The new charging section, section 66B, enables taxation of only such services as are provided in taxable territory. Thus services that are provided in a non-taxable territory are not chargeable to service tax. Taxable territory has been defined in sub-section 52 of section 65B. It means the territory to which the provisions of Chapter V of the Finance Act, 1994 apply i.e. whole of India excluding the state of Jammu and Kashmir. “Non-taxable territory” is defined in sub-section 35 ibid accordingly as the territory other than the taxable territory.

Place of Provision of Service Rules have a lot of significance of “Location” of a Service Provider or Receiver for determining taxing jurisdiction it is because in terms of explanation (3) to sub-section 44 of section 65B, an establishment of a person outside the taxable territory is a person distinct from an establishment in a taxable territory. Thus, services provided from overseas are to be carefully judged whether they are being rendered by the establishment outside the taxable territory or within. It is also important because these rules will replace the ‘Export of Services, Rules, 2005’ and ‘Taxation of Services (Provided from outside India and received in India) Rules, 2006.The term “location” for a service provider or receiver (as the case may be) has been determined in Rules 2 (h) & (i). It shall mean to be as follow:

“a. where the service provider or receiver has obtained only one registration, whether centralised or otherwise, the premises for which such registration has been obtained;

 b. where the service provider or receiver is not covered by ‘a’ above: 

i. the location of his business establishment; or

ii. where services are provided or received at a place other than the business establishment i.e. a fixed establishment elsewhere, the location of such establishment;

iii. where services are provided or received at more than one establishment, whether business or fixed, the establishment most directly concerned with the provision or use of the service; and

iv. in the absence of such places, the usual place of residence of the service provider or receiver.”

However what’s more important in above definition is fixed establishment, due to which even service provided by a service provider having a business establishment in India can still be not taxable due to explanation 3 to definition of service, for eg. A company incorporated in India, provides its services entirely from Singapore via a fixed establishment from there. The location of this service provider is Singapore, being the place where the establishment most directly concerned with the supply is located.

In the given eg, though company is having a business establishment in India, but being having fixed establishment outside India from where services are normally provided, it will be treated as separate entity.

Term ‘fixed establishment’ shall mean to be a place (other than the business establishment) which has the permanent presence of human and technical resources to provide or receive a service. Temporary presence of a staff by way of a short visit at a place cannot be called a fixed establishment.

Now having understood the importance of “Place of Provision of Service Rules” and meaning of term ‘location’ let’s understood what each rule has to say in brief:

Rule 3: Place of provision generally: This is main rule or the default rule provides that a service shall be deemed to be provided where the receiver is located. Being this rule is default rule, is applicable when none of the remaining rules, being situation specific, are not applicable.

There’s a proviso to this rule according to which in case the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the provider of service.

Rule 4: Place of provision of performance based services: According to this rule, the place of provision of service for the two situations specified in this rule shall be shall be the place where the services are performed. Those two situations are:

i) Services that are related to goods, and which require such goods to be made available to the service provider so that the service can be rendered, are covered here. It will not cover services where the supply of goods by the receiver is not material to the rendering of the service e.g. where a consultancy report commissioned by a person is given on a pen drive belonging to the customer.

This sub rule is followed by two proviso, First proviso further clarifies the situation where service is provided form a remote location. It states that:

“Provided that where such services are provided from a remote location by way of electronic means, the place of provision shall be the location where goods are situated at the time of provision of service.”

Second proviso states the situation where this sub rule shall not apply, it says that:

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“Provided further that this sub-rule shall not apply in the case of a service provided in respect of goods that are temporarily imported into India for repairs, reconditioning or reengineering for re-export, subject to conditions as may be specified in this regard.

ii) the second situation covers the situation only when service is provided to an individual, which can be recipient itself or the person representing him. It shall be applicable when the recipient or the person representing him is required to be physically present with the provider of service for the provision of service.

Rule 5: Place of provision of services relating to immovable property: In the case of a service that is ‘directly in relation to immovable property’, the place of provision is where the immovable property (land or building) is located, irrespective of where the provider or receiver is located. Some eg. of services that are directly in relation to immovable property are: Renting of immovable property; Services of real estate agents, auctioneers, architects, engineers and similar experts or professional people; Legal services such as dealing with applications for planning permission etc.

The rule 5 of place of provision of services rule clearly states that this rule shall apply only to services which relate directly to specific sites of land or property. It does not apply if a supply of services has only an indirect connection with the immovable property, or if the service is only an incidental component of a more comprehensive supply of services. Thus in case of indirect connection, the default rule i.e. Rule 3 will apply.

Rule 6: Place of provision of services relating to events: Rule 6 provides place of provision of services provided in relation to an events shall be the place where the event is held. Such services shall include services provided by way of admission to, or organization of, a cultural, artistic, sporting, scientific, educational, entertainment event, or a celebration, conference, fair, exhibition, or any other similar event, and of services ancillary to such admission etc.

Note: A service of courier agency used for distribution of entry tickets for an event is a service that is not ancillary to admission to the event.

Rule 7: Place of provision of services provided at more than one location: This rule covers the situation where any of the service specified in any of the above rule i.e. 4, 5 or 6 is provided to a single service recipient at more than one location. According to this rule place of provision of such service shall be the place where the greatest portion of service, in taxable territory, is provided. This will apply notwithstanding the fact that the greatest proportion of service is outside the taxable territory. Thus for eg., Say, a service is carried out in Maharashtra (20%), Kerala (25 %), and an international location (say, Colombo 55%), place of provision will be the place in the taxable territory where the greatest proportion of service is provided, i.e. Kerala.

Rule 8: Place of provision of services where provider and recipient are located in taxable territory: This rule seems to be somewhat compensatory to rule Rule 3, but has its own special importance. This Rule covers situations where the place of provision of a service provided in the taxable territory may be determinable to be outside the taxable territory, in terms of the application of one of the earlier Rules i.e. Rule 4 to 6, but the service provider, as well as the service receiver, are located in the taxable territory.  The implication of this Rule is that in all such cases, the place of provision will be deemed to be in the taxable territory, notwithstanding the earlier rules.

Rule 9: Place of provision of specified services: According to this rule, place of provision of service, in the following specified services, shall be the place where the service provider is located:

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

     Term “account” has been defined in rule 2 to mean an account bearing interest to the depositor, and includes a non-resident external account and a non-resident ordinary account. Banking services provided to persons other than those covered in the definition of ‘account’ will be covered under the main rule, i.e. rule 3.

(b)  Online information and database access or retrieval services;

     Rule 2 define online information and database access or retrieval services as providing data or information, retrievable or otherwise, to any person, in electronic form through a computer network. 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.

(c)   Intermediary services;

     Term “intermediary” has been defined in rule 2 to mean a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service between two or more persons, but does not include a person who provides the main service on his account. Thus an intermediary in respect of goods (commission agent i.e. a buying or selling agent) is excluded by definition.

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

     The services of providing a hire or lease, without the transfer of right to use any means of transport will constitute a service consisting of hiring of means of transport. The term “means of transport” has been defined in rule 2 to mean any conveyance designed to transport goods or persons from one place to another. Thus 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.

     Also rule covers a situation where the hiring is for a period of up to one month. Incase hiring is for more than 1 month, default rule i.e. rule 3 will apply.

Rule 10: Place of provision of goods transportation services: This rule cover the services of transportation of goods, other than by way of mail or courier. Place of provision of a such service shall be the place of destination of goods, except in the case of services provided by a Goods Transportation Agency for transportation of goods by road, in which case the place of provision is the location of the person liable to pay tax (as determined in terms of rule 2(1) (d) of Service Tax Rules, 1994), as provided by proviso to this rule.

Rule 11: Place of provision of passenger transportation service: The place of provision of a passenger transportation service is the place where the passenger embarks on the conveyance for a continuous journey.

Continuous journey has been defined in rule 2 to mean 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 of the legs of the journey for which one or more separate tickets or invoices are issued.

Rule 12: Place of provision of services provided on board a conveyance: This rule defines the place of provision of services provided on board, which shall include, for eg., on board movie, software games on demand, beauty treatment etc. provided against a specific charge, and not supplied as part of the fare. The place of provision of such services shall be first scheduled point of departure of that conveyance for the journey.

Rule 13: Powers to notify description of services or circumstances for certain purposes: This rule serves two purposes:

     – it enables the central government to correct any injustice being met due to the applicability of these rule, leading either to double taxation of non taxation.

     – it is also an anti avoidance measure where the intent of the law is sought to be defeated through ingenious practices unknown to the ordinary ways of conducting business.

Rule 14: Order of application of rules: Rule 14 provides that where the provision of a service is, prima facie, determinable in terms of more than one rule, it shall be determined in accordance with the rule that occurs later among the rules that merit equal consideration.


Compiled by

Deepak Aggarwal

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