CA Vaibhav Sachdeva
Comparative 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:-
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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 | |
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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.
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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.
Very nicely put ..
Good value addition for me ..
Thanks ..
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.
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?
Very nicely put ..
Good value addition for me ..
Thanks ..
It has been specifically mentioned that on online information and data access or retrieval service Rule 9 shall apply.
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.