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[Service Tax : Levy of Service Tax]

CHARGE OF SERVICE TAX: BASICS 1.

Who has the power to levy Service Tax ---- Union or States? Discuss. Or From which entry of the Union List of the Constitution, does the Authority to levy service tax arise?

[ICAI RTP, NOV 2003]

[ICAI RTP, NOV 2005] Union Government (i.e., Central Government) has power to levy Service Tax. This power is derived from Entry No. 97 (Residuary Entry) of the Union List. While the States have authority to levy “professional tax” in terms of Entry No. 60 of the State List, they don’t have authority to levy “service tax” as the two are quite different and independent levies. Since there exists no entry either under the “State List” or under the “concurrent List” which could possibly be referred to for the purpose of levying Service Tax, Union has power to levy Service Tax under Entry No. 97 of “Union List”. Tutorial Note: Though a new specific entry “Entry No 92-C” has been inserted in the Union List to cover up specific power to levy service tax, but that entry is still lying dormant and has not been given force of law at present

SERVICE 2.

Mention briefly the specific exclusions from definition of the term 'service' given in Section 65 B (44) of the Act. (Nov 2013- 6 Marks) Sec 65-B(44) defines ‘service’ to mean any activity carried out for consideration for another person and include declared services. However, it further provides that following activities shall not constitute service:[1 mark for each point] [A] an activity which constitutes merely, — i. A transfer of title in goods or immovable property, by way of sale, gift or in any other manner, or ii. ‘Deemed sales’ of goods within the meaning of Article 366 (29A) of the Constitution; or iii. A transaction in money or actionable claim; [Activity relating to use of money or conversion of one form or denomination of currency into another form or denomination will not be considered as mere transaction in money and hence, it will constitute service chargeable to ST] Service provided by an employee to the employer in the course of or in relation to his employment; [B] Fees taken in any Court or Tribunal established under any law for the time being in force. [C] Further, it has been provided by way of Explanation that the following are not services — A. the functions performed by the Members of Parliament (MP), Members of State Legislative (MLA), Members of Panchayats, Members of Municipalities and Members of other local authorities who receive any consideration in performing the functions of that office as such member, or B. the duties performed by any person who holds any Constitutional post; or C. the duties performed by any person as a Chairperson / Member / Director in a body established by CG or SG or local authority in case where such person is not deemed as an employee.

TAXABLE TERRITORY 3.

Are services provided in the State of Jammu and Kashmir liable to service tax? (Nov, 2004 - 2 marks) As per Charging Section, Section 66-B of FA, 1994 provides that service tax shall be payable on services provided or agreed to be provided in taxable territory.  ‘Taxable Territory’ means the territory to which provisions of Chapter-V of FA, 1994 shall apply and as per Sec 64 provisions extends to whole of India except J&K. Thus, State of J&K does not form part of taxable territory for the purposes of levy of ST and therefore, all services provided therein shall not be subject to ST. Author’s Note: How to determine whether services have been rendered in a particular place? – Place of Provisioning of service shall be determined as per Place of Provisioning of Service Rules, 2012.

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 4. State briefly whether the following service will be liable to service tax: (i) Service provided in the state of Rajasthan by a person having a place of business in the state of Jammu and Kashmir. (May 2008 - 2 Marks) Note: Service

Location of SP Location of SR

Information in question (No description given to consider which rule is applicable for determination of POPS) -- But question clearly stating that, Service is provided in Rajasthan = taxable Territory = J&K = Non-taxable Territory -----

Assumption

Not given, so presumed Location of SR = Taxable territory [* if the recipient is presumed to be in non-taxable territory, then service shall be exempted under E/N 25/2012 (When both SP and SR belongs to Non-TT, then service shall be exempt – Entry No 34(c))]

.

