CA Rishabh Singhvi
The negative list of taxing services has hailed complexities in determination of the jurisdiction of the statute for taxation of services. The emphasis for taxing services is on the provision of services in the taxable territory. However, due to the inherent nature of service arrangements, it is not easy to determine the place where services have been provided. The components of a service transaction, being the place of performance, delivery and actual consumption could all be at different locations and pose challenges in determining the place of provision of service for determining the jurisdiction of the service tax law.
Section 66B of Finance Act, 1994 levies service tax on value of all services provided or agreed to be provided in the taxable territory by one person to another. Section 66C grants powers to the Central Government to frame rules to determine the place where the services are provided or deemed to be provided, etc .
The Central Government in accordance with the powers granted by section 66C of the Finance Act 1994 has notified the Place of Provision of Service Rules, 2012 vide Notification 28/2012 – Service Tax dated 20.06.2012. These rules cannot be invalided merely on the basis that the service provider and service recipient are located outside the taxable territory.
Place of Provision of Service Rules, 2012 (PPS Rules)
The PPS Rules are effective 01.07.2012 under the negative list regime. The PPS rules supersedes the Export of Services Rules (Notification 9/2005 dated 03.03.2005) and the Import of Services Rules (Taxation of Services [Provided from Outside India and Received in India] Rules, 2006) dated 19.05.2006. The important provisions of the rules have been discussed chronologically in the article.
Note – The latter rules have superiority over the former rules when determining the place of provision of service (Rule 13).
Rule 2 – Key Definitions
‘Location of service recipient’ – Rule 2(i) defines location of service recipient to be registered premises of the service recipient. However, where the service recipient has not obtained a service tax registration or a decentralized registration has been obtained by exercising the option under Rule 4 of service tax rules, the location of service recipient would be determined as follows:
- Location of business establishment, or
- Where service is used at a place other than business establishment (ie fixed establishment), the location of fixed establishment
- Where services are used at more than one establishment, the establishment most directly concerned with the use of the service
- In the absence of the above, at the usual place of residence
‘Location of service provider’ – Rule 2(h) defines location of service provider in similar lines to that of the service recipient except that the emphasis is on the place from where the services are provided rather than its use.
Rule 3 – General Rule
Rule 3 lays down the general rule that the location of the service recipient would be considered as the place of provision of service. However, where the location of the service recipient is not available in the ordinary course of business, the place provision would be the location of service provider. Rule 3 is a residuary rule and is applicable to a transaction which not covered by the subsequent rules.
Rule 4 – Place of Performance – Where presence of goods/ individual is essential
Rule 4(a) states that in cases where the physical presence of goods is essential in providing the services, the place of provision of service would be the place of actual performance of the service. Under this rule, actual performance of service would be the driving force rather than the place of delivery or consumption of service. As an exception, where services have been provided from a remote location by electronic means, the location of the goods at the time of provision of service would be considered as the place of provision. In effect, the location of goods would determine the performance and hence its place of provision.
Rule 4(b) which relates to individuals also operates on similar lines and the place of actual performance determines the place of provision of service.
Typically, services in the nature of warehousing, transportation, repair, maintenance, testing, health care, education, etc would qualify under this rule.
Rule 5 – Location of immovable property where service in relation to immovable property
Place of provision for services in relation to immovable property would determined based on the location of immovable property. Services in relation to a proposed immovable property would be also determined based on the intended location. The essential condition of the service is that the service should be in relation to an ‘immovable property’ and not goods/ individual.
Typically, services in the nature of renting, construction, interior decoration, hotels, guest house facility would be covered under this rule.
Rule 6 – Location of event – Services in relation to admission or organization of specified events, conferences, etc
Place of provision for following services would be the place where the event, conference etc is actually held:
(a) Services in relation to admission or ancilliary to admission of the event
(b) Services in relation to organization of event
Typically, services in the nature of hiring equipments, sale of tickets (except entertainment event which are in negative list), catering services, etc would be covered under this rule.
Rule 7 – Part performance of service in taxable territory as well as in non-taxable territory
Where any service in respect of which rule 4, 5 or 6 apply is provided at more than one location including the location of taxable territory, the place of provision of service would be the location of taxable territory where the greatest proportion of service is provided. Hence, where services are partly performed in taxable territory and non-taxable territory, the complete service would be deemed to be performed in the taxable territory irrespective of the proportion of service performed in non-taxable territory.
Rule 8 – Location of service receiver and provider in taxable territory
Where the service receiver and service provider are located in the taxable territory, the provision of service would be the location of service receiver irrespective of where the service is performed, delivered or consumed.
Rule 9 – Place of provision of specified services
Place of provision for specified services (ie services of banking or financial institution to account holders, online information and database access or retrieval services, intermediary services and services of hiring means of transport upto period of one month) would be location of service provider.
Intermediary refers to agents, brokers or any person who facilitates the provision of the main service and would not include the person who provides the main service on his account.
Rule 10 – Goods transportation service
Place of provision for transportation of goods other than by mail or courier would be the destination of the goods. In case of services of goods transport agency to which the reverse charge mechanism applies, the location of the person liable to tax would be the place of provision.
Rule 11 & 12 – Passenger transportation service and services on board the conveyance.
Place of provision for passenger transportation service is the place where the passenger embarks for continuous journey. Further, the place of provision in case of services wholly consumed on board the conveyance would be the first scheduled point of departure of the conveyance.
It can be observed that the Place of Provision of Service Rules aims to reinforce the consumption based destination tax principle of the service tax law.
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