CA Vaibhav Sachdeva

CA Vaibhav SachdevaComparative Analysis of Place of Provision (POP) of Service Rules 2012 with Export of Service Rules 2005 and Taxation of Services (Provided from outside India and received in India) Rules, 2006.

As per the Notification No. 28/2012 – Service Tax dated 20th June, 2012 – Place of Provision of Services Rules, 2012 shall supersede Export of Service Rules 2005 and Taxation of Services (Provided from outside India and received in India) Rules, 2006 with effect from 1st day of July, 2012.

Following is the comparative analysis of new Place of Provision of Service Rules 2012 with the erstwhile Export and Import Rules:-

Taxation of Services (Provided from outside India and received in India) Rules, 2006

 

Export of Service Rules, 2005 Place of Provision of Service Rules, 2012

Rule 3(i) – Immovable Property Category

Following Services namely :-

 Architect Services

Auctioneer Services (In relation to Immovable Property)

Commercial and Industrial Construction Services

Construction of Complex Services

Dredging Services

Execution of Works Contract Service

General Insurance Business (In relation to Immovable Property)

Interior Decorator Services

Mandap Keeper’s Services

Mining Services

Real Estate Consultancy Services

Renting of Immovable Property Services

Site Formation and Clearance, Excavation and Earthmoving and Demolition Services

Survey and Map Making Services (other than Government ) (In relation to Immovable Property)

Rule 3(i) – Location of Immovable property situated in India.

As per Section 66A, service tax would be paid under reverse charge mechanism.

Rule 3(1)(i) – Location of Immovable property situated outside India, provided payment is received into India in Convertible Foreign Exchange as per Rule 3(2)(b).

No Service Tax, since exports.

Rule 5 – Location or proposed location of Immovable Property.However irrespective of the location of Immovable property, if both the parties are located in India, then Place of Provision would be India (Rule 8).

 

If falls in India and service provider is in Non Taxable territory then service tax would be paid under reverse charge mechanism as per Notification No. 30/2012.

If falls outside India and conditions of Rule 6A of Service Tax Rules are satisfied then no service tax.

Rule 3(ii) – Performance Based CategoryFollowing Services namely :-

Air Travel Agent Services

Airport Services

Authorised Service Station Services

Beauty Parlour Services

Business Exhibition Services

Cargo Handling Services

Cleaning Services

Clearing and Forwarding Agent Services

Commercial Training and Coaching Center Services

Commodity Exchange Services

Convention Services

Courier Agency Services

Credit Rating Agency Services

Custom House Agency Services

Dry Cleaning Services

Erection, Commission and Installation Agency Services

Event Management Services

Fashion Designing Services

Forward Contract Services

Health Club and Fitness Center Services

Internet Café Services

Maintenance or Repair Services

Market Research Agency Services

Opinion Poll Agency Services

Outdoor Caterer Services

Packaging Services

Pandal or Shamiana Contractor Services

Photography Services

Port (authorised ports) Services

Port (other than authorised ports) Services

Processing and Clearing house Services

Rent-a-cab Scheme Operator Services

Security Agency Services

Services provided by clubs or associations

Sound Recording Services

Steamer Agent Services

Stock  Broker Services

Storage and Warehousing Services

Survey and Exploration of Mineral Services

Technical Inspection and Certification Services

Technical Testing and Analysis Services

Tour Operator Services

Goods Transport Agency Services

Transport of goods by Aircraft Services

Transport of goods in Containers by Rail Services

Travel Agent Service

Underwriter Services

Video-tape Production Services

Stock Exchange Services

Rule 3(ii) – Location of service performed in India.

Part performance in India shall be treated as performed in India.

 

As per Section 66A, service tax would be paid under reverse charge mechanism.

Rule 3(ii) – Location of service performed outside India, provided payment is received into India in Convertible Foreign Exchange as per Rule 3(2)(b).

Part performance outside India shall be treated as performed outside India.

 

No Service Tax, since exports.

Rule 4 – Location where the services are actually performed.

If partly performed in India and partly outside India, then shall be treated as performed in India (Rule 7).

 

However in case of Goods Transport Services Rule 10 shall apply, in case of Event Management Service Rule 7 shall apply and in case of Rent A Cab rule 9 shall apply, since the later rules.

 

If place of provision falls in India and service provider is in Non Taxable territory then service tax would be paid under reverse charge mechanism as per Notification No. 30/2012.

 

If falls outside India and conditions of Rule 6A of Service Tax Rules are satisfied then no service tax.