YES. As per Charging Section, Sec 66-B of FA, 1994 provides that service tax shall be payable on services provided or agreed to be provided in taxable territory. Services provided in State of Rajasthan are services provided in taxable territory as ‘Taxable Territory’ has been defined to include whole of India except Jammu & Kashmir and thus, services provided in State of Rajasthan shall be liable to ST. However, it shall be noted that such service shall be taxed on ‘REVERSE CHARGE BASI’ as service provider is located in nontaxable territory (J&K being non-taxable territory). Thus, service recipient shall be liable to pay ST.

 5. State with reference to the provision of the Finance Act, 1994 whether service tax is leviable in the following cases : (i) Services provided in the Continental Shelf of India and Exclusive Economic Zone of India. (Nov 2010- 2 Marks) (ii) Nitin Ltd. provided services to Indian Oil Corporation from vessels located in the Continental Shelf of India for the purposes of prospecting natural gas for Rs 50 lakh in September, 2014. (ICAI Practice Manual) (May 2010- 2 Marks) (iii) Taxable services provided to SEZ unit for exclusive use in its authorized operation. (Nov 2010- 2 Marks) (iv) Service provided to an 100% Export Oriented Unit (EOU) located in India. (May 2010- 2 Marks) (i)

As per charging Section, Section 66-B of FA, 1994 provides that service tax shall be payable on services provided or agreed to be provided in taxable territory.  ‘Taxable Territory’ means the territory to which provisions of Chapter-V of FA, 1994 shall apply and as per Sec 64 provisions extends to whole of India except J&K.  Further, India has been defined to include territory of States and Union Territory as well as Continent Shelf and EEZ. Thus, Continent Shelf of India and EEZ also constitutes part of taxable territory for the purposes of levy of ST and all services rendered therein shall be subject to ST.

(ii) As per charging Section, Section 66-B of FA, 1994 provides that service tax shall be payable on services provided or agreed to be provided in taxable territory.  ‘Taxable Territory’ means the territory to which provisions of Chapter-V of FA, 1994 shall apply and as per Sec 64 provisions extends to whole of India except J&K.  Further, India has been defined to cover, inter alia, installations, structures or vessel located in Continent Shelf or EEZ for the purposes of prospecting or extraction of mineral oil and natural gas. In case before us, Nitin Ltd has provided services from vessels in continent shelf and service is for purpose of extracting natural gas. Thus, this service is provided within taxable territory for the purposes of levy of ST and thus, shall be subject to ST. (iii) As per charging Section, Section 66-B of FA, 1994 provides that service tax shall be payable on services provided or agreed to be provided in taxable territory.  ‘Taxable Territory’ means the territory to which provisions of Chapter-V of FA, 1994 shall apply and as per Sec 64 provisions extends to whole of India except J&K.  Further, India has been defined to include territory of States and Union Territory as well as EEZ. SEZ has not been excluded from definition of ‘taxable territory’ and thus, services provided in SEZ shall be liable to ST.

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However, exemption has been granted in respect of any taxable service provided to SEZ of developer of SEZ [E/N 12/2013]. Thus, such service being exempted service, ST shall not be payable thereon. Author: E/N 12/2013: Service provided for exclusive use by SEZ unit are eligible for upfront exemption (i.e., direct exemption) under which SP shall not be required to pay ST at all. However, the recipient SEZ unit shall follow procedure prescribed in this regard under E/N 12/2013. .

(iv) Service provided to 100% Export Oriented Undertaking (located in India) is also service rendered in taxable territory and hence, liable to service tax. Author: • Though service provided or agreed to be provided to SEZ Unit are exempted via E/N 12/2013, there is no such exemption in respect of services provided to 100% EoU.

6.

Pranav Private Ltd. is engaged in providing a taxable service and furnishes you the following information of Services billed and received were Rs 18,00,000 for Month of April, 2015 Service Provided to Amount Services provided to an International Organization Rs 4,00,000 Services rendered within the Indian Territorial Waters Rs 3,00,000 Services rendered to its Associated Enterprise Rs 5,00,000 Services in J&K Rs 6,00,000 Determine the value of taxable service which will attract ST liability. [CA IPCC November 2011] In terms of Charging section, Section 66-B of FA, 1994, ST levy is attracted on any service provided or to be provided in taxable territory by one person to another. Taxability Taxable Amount -----Services provided to an ST levy attracted in terms of Sec 66-B but it is fully exempted by Mega Exemption 25/2012 International Organization * Rs 3,00,000 Services rendered within the Indian Taxable Territory covers India as well its territorial waters and thus, ST levy stands attracted in terms of Sec 66-B. Territorial Waters Rs 5,00,000 Services rendered to its Associated Even though associated but still these are treatable as 2 different entities and thus, even this will attract ST levy in terms Enterprise** of Sec 66-B. Taxable Territory covers India but not J&K and thus, ST levy Services in J&K ------does not stand attracted in terms of Sec 66-B. Total Value of Services (attracting ST liability) Rs 8,00,000 Author’s Note: 1. * UN or Other International Organization gets their supply of goods as well as services – duty/tax free.  Supply of excisable goods to them is exempted vide E/N 108/1995 [Students can recall this reference was stated in Rule 6(6) of CCR, 2004- cross check your ‘Cenvat Module’  Supply of taxable service to them is exempted vide E/N 25/2012 [Mega Exemption under ST] [Some examples of International Organization – United Nation, Red Cross] 2.

** Associated Enterprise’ are still different legal entities and thus, service transaction can take place between them. Such transaction of taxable service shall attract ST levy.

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EXPORT OF SERVICE: EXPORT OF SERVICE- CONDITIONS TO BE FULFILLED 1.

What essential conditions are to be satisfied for treating the provision of any service as Export of Service? (ICAI- Practice Manual) The provision of ANY SERVICE provided or agreed to be provided shall be treated as Export Of Service only if it satisfied all the following conditions as laid down in Rule 6-A of STR, 1994: (a) the provider of service is located in the taxable territory (i.e., entire India excluding J&K) (b) the recipient of service is located outside India

(i.e., outside India)

(c) the service is not a service specified in the section 66D of the Act (i.e., not a negative list service) (d) the place of provision of the service is OUTSIDE INDIA (Determined as per POPS Rules, 2012) (e) the payment for such service has been received by the provider of service in convertible Foreign Exchange; AND (f) the Provider of service and Recipient of service are not merely establishment of a distinct person** in accordance with Explanation 3(b) of Sec 65-B (44) of the Act. **Author Note: Sec 65-B(44): Explanation 3(b): This explanation provides that X Ltd and its branch shall be deemed to be different persons. Thus, transaction inter-se may come in definition of service (if other elements of definition of ‘service’ are satisfied). --- Condition (f) stipulates that such transactions inter-se, though may be treated as ‘service’, will never be treated as ‘EXPORT OF SERVICE’ and thus, such transactions will not lead to grant of any export benefits (rebated or credit). TANDUS FLOORING INDIA (P) LTD- 2013 – (AAR- AUTHORITY OF ADVANCE RULING) A LTD, USA based company, established a 100% subsidiary, B Ltd in India (Delhi). B Ltd is entrusted with function of doing marketing of product of A Ltd and also to provide associated sales support service, for which due consideration was paid to it in foreign currency. Whether this amounts to export of service within the meaning of Rule 6-A of STR, 1994? Held that – Yes, all the conditions stipulated in Rule 6-A are satisfied. (a) SP (B Ltd) is located in taxable territory. (b) SR (A Ltd) is located outside India). (c) Sr is not specified in negative list. (d) POPS is outside India [POPS as per Rule 3 of POPS Rules, 2012- POPS= Location of SR] (e) Payment received in For-Ex. (f) Subsidiary Co. is not mere establishment – it is legally independent person/entity. Explanation 3(b) to Sec 65-B(44) is not applicable to Subsidiary Company- it is applicable to branch as branch has no separate legal entity.

RECEIPT OF FOR-EXCHANGE- MUST but THAT IS NOT THE ONLY CONDITION 2.

Whether ST under the provisions of FA, 1994 is chargeable if payment of service is received in India in convertible foreign exchange (CA Final, May 2005 - 2 Marks) Sec 66-B of FA, 1994, charging section for levy of ST, provides for levy of ST on services provided or agreed to be provided in taxable territory. The place of provisioning of service shall be determined in accordance with Place of Provisioning of Service Rules, 2012. The currency in which payment is received is not relevant criteria for determination of place of provisioning of service. In absence of any other specific information, presuming that payment is received in foreign exchange in respect of services provided outside India to service recipient outside India, such service shall not attract ST. Author Note: Service Exported: ‘Service provided outside India’ is treated as ‘service exported’ if SP is in taxable territory and SR is located outside India and payment is received in convertible for-ex. In contrast to ‘service provided outside India’, ‘exported service’ is not only free from tax liability on itself, it also makes SP eligible for ‘rebate of duty/tax paid on inputs and input service’ or alternatively, eligible for claim of cenvat credit on inputs and input services.

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SERVICE TO OWN BRANCH OUTSIDE INDIA- NOT EXPORT OF SERVICE  3.

Can there be an export of service between an establishment of a person in a taxable territory (say, Infosys Ltd- India) and another establishment of same person in non-taxable territory (say, Branch in USA)? (ICAI- Practice Manual) NO  Service can be said to be exported only if it satisfies all conditions as specified in Rule 6-A of STR, 1994. One of the conditions specified is that in service transactions, service provider and service receiver shall not be mere establishments of same person. Thus, even though, mere establishments are otherwise treated as different persons (as provided in definition of service given under section 65-B), but they are not so treated for purposes of export. **Author Note: While ‘branch of a company’ in other country is mere establishment of the company within the meaning of Explanation 3(b) Sec 65-B(44), but foreign subsidiary of the Indian company is not mere establishment of Indian company within the meaning of Explanation 3(b) Sec 65-B(44). Thus, … any service provided by Indian company to its foreign branch in overseas will not attract ST, but it will not be treated as ‘exported service’ … but any service provided by Indian company to its foreign subsidiary in overseas will not attract ST and will be treated as ‘exported service’ [TANDUS FLOORING INDIA (P) LTD- 2013 – (AAR- AUTHORITY OF ADVANCE RULING) – discussed above]

BENEFITS ASSOCIATED WITH EXPORT OF SERVICE 4.

What are the options available to the Exporter of Taxable Services for claiming benefits associated with export of service? (ICAI- Practice Manual) Following are 2 options available to the exporter of service: Option 1: Claim rebate of tax/duty paid on input and input service in terms of Rule 6-A (2) of STR, 1994 read with N/N 39/2012. Option-2: Claim credit in terms of Cenvat Credit Rules, 2004 and to utilize the credit, and in event of non-utilization of such credit, claim refund thereof in terms of Rule 5 of CCR, 2004. . Admissibility of benefit (timing thereof)

Procedural Aspects

•

Cenvat Route [CCR, 2004] Credit admissible when service is exported.

•

For credit purposes, ‘exported services’ are not treated as ‘exempted service’ even if Forex is to be received [Rule 6(8) of CCR, 2004] and thus, credit is allowed in the beginning itself. However, if payment is not received within RBI permissible period (including extension), then exported service is treated as exempted service and credit already availed becomes reversible. • CCR, 2004 does not require any prior declaration and its approval before proceeding with procurement of inputs / inputs services.

Rebate Route [Rule 6-A of STR, 1994] • In terms of N/N 39/2012, rebate is not admissible till realization of foreign exchange.

•

N/N 29/2012 requires prior declaration and its approval by AC/DC. [Refer judiciary view on