• Services fallingunder more thanone rule


PoPS Rules

Way forward

Discussion

Background

Frame work

Contents


Frame work - Location of service receiver and service provider

Need of having this Rule:

Service – activity carried out for a consideration in a taxable territory - A shift from transaction based taxation to activity based taxation

Under section 66C(1) in exercise of powers the Central government has framed ‘Place of Provision of Service Rules,2012’

The place of provision of service rules, 2012 come into force under notification no.28/2012- S.T. Dated,20-6-2012.

Relevance of the Rules:

• To determine the place where a service shall be deemed to be provided so as to ascertain the taxing jurisdiction for a service

• If a service does not fall in taxing jurisdiction, service is tax free

• A Step towards GST


Frame work - Location of service receiver and service provider

A. If the service provider/receiver has obtained only one registration, may be centralized (in case of multiple places) or otherwise (having only one place) - the premises for which such registration is taken is the location

B. In other cases i.e. either no registration is taken or multiple registration is taken the location of service provider/receiver is identified sequentially as follows:

a. If services are provided from Business Establishment (place where management and control exist) – Place of such business establishment is the location

b. If services are not so provided but from other establishment (fixed establishments i.e. which has the permanent presence of human and technical resources to provide/ receive a service) – Place of such fixed establishment is the location

a. If the services are provided from / received by more than one locations – the establishment most directly concerned with the provision of service / use of the service is the location

b. In the absence of any places mentioned above – usual place of residence is the location.


PoPS Rules

Way forward

Discussion

Background

Frame work

Contents

• Provides that service shall deemed to be provided where the service recipient is located

• In case, if location of service recipient is not ascertainable in ordinary course of business:

− Service shall deemed to be provided where the service provider is located

• Applicability – default rule

Rule 3 - Location of Service Recipient

9K. G. Patel & Co. Chartered Accountants

Sr. No Description of Service

1 Consultancy Service

2 Transaction of back office processing services

3 Development of Information technology Software

4 Service of Marketing / sales promotion of goods

Illustrative list of services covered under Rule 3 (except where both service receiver and provider are located in taxable territory)



Meaning of Service Recipient

A G

O

Contractual agreementIndia

Outside India

Payment in FCY

Provision of service

Service recipient – Contractual (O) or beneficial (A)?



Meaning of Service Recipient

A G (BO)

O (HO)

India

Outside India

Payment of Invoice

Provision of service

Definition of Service

PoPS Rules

HO and BO are treated as distinct person

Establishmentof sameperson –establishmentdirectly relatedtreated asrecipient

Clarification on harmonious interpretation of both these provisions


Applicable when Service is provided Examples

In respect to goods that are required to be made physically available by service recipient to service provider in order to provide the service (*)

•Repair and Reconditioning of goods•Storage and Warehousing,•Cargo Handling, Courier,•Technical Testing/Inspection / Analysis•Authorised Service Station

In conjunction with supply of goods under another contract by service provider

•Annual Maintenance Contract•Erection and Commissioning Service

Entirely or predominantly, in ordinary course of business, where physical presence of individual is required in order to provide the service

•Fitness Services•Photography Service,•Class room teaching, internet café

(*) Where service is provided in respect to goods from remote location by way of electronic means, place of provision shall be location where goods are situated at the time of such provision

Rule 4 –Place of Performance

Place of provision of service – location of performance of service


Goods provided is merely an input

Seeds A

B

Made available by BIndia

Outside India

Provides research report and

receives payment

Performs research


Relevant Rule - Rule 3 or Rule 4?


Goods made available by a person other than the contractual recipient

Service provider Customer

Equipment supplier

Payment for servicesIndia

Outside India

Equipment purchased with 1year free maintenance

Provides maintenance free of charge




Place of provision of service – location of immovable property

Provides that service provided directly in relation to an immovable property shall deemed to be provided where such immovable property is located or intended to be located

Rule 5 - Location of Immovable Property

Land related Services Non-land related Services

Renting of immovable property, Repair and maintenance of machinery which is not permanently installed / attached to earth

Services of real estate agents, auctioneers, architects, engineers relating to land, buildings or civil engineering works

Advice or information relating to land prices or property markets

Supply of hotel accommodation, guest house, club or warehouse space

Land or Real Estate Feasibility studies carried out for the purpose of Investment

Services supplied in course of construction, reconstruction, alteration, demolition, repair or maintenance of building

Filing tax return for business in respect of rental income earned from commercial property

Legal services with respect to applications for planning permission

Legal consultancy services relating capital gain tax on sale of immovable property


Rule 5 – Location of Immovable Property

Guidance note provides criteria for determining service provided directly in relation to Immovable Property

• Service is physically performed or agreed to be performed on specific immovable property or property to come into existence

• Immovable property is the direct object of the service in the sense that the service enhance the value of property or affects the nature of the property

• Purpose of service is to:

− Transfer or conveyance of the property or propose to transfer or conveyance the property

− Determination of title of the property

− Does not cover services having indirect or incidental connection between service provided in relation to immovable property and the underlying immovable property


India

Outside India

Oil Extraction platform L & T

NY Inc.

Contractual arrangementto provide designing/engineering services

Provides designing/engineering services and receives consideration inForex


Rule 5 – Location of Immovable Property


Rule 6 – Location of occurrence of Event

Place of provision of service – location of event

Coverage of the Rule:Services:

- in relation to admission;

- by way of organising cultural, artistic, sporting, scientific, educational, or entertainment event, or a

celebration, conference, fair, exhibition, or similar event;

- ancillary to admission of an event


Rule 6 - Location of Event

Description Old Regime New Regime

Payment to organizer Taxable (Performance based) Taxable (location based)

Participation fees Non – taxable Taxable

Prospective Students Road Show

Management School

India

Outside India

Attend

Organisor

Pay for planning and organizing

Plans and organise

show

Pay participation fees


Rule 7 – Multi - location performance

• Provides that service (stated in Rule 4, 5 or 6) provided from multiple locations, including location in taxable territory, shall deemed to provided in the taxable territory where the greatest proportion of service is provided.

Chennai (12%)

Singapore (55%)Mumbai (23%)

Delhi (10%)

Old Regime

New Regime

Export Taxable


Rule 8 – Location of receiver and provider

Place of provision of service – location of Service Provider

Covers situations where place of provision of service outside the taxable territory, however service provider and recipient located in taxable territory – PoPS is locatio of service recipient

A B

Setting up laboratory of B

Contractual arrangement

India

Outside India

Old Regime

New Regime

Not taxable

Taxable


Rule 9 - Location for specified services

Place of provision of service – location of Service Provider

Following are the specified services where the place of provision is the location of the service provider:-

i) Services provided by a banking company, or a financial company, or a non-banking financial company to account holders;

ii) Online information and database access or retrieval services;

iii) Intermediary services;

iv) Service consisting of hiring of means of transport, up to a period of one month.


Rule 9 - Location for specified services

Intermediary Services

• A broker, an agent or any other person who arranges or facilitates provision of services between two or more persons• Involved with two or more supplies at any one time:- supply between the principal and the third party- supply of his own service (agency service) to his principal

Tour Operator

Travel Agent

Stock Broker

Commission Agent ?

Illustration of services

.

For goods

For serviceIndian Agents providing service to overseas

money transfer service provider


Rule 9 – Intermediary services

Service of Sub - contractor

Customer

ABC

Insurance Company

India

Outside India

XYZ

Engages to market and facilitate

insurance service

Sub contracts marketingand facilitation

Markets andfacilitatesinsurance services


Rule 9 – Online information & Database access or retrieval service

Money Value inc.

ABC

India

Outside India

Payment of subscription charges

Old Regime

New Regime

Taxable under reverse charge

Not Taxable

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Rule 10 – Transportation of goods

• Provides that place of provision of service with respect to transportation of goods shall be the place of destination of the goods

• Said rule not applicable in case of transport of goods by way of mail or courier (covered under Rule 4)

• Place of provision of service for Goods Transport Agency shall be the location of person liable to pay tax

Transport of goods by vessel

K. G. Patel & Co. Chartered Accountants

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• Service of Freight Forwarder

- Clearance of goods; service of loading / unloading of goods

- includes agency charges and other charges (Bundled services) – Taxable entirely

- What if contract is separated in to (a) outside India services (b) ocean freight & (c) services in India

Transport of goods by vessel (Ocean Freight)


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Place of provision of service – Destination of goods*

*In case of GTA – place of provision of service is location of person liable to make payment of freight;

*Destination of goods other then mail and courier

S. No. Location of service provider

Location of service receiver – person liable to pay freight

Destination of goods

PoPS

1 J & K Gurgaon Mumbai Gurgaon

2 J & K Delhi J & K Delhi

3 Delhi Mumbai J & K Mumbai

4 J & K J & K Delhi J & K (not taxable)

5 Gurgaon J & K J & K Gurgaon

29K. G. Patel & Co. Chartered Accountants

Rule 11 and 12

Rule 11 – Transportation of passenger

• Place of provision of service with respect to Passenger Transportation Service shall be the place where passenger embarks on the conveyance for a continuous journey

“Continuous journey” means:

− a journey for which a single or more than one ticket or invoice is issued at the same time,

− either by one service provider or through one agent acting on behalf of more than one service provider, and

− which involves no stopover between any legs of the journey for which one or more separate tickets or invoices are issued

Rule 12 – On Board a Conveyance

• Place of provision of service provided on Board during the course of Passenger Transport Operation, intended to be wholly or partially consumed while on Board shall be the first scheduled point of departure of that Conveyance for the journey

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Rule 13 and 14


Rule 13 – Power to notify description of service

• Central Government has the power to notify the description of service or circumstance in which the place of provision shall be the effective use and enjoyment of a service

• The said Rule provide powers in order to prevent double taxation or non taxation of provision of service

Rule 14 – Order of Application of Rules

• Where more than one Rule is applicable for determining the place of provision of service, the same shall be determined in accordance with the Rule that occur later among the Rules that merit equal consideration


PoPS Rules

Way forward

Discussion

Background

Frame work

Contents


Queries and discussion


Discussion

Place of Provision of Service Rules & SEZ

•Location of SEZ well with in ‘taxable territory’ and hence services provided are taxable (Shobha Developers – 276 ELT 214)

•Exemption provided by Notification 40/2012 – ST; Services wholly consumed in SEZ for authorized operations of SEZ

•Taxability on sub-contractor – intermediary (Exemption only if received by SEZ unit / SEZ developer)

Impact on Cenvat credit – Whether reversal required – Rule 6 of CCR, 2004?

Rule 6(6A) as amended w.e.f. 1-7-2012 specifically provides that provisions of rules 6(1) to rule 6(4) shall not apply to;(a) services provided to SEZ unit or developer for their authorised operations, without

payment of service tax or (b) export of service.


Discussion

• Whether service tax liability is attracted when place of provision of service as determined by applying these rules is outside India?

•An Indian author has allowed an International Publisher in Germany to publish a book against some Royalty say 10% of Published Price against sale of Books in Foreign countries except India and the royalty in earned in Foreign currency.

Does it comes under the perview of service tax ? If so, whether it can be treated as export of service. (Intellectual property services)

•A hotel is tying up a worldwide marketing group (not having any permanent establishment in India) who are charging one time fee with the nomenclature of joining fee & Membership Fee and also some recurring charges in the name of maintenance / Quality Assurance Fee & marketing charges.

•Whether Service Tax is applicable on the same under reverse mechanism? (Promotion and marketing Service)

•We are the resident Co. of Nepal. Indian Co. provided us services for Repairing of Machinery at our Plant. Payment will be sent in Indian Rupees. (Repairs and Maintenance Services)


• Africa based Company is arranging series of seminars to ‘save tigers’ across world under contract with Animal Lovers Limited, Jaipur at various locations namely Jamaica, Gir, London, Singapore. What will be the place of provision?

• Indian company is procuring orders for supply of goods / machines from other Indian Companies for a foreign Company and earning commission from the foreign company in foreign currency. Would service tax be applicable on the commission earned by the Indian Company? (Business Auxiliary Service)

•When the Event management company of Malaysia is contracted by Red Chilli Entertainment to organize film fare awards at Pataya . what is place of provision of service?

•Whether banking services by SBI to a Bank of America bank is covered in Rule 9? (Lead banker or similar)

•Whether taxation services, international advisory assignment services provided online to US clients by an Indian tax consultancy firm is covered as online information and data base access and retrieval services in Rule 9 of POP Rules?

•Whether the design services to US company by Indian firm in relation to construction of a complex in Bangalore is liable to service tax in India?

Discussion


•What is place of provision of service in respect of coaching by Bangalore coaching academy to

US company employees provided in USA?

•What is place of provision of service when movie on demand is provided on board a flight from Mumbai to USA?

Discussion


Review business transactions

undertaken outside India

with establishments located outside India

in the State of J&K

with HO or BO

to determine place of provision

Make necessary changes in contract and other documentation

Identify points for clarification/ representation

Way Forward


Pre-Budget Memorandum by ICAI – Interim Budget

Sr. No. Particular Suggestion

1 IntermediaryServices under Placeof provision ofService Rules-Clarification willassist betterCompliances

It is suggested that the general rule of location of recipient of service be applied to intermediaries also and the exception be done away with.

It is suggested that the location of recipient of service in international trade be treated as the place of provision of service.

Clarification be issued to provide that the recipient of the service would be the person making payment for the service when the agent/broker brings together two parties of different taxable territories.


Pre-Budget Memorandum by ICAI – Interim Budget

Sr. No.

Particular Suggestion

2 Certification underPlace of ProvisionRules, 2012 in linewith income tax –overseas payments

It is suggested that a declaration and certification by a Chartered Accountant with respect to liability of service tax on payment made outside India be prescribed in service tax law in line with income-tax provisions. This could be verified by the bankers while effecting payment to overseas service provider.

The introduction of such a mechanism will safeguard the interest of revenue as also would simplify the procedural compliance for the assessee with regardto Place of Provision Rules, 2012 which is generally quite complex and may be missed out of ignorance or oversight.


THANK YOU CA Jigar ParikhE-mail – [email protected]

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although the endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.


Whether if place of provision of service is outside India as per Place of provision of Services Rules, is it considered as export of services?

(i) the provider of service is located in the taxable territory;(ii) the recipient of service is located outside India;(iii) the service is not a service specified in the section 66D of the Act (Negative List);(iv) the place of provision of the service is outside India;(v) the payment for such service has been received by the provider of service in convertible foreign exchange; and(vi) the provider of service and recipient of service are not merely establishment of a distinct person in accordance with item (b) of Explanation 2 of clause (44) of section 65B of the Act.

Export of Service

Documents

CA Jigar Parikh Partner K. G. Patel & Co. Chartered Accountants