Rule 3(iii) – Residuary CategoryFollowing Services namely :-

Advertisement Agency Services

Asset Management Services

Auctioneer Services (other than relating to Immovable Property)

Automated Teller Machine Services

Banking & Other Financial Services

Broadcasting Services

Business Auxiliary Services

Business Support Services

Cable Operator Services

Chartered Accountant’s Services

Company Secretary’s Services

Consulting Engineer Services

Cost Accountant’s Services

Credit Card and other Payment Card Services

Design Services

Development and Supply of Content Services

Foreign exchange Broker Services

Franchise Services

General Insurance Business (other than relating to Immoveable Property)

Information Technology Software Services

Insurance auxiliary services in relation to General Insurance

Insurance auxiliary services relating to Life Insurance

Intellectual Property Services

Internet Telecommunication Services

Life Insurance Services

Mailing List Compilation and Mailing Services

Management Consultancy Services

Manpower recruitment and supply agency

On-line Information or Database Access or Retrieval Services

Programme Production Services ( Radio and Television )

Public Relations Services

Rail Travel Agent Services

Recovery Agent Services

Registrar to an Issue Services

Sale of Space or Time for Advertisement Services

Scientific and Technical Consultancy Services

Share Transfer Agent Services

Ship Management Services

Sponsorship Services

Supply of Tangible Goods for use Service

Survey and Map-making  Services (other than relating to Immovable Property)

Telecommunication Services

Transport of goods (other than water) through Pipeline or other Conduit Services

ULIP Investment Management Services

Rule 3 (iii) – Location of the recipient located in India for use in relation to business or commerce.

As per Section 66A, service tax would be paid under reverse charge mechanism.

Rule 3 (1)(iii) – Location of the recipient located outside India when in relation to business or commerce, if provided otherwise then location of the recipient outside India at the time of provision of such service, provided payment is received into India in Convertible Foreign Exchange as per Rule 3(2)(b).

No Service Tax, since exports.

 

Rule 3 – Location of the recipient of service, if not available in ordinary course of business then location of the service provider.

However in case of Banking & Other Financial Services and On-Line Information or Database Access or Retrieval Services rule 9 shall apply and in case of Transport of goods (other than water) through Pipeline or other Conduit Services rule 10 shall apply, since the later rules.

 

If place of provision falls in India and service provider is in Non Taxable territory then service tax would be paid under reverse charge mechanism as per Notification No. 30/2012.

 

If falls outside India and conditions of Rule 6A of Service Tax Rules are satisfied then no service tax.

 Major Implications

Note 1:-

Since Section 66A has been made inapplicable with effect from 1st July 2012, hence exemption to Individuals for importing services for personal use will no longer be applicable. Also the exemption limit of Rs. 10 Lacs is not applicable under reverse charge mechanism. So this could end up in bringing a large number of individuals under the service tax net.

Note 2:-

Another basic departure from the erstwhile Export of Services rules is that in new Place of Provision of Services Rules Service Recipient has to be outside India for services to be classified as Exports under Rule 6A of Service Tax Rules 1994, however in the Export of Services rules there was no such condition in case of Performance based category services and Immovable based category services to qualify as an Export. This condition of Service Recipient being outside India restricts the scope of services qualifying as an Export.

Note 3:-

Definition of Intermediary Services as per Rule 2(f) –

“intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the ‘main’ service) between two or more persons; but does not include a person who provides the main service on his account.

Now the basic impact of above change in the new rules would be whether Subsidiaries of companies having a global presence is whether creating awareness, developing the Indian market and promoting the business which is service related of their parent company in India as well as providing after sale services on their behalf would qualify as intermediary services or not.

The definition of intermediary specifically excludes a person who provides the main service on his own account. In the present case providing marketing related support services is the main service which the Indian company provides on its own account;

Further, as per the Guidance Note, 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

Additionally, the Guidance Note states that the intermediary or the agent must have documentary evidence authorizing him to act on behalf of the provider of the main service.

The Guidance Note also clarifies that even in case of call centers who provide services to their clients by dealing with the customers of the client on the client’s behalf, but actually provide the said services on their own account, will not be categorized as intermediaries.

It has been further stated in the Guidance Note, that the services of travel agent (any mode of travel), tour operator, commission agent (an agent for buying or selling of goods is excluded), recovery agent fall within the ambit of intermediary services.

By this it can be construed that the services provided by an India company does not fall within the class of persons providing the aforementioned description of services.

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0 responses to “POP Service Rules 2012 Vs. Export Service Rules & Rules of Tax on of Services Provided from outside India”

  1. Sambhav Jain says:

    Very nicely put ..
    Good value addition for me ..
    Thanks ..

  2. Amit Vora says:

    Hi,

    I’ve some confusion regarding this.
    Was wondering if you can help.

    I’m a Software Consultant in India and provide consulting services to my clients in US. My clients don’t have any branch in India and they pay me monthly in USD.

    My income is Rs 12 Lacs/year. Am I liable to pay service tax or do I get exemption.

    Thanks.

  3. Deepak K says:

    An Indian arm of an MNC Pharma Co imports the branded goods of a foreign company and sells in India as per the MRP. In addition to sale price, it recovers the reimbursement of expenses in convertible foreign exchange. Whether these reimbursement would be deemed to be handling charges in respect of goods sold and thus can attract the vires of Rule 4(a) of PPS Rules 2012 as materials have been handled in India?

  4. Rashi Khandelwal says:

    Very nicely put ..
    Good value addition for me ..
    Thanks ..

  5. Vaibhav Sachdeva says:

    It has been specifically mentioned that on online information and data access or retrieval service Rule 9 shall apply.

  6. sudarshan says:

    online information and data access is a specified service under Rule 9, where PPS is location of Service Provider and not as per rule 3. I request the author to clarify this.

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