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Place of Provision of Service Rules, 2012 An Overview

The new law of service tax which, for the first time, defined service, including the declared service, as any activity carried out by a person for another for consideration, has brought in several new legal concepts for the purpose of the taxing statute. One such concept is the dissemination of the concept of the Place of Provision of Service. In terms of Section 66C of the Act, the Place of Provision of Service Rules, 2012 (the PoPSR) have been issued vide Notification No. 28/2012-ST dated 20-06-2012 and with this the earlier Export of Service Rules, 2005 and the Taxation of Services (Provided From Outside India and Received in India) Rules, 2006 have been repealed. The PoPSR specifies the manner of determination of the place where a service shall be deemed to be provided in terms of Section 66C of the Finance Act, 2012 read with Section 94 (hhh) of the Act. Read on to get an insight into the concept
Introduction The law of service tax has undergone a paradigm shift from the system of taxing specified services to the system based on the concept of Negative List. Under the new system effective from 01-07-2012, all services except those specified in the Negative List and services exempted under the Mega Notification No. 25/2012-ST, dated 20-06-2012 are liable to service tax in addition to the Declared Services as specified under Section 66E read with 65B(44) of the Finance Act,1994 (the Act). The new law of service tax which, for the first time, defined service, including the declared service, as any activity carried out by a person for another for consideration, has brought in several new legal concepts for the purpose of the taxing statute. One such concept is the dissemination of the concept of the Place of Provision of Service. In terms of Section 66C of the Act, the Place of Provision of Service Rules, 2012 (the PoPSR) have been issued

CA. Pulak Saha

(The author is a member of the Institute. He can be reached at pulak64@gmail.com)

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directly concerned with the provision or use of the service; and (iv) in absence of such places, the usual place of residence of the service provider or receiver. It is important to note that in the case of a service receiver, the place relevant for determining the location is the place where the service is used or consumed. For proper understanding of the terms business establishment, fixed establishment, establishment most directly concerned with the supply one has to refer to the departmental guidance note where such terms have been explained at length. Determination of location can be illustrated by way of the following flow chart:

vide Notification No. 28/2012-ST dated 20-06-2012 and with this the earlier Export of Service Rules, 2005 and the Taxation of Services (Provided From Outside India and Received in India) Rules, 2006 have been repealed. The PoPSR specifies the manner of determination of the place where a service shall be deemed to be provided in terms of Section 66C of the Finance Act, 2012 read with Section 94 (hhh) of the Act. Section 66B of the Act provides inter alia that a service is taxable only when it is provided or agreed to be provided in the taxable territory and thereby brings into play the place of provision of service. The PoPSR is based on the fundamental concept that as indirect tax, service tax is a consumption based tax which is taxable in the jurisdiction of its place of consumption. Taxable territory is defined to include India excluding J&K; whereas non-taxable territory is defined as the territory other than taxable territory. Analysis of the Rules Under the new enactment, the incidence of taxation is very much dependent on the determination of the location of the service provider and service receiver. In that, one has to enquire sequentially: A. the premises for which registration, whether centralised or otherwise, has been obtained by the service provider and receiver; 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

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For the purpose of the PoPSR, Rule 2 thereof defines some important terms like continuous journey, intermediary, leg of journey, location of the service provider, location of the service receiver, means of transport, banking company, non-banking financial company, online information and database access or retrieval services, telecommunication service etc. Of all the definitions, the definitions of location of the service provider and location of the service receiver are most important and bring in the concept of usual place of residence in case of a body corporate, business establishment, fixed establishment and establishment most directly concerned with the provision of service.

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According to Rule 3 of the PoPSR, the general rule is that the place of provision of a service shall be the location of the recipient of service; in absence of which and subject to rules 4 to 12 of the PoPSR, the place of provision of service shall be the location of the service provider. Summing up, it is the provider of service who is normally liable to pay the tax except where he is stationed outside the taxable territory and the place of provision is in the taxable territory. However, if the provider of service is stationed outside the taxable territory, it is the receiver of service in the taxable territory who will be liable. This is illustrated below:

Applicability of the PoPSR Rules is tabulated below:

Rule of the PoPSR Rule 4 Applicable to Summary of the Rule specified performance Covers services provided in respect of goods that are required to based services be made physically available to the provider of service or his agent by the recipient of service, services requiring physical presence of the receiver of service, being an individual or his agent, services provided electronically from a remote location. But does not cover services in respect of goods that are temporarily imported in India for repairs, reconditioning or reengineering for re-export subject to conditions to be specified. Place of provision is the place where the services are actually performed. services relating to Covers services provided directly in relation to immovable property immovable property including services provided by experts and estate agents, provision of hotel accommodation by a hotel, inn guest house, club by whatever name called and includes grant of right to use immovable property, service for carrying out or co-ordination of construction work, including services by architects or interior decorators. Place of provision is the place where the immovable property is situated or intended to be located.

Rule 5

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Applicable to services relating to events Summary of the Rule Covers services relating to events by way of admission to or organisation of a cultural, artistic, sporting, scientific, educational or entertainment event or a celebration, conference, fair, exhibition or similar events and of services ancillary to such admission. Place of provision is the place where the event is actually held. Where any service referred to in Rules 4, 5 or 6 of the PoPSR is provided at more than one location, including a location in the taxable territory, the place of provision shall be the taxable territory where the greatest proportion of the service is provided. Place of provision of service shall be the location of the recipient of service.

Rule of the PoPSR Rule 6

Rule 7

Services covered by Rules 4, 5 or 6 of the PoPSR provided at more than one location where the provider and recipient of service are located in taxable territory certain specified services

Rule 8

Rule 9

The rule covers services by a banking company or a financial institution or a NBFC to account holders; online information and database access or retrieval services, intermediary services and service consisting of hiring of means of transport up to one month. Place of provision of service shall be the location of the service provider. Place of provision of service shall be the destination of the goods except in case of a goods transportation agency service where the place of provision shall be the location of the person liable to pay tax. Place of provision of service shall be the place where the passenger embarks on the conveyance for a continuous journey. Covers all services on board a passenger transport conveyance. Place of provision of service shall be the first scheduled point of departure of that conveyance for the journey.

Rule 10

goods transportation services other than service by mail or courier. passenger transportation service service provided on board a conveyance

Rule 11 Rule 12

As a protective measure, Rule 14 of the PoPSR provides that where the provision of a service is prima facie determinable in terms of more than one of the above rules deserving equal consideration, the place of provision of service shall be determined in accordance with the rule that occurs later among the applicable rules. Conclusion The PoPSR, apart from its general applicability in the determination of the jurisdiction of the taxability of a service may be found to be useful for service provider operating from multiple locations within India and also for those engaged in cross border services and services in relation to SEZ. The PoPSR are not

stand alone rules and have to be read in harmony with relevant statutory provisions; for example Rule 6 covers services relating to events by way of admission to entertainment event whereas the Negative List of services under Section 66D includes under clause (j) admission to entertainment events or access to amusement facilities. Therefore, application of this rule would demand very careful analysis of the facts and legal provisions by the tax payer. On the other hand, its undesirable use by the revenue cannot be ruled out also.
Note: The assessees wishing to claim any benefit under the new rules whether, or not, available earlier may be advised to seek written confirmation from the revenue.

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