Budget 2012- Service Tax Rule 9- Specified services- Place of provision is location of the service provider
1 . What are the specified services where the place of provision is the location of the 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) Telecommunication services provided to subscribers;
iii) Online information and database access or retrieval services;
iv) Intermediary services;
v) Service consisting of hiring of means of transport, up to a period of one month.
2. What is the meaning of “account holder”? Which accounts are not covered by this rule?
“Account” has been defined in the rules to mean an account which bears an interest to the depositor. Services provided to holders of demand deposits, term deposits, NRE (non-resident external) accounts and NRO (non-resident ordinary) accounts will be covered under this rule. Banking services provided to persons other than account holders will be covered under the main rule (Rule 3- location of receiver).
3. What are the services that are provided by a banking company to an account holder (holder of an account bearing interest to the depositor)?
Following are examples of services that are provided by a banking company or financial institution to an “account holder”, in the ordinary course of business:-
i) services linked to or requiring opening and operation of bank accounts such as lending, deposits, safe deposit locker etc;
ii) transfer of money including telegraphic transfer, mail transfer, electronic transfer etc.
4. What are the services that are not provided by a banking company or financial institution to an account holder, in the ordinary course of business, and will consequently be covered under another Rule?
Following are examples of services that are generally NOT provided by a banking company or financial institution to an account holder (holder of a deposit account bearing interest), in the ordinary course of business:-
i) financial leasing services including equipment leasing and hire-purchase;
ii) merchant banking services;
iii) Securities and foreign exchange (forex) broking, and purchase or sale of foreign currency, including money changing;
iv) asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services;
v) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy;
vi) banker to an issue service.
In the case of any service which does not qualify as a service provided to an account holder, the place of provision will be determined under the default rule i.e the Main Rule 3. Thus, it will be the location of the service receiver where it is known (ascertainable in the ordinary course of business), and the location of the service provider otherwise.
5. What is the place of provision of telecommunication services?
The place of provision of telecommunication services provided to subscribers is the location of the service provider. Thus, a provider of telecommunication services, who is located in India, will be liable to pay tax on any service provided to a subscriber. For services provided to persons other than subscribers e.g. telecommunication services provided to another provider of telecommunication services, the place of provision will be determined in terms of the main rule i.e. the location of the receiver, the obvious implication being that if such receiver is not located in the taxable territory, the service will not be taxable.
6. What are “Online information and database access or retrieval services”?
“Online information and database access or retrieval services” are services in relation to on-line information and database access or retrieval or both, in electronic form through computer network, in any manner. Thus, these services are essentially delivered over the internet or an electronic network which relies on the internet or similar network for their provision. The other important feature of these services is that they are completely automated, and require minimal human intervention.
Examples of such services are:-
i) online information generated automatically by software from specific data input by the customer, such as web-based services providing trade statistics, legal and financial data, matrimonial services, social networking sites;
ii) digitized content of books and other electronic publications, subscription of online newspapers and journals, online news, flight information and weather reports;
iii) Web-based services providing access or download of digital content.
The following services will not be treated as “online information and database access or retrieval services”:-
i) Sale or purchase of goods, articles etc over the internet;
ii) Telecommunication services provided over the internet, including fax, telephony, audio conferencing, and videoconferencing;
iii) A service which is rendered over the internet, such as an architectural drawing, or management consultancy through e-mail;
iv) Repair of software, or of hardware, through the internet, from a remote location;
v) Internet backbone services, and internet access services.
7 What are “Intermediary Services”?
An “intermediary” is a person who arranges or facilitates a supply of goods, or a provision of service, or both, between two persons, without material alteration or further processing. Thus, an intermediary is involved with two supplies at any one time:
i) the supply between the principal and the third party; and
ii) the supply of his own service (agency service) to his principal, for which a fee or commission is usually charged.
For the purpose of this rule, an intermediary in respect of goods (commission agent i.e a buying or selling agent) is excluded by definition.
In order to determine whether a person is acting as an intermediary or not, the following factors need to be considered:-
Nature and value: An intermediary cannot alter the nature or value of the service, the supply of which he facilitates on behalf of his principal, although the principal may authorize the intermediary to negotiate a different price. Also, the principal must know the exact value at which the service is supplied (or obtained) on his behalf, and any discounts that the intermediary obtains must be passed back to the principal.
Separation of value: The value of an intermediary’s service is invariably identifiable from the main supply of service that he is arranging. It can be based on an agreed percentage of the sale or purchase price. Generally, the amount charged by an agent from his principal is referred to as “commission”.
Identity and title: The service provided by the intermediary on behalf of the principal are clearly identifiable.
In accordance with the above guiding principles, services provided by the following persons will qualify as ‘intermediary services’:-
i) Travel Agent (any mode of travel)
ii) Tour Operator
iv) Commission agent [an agent for buying or selling of goods is excluded] v) Recovery Agent
Even in other cases, wherever a provider of any service acts as an agent for another person, as identified by the guiding principles outlined above, this rule will apply.
8 What is a service consisting of “hiring of means of transport”?
The services of providing a hire or lease, without the transfer of right to use (explained in Guidance Paper A- point 5.6) of any of the following will constitute a service consisting of hiring of means of transport:-
i) Land vehicles such as motorcars, buses, trucks;
iv) Vehicles designed specifically for the transport of sick or injured persons;
v) Mechanically or electronically propelled invalid carriages;
vi) Trailers, semi-trailers and railway wagons.
The following are not ‘means of transport’:-
i) Racing cars;
ii) Containers used to store or carry goods while being transported; iii) Dredgers, or the like.
9. What if I provide a service of hiring of a fleet of cars to a company on an annual contract? What will be place of provision of my service if my business establishment is located in New Delhi, and the company is located in Faridabad (Haryana)?
This Rule covers a situation where the hiring is for a period of upto one month. Since hiring period is more than one month, this sub-rule cannot be applied to the situation. The place of provision of your service will be determined in terms of the default rule i.e Rule 3 i.e. receiver location, which in this case is Faridabad (Haryana).