Place of Provisioning of Services Rules, 2012 (POPS Rules, 2012)

CA Heena Gupta

Place of Provisioning of Services Rules, 2012 (POPS Rules, 2012)

Applicable from 01.07.2012, Section 66B of the Finance Act, 1994 provides that service tax shall be leviable on the value of service provided or agreed to be provided by one person to another within taxable territory. Thus, only services rendered in taxable territory is taxable. Hence, it is essential to determine the place where the services are provided or agreed to be provided.

Empowered by section 66C of the Finance Act, 1994, the Central Government has notified Place of provision of Services Rules, 2012 vide Notification No. 28/2012.

Rule 1 provides that these rules shall come into force on 01.07.2012.

Rule 2 provides definitions which are discussed at relevant places.

Rule 3:- Place of provision generally

• Generally the place of provisioning of services is the location of service recipient.
• It is the default rule. Rule 4 to 12 provides specific provisions for specified services. Where the service gets covered under rule 4 to 12, the provisions mentioned under rule 4 to 12 shall apply. In all other cases, this rule shall apply.
• This rule further provides that in case location of service recipient is not available in ordinary course of business, place of provisioning of services shall be the location of service provider.

Following other things should be kept in mind while applying this rule:

–  Determining location of Service Recipient (Rule 2(i) of Place of Provisioning of Services Rules, 2012)

Where service recipient has single registration	Location of premises which is registered
Where service recipient not covered above:
Service recipient has a business establishment	Location of such business establishment
Service recipient has fixed establishment other than business establishment, where services are used	Location of such fixed establishment
Where services are used at more than one establishment	Location of establishment which is most directly related to use of service.
Absence of such places	The usual place of residence of service recipient

Similar rules are prescribed for determination of location of service provider under rule 2(h) of the POPS rules, 2012.

– Meaning of Ordinary course of business

It implies that the service provider need not make any extra efforts to determine the address of service recipient if in the normal course of business such address is not being obtained.

– Business Establishment

1. Place where essential decisions regarding general management are adopted

2. Place where administrative functions of business are carried out.

3. Any organization can have only one business establishment.

4. It can be head office or factory or workshop.

– Fixed Establishment

1. Place which has permanent presence of human and technical resources to provide or receive a service.

– Meaning of usual place of residence

In case of body corporate	The place where it is incorporated/legally constituted
In case of individual	The place where the individual spent most of his time during the period in question.

 Rule 4:- Place of provision of performance based services

The place of provision of following services shall be the location where the services are actually performed:

(a) Services in respect of goods that are required to be made physically available by the service recipient to the service provider, or to a person acting on behalf of service provider, for the provision of services.

(b) Services provided to an individual, either service recipient or a person acting on behalf of service recipient, which requires the physical presence of individual and the service provider at the time of performance of services.

• It is provided that in cases of services are provided from a remote location by way of electronic means, the place of provision of service shall be the location where the goods are situated at the time of provision of service(1^st Proviso to rule 4(a)).

Example: An IT firm located in Bangalore provides repair service in respect of software, to a company at its establishment in Malaysia by way of electronic means, the place of provision of service shall be Malaysia.

• It is further provided that provisions contained in rule 4(a) shall not apply to in respect of goods that are temporarily imported in India for repairs, reconditioning or re-engineering for re- export, subject to conditions as may be specified(2^nd Proviso to Rule 4(a)).
• Examples of services provided in respect of goods are repairing, reconditioning, storage and warehousing, courier services, cargo handling services, etc.
• Examples of services provided to individual are cosmetic services, personal security service, health and fitness services, photography services, classroom teaching services, etc.

Rule 5:- Place of provision of services relating to immovable property

• The place of provision of services directly in relation to an immovable property shall be the place where the immovable property is located or intended to be located.
• Following services provided with regard to specific immovable property will be considered as services directly related to immovable property:

(a)  Services provided by experts and estate agents

(b) Provision of hotel accommodation by a hotel, inn, guest house, club or campsite by whatever name called,

(c)  Grant of rights to use immovable property i.e. renting

(d)Services for carrying out or co-ordination of construction work, including Architects or Interior decorators.

• Some examples of services which are not related with immovable property:

(a)  Advice or information relating to land prices or property markets because they do not relate to specific sites.

(b) Services of a tax return preparer for making a return by using figures provided by a person in respect of rental income from immovable property as this service is not directly related to the immovable property.

(c)  Repair and maintenance of machinery which is not permanently installed. This is a service related to goods.

Rule 6:- Place of provision of services relating to events

• It provides that in case of admission to, or organization of an event, the place of provisioning shall be the place where the event is actually held.
• The events covered by the rule are cultural, artistic, sporting, scientific, educational, entertainment event, celebration, conference, fair, exhibition or similar events. The list is very exhaustive and would cover all types of events which can be possibly held.
• This rule can be divided as:

(a)  Services by way of admission to an event

(b) Services by way of organization of an event

(c)  Services ancillary to admission to such event

• It may be noted here that the service by way of admission to an entertainment event is exempt from service tax as mentioned u/s 66D i.e. negative list. Services of admission to all other events are very much taxable.
• “Organization” includes preparation of place for holding of an event, arrangement of facilities, etc.
• Ancillary Services to admission includes services which are obtained to enjoy the event. E.g. person hiring binocular to view horse racing.
  

Rule 7:- Place of provision of services provided at more than one location

• This rule is applicable where service in question is covered under rule 4, 5 and 6 and is provided at more than one location, including a location in taxable territory.
• In such cases, the place of provision of services shall be the location of taxable territory where the greatest proportion of service is provided. This is applicable even if a part of service is rendered in taxable territory. Service tax would be payable on the entire value of service provided. Example:

A coaching institute organizes a study tour to UK, US and India for its students. The study tour is for 10 days out of which 7 days are spent in UK and US. As per this rule, the place of provision of service would be India.

• However this rule is not intended to capture insignificant portion of service rendered in any part of taxable territory like mere issue of invoice, which is not service actually performed.
  

Rule 8:- Place of provision of services where provider and recipient are located in taxable territory

• The place of provision of service would be the location of service recipient where service recipient and provider both are located in taxable territory.
• This rule will override rule 3, 4, 5 and 6. Since if place of provision of a service falls under both rule 3,4,5 or 6 and rule 8, then rule 8 shall apply due to the application of rule 14. Rule 8 will not override rule 9, 10, 11 or 12.

Rule 9:- Place of provision of specified services

• The place of provision of following services shall be the location of service provider:

(a)  Services provided by a Banking company, or a Financial Institution or a Non- Banking Financial company, to account holders

• Rule 2(b) defines “Account” to mean an account which bears an interest to the depositor, and includes a non-resident external account and a non-resident ordinary account.
• Banking services provided to persons other than accountholders are not covered under this rule. E.g. place of provision of service of making DD for non-account holders would be as per rule 3.
• Place of provision of services to current accountholders are not covered here; they shall be covered under default rule 3.
• Further services to accountholders which bear interest can be categorized as follows:

Services that are provided in the ordinary course of business	Services that are not provided in the ordinary course of business
POPS – As per Rule 9	POPS – As per Rule 3

 (b)Online information and database access or retrieval services

Rule 2(l) defines ‘online information & database access/retrieval services’ to mean providing data or information, retrievable or    otherwise, to any person, in electronic form through a computer network e.g. web based services like matrimony services, social   networking sites, online subscription of newspapers, weather reports, etc.

Following are not covered:

1. Sale/purchase of goods etc. over the internet

2. Telecommunication services provided over the internet including fax, audio conferencing, video conferencing and telephony

3. A service which is rendered over the internet, such as architectural drawing or management consultancy through email

4. Repair of software, or of hardware, through the internet, from a remote location

 (c)  Intermediary services

 – Rule 2(f) defines ‘intermediary services’ to mean a broker, any 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(it doesn’t include a person who provides service on his own account).

– Thus an intermediary is involved with two supplies at any time:

1. The supply between the principal and the third party, and

2. The supply of his own service (agency service) to his principal, for which a fee or commission is usually charged.

– Example : Travel agents and commission agents for services but not commission agents for goods

– This rule does not apply to the provider of main service.

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

– Rule 2(j) defines ‘means of transport’ to mean any conveyance designed to transport goods or persons from one place to another.

– Racing cars and containers are not means of transport.

– Example: A call centre of MNC(Haryana) has hired 20 Tata Sumos from Mr. A(Delhi) for a period of one month

POPS – Rule 9 shall be applicable, hence POPS shall be Delhi

If period of hire is more than one month

POPS – Rule 3 shall be applicable, hence POPS shall be Haryana

Rule 10:- Place of provision of Goods Transportation Services

• This rule is applicable for services of transportation of goods by any means of transport (Aircraft, rail, vessel, road)including services of Goods Transport Agency (Service of transportation of goods by road)

Excluding service by mail or courier

• POPS of GTA service shall be the location of person liable to pay service tax. It may be noted here that in case of service by GTA, the person liable to pay tax is the person who pays to the transporter for transportation of goods. The obligation to pay to GTA shall arise from the contract entered into between the consignor and consignee.
• POPS for Goods transportation services other than GTA shall be the destination of goods.

Example 1

Mr. X (Chennai) imported goods to Mr. Y (USA). Services of shipping company (USA) taken by Mr. X for bringing the goods to Gujarat Port. Here SP is Shipping Company (Outside Taxable Territory) and SR is Mr. X (Within Taxable Territory). Applying Rule 10, POPS shall be destination of goods i.e. Gujarat.

Example 2

ABC, a GTA located in Delhi, transports a consignment of new motorcycles from the factory of XYZ Ltd.(Haryana), to the premises of Mr. A, a dealer of J&K. As per mutually agreed terms between ABC and XYZ, the dealer in J&K shall pay freight.

SP is ABC located in Delhi, SR is Mr. A located in J&K

Since Mr. A is not one of the specified categories of person as mentioned u/s 68(2), reverse charge mechanism is not applicable and hence the person liable to pay service tax is ABC, GTA.

Therefore POPS shall be location of ABC i.e. Delhi.

Rule 11:- Place of Provision of Passenger Transportation Service

• The POP of services of passenger transportation service shall be the place where the passenger embarks on the conveyance for a continuous journey.
• This rule is applicable for service of passenger transportation by all modes, be it road, rail, air or sea.
• Rule 2(d) provides definition of continuous journey as follows:

It means a journey for which

–       A single or more than one ticket or invoice is issued at the same time, either

ü By one service provider or

ü 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 2(g) provides the definition of leg of journey as follows:

It means a part of the journey that

– Begins where passengers embark or disembark the conveyance,or

Where it is stopped to allow for its servicing or refueling, and

– Ends where it is next stopped for any of those purposes;

• CBEC Education Guide provides the meaning of stopover as follows:

It means a place where a passenger can disembark either to transfer to another conveyance or break his journey for a certain period in order to resume it at a later point of time.

All stopovers do not cause a break in continuous journey. Only such stopovers will be relevant for which one or more separate tickets are issued.

Rule 12:- Place of Provision of Service provided on board a conveyance

• The POP of service in respect of services provided on Board conveyance during the course of passenger transportation shall be the first scheduled point of departure of the conveyance.
• Examples are on-board service of movies/music/video/games on demand, beauty treatment, etc.
• The conveyance for passenger transportation can be bus, train, aircraft, truck, vessel, etc.
• In case value of service is included in the fare for transportation of passenger as a trade practice, it will be considered as naturally bundled service u/s 66F and therefore it shall be taxable for service which provides the essential character of service. In this case, essential character is transportation of passengers and hence on board service will not be considered as separate service at all.
• The on-board service shall be taxable only when value of service is not included in the fare for transportation of passengers.

Example:

A video game or a movie-on-demand is provided as on-board entertainment during the Kolkata-Delhi leg of a Bangkok-Kolkata-Delhi flight.

As per Rule 12, POPS = First Scheduled point of journey= Bangkok (Outside Taxable Territory)- Service tax not leviable

Rule 13:- Power to notify description of services or circumstances for certain purposes

• The CG has been empowered to notify any description of service or any circumstances in which the place of provision shall be the place of effective use and enjoyment of a service.
• This power is basically to enable the CG to issue notifications to avoid the hardship to any service provider which can be caused because of place of provision of service rule.
• At present, no service has been notified.

Rule 14:- Order of Application of Rules

• As per this rule, where the POP is determinable under more than one rule, the rule that occurs later among the rules that merit equal consideration will be applicable for determination of POPS.

Example

An architect based in Mumbai provides his service to an Indian Hotel Chain (which has business establishment in New Delhi) for its newly acquired property in Dubai.

Service Provider	Service Receiver
Architect(Mumbai)	Hotel Chain(Delhi)
Within Taxable territory	Within Taxable territory

Two Rules equally apply here:

Rule 5: POPS- Location of Immovable property- Outside Taxable territory- No Service tax

Rule 8: POPS- Location of Service Receiver- within Taxable territory- Service tax leviable

As per Rule 14, POPS shall be as per rule 8, i.e. Delhi (within taxable territory)

(Author can be reached at caheenagupta @ gmail.com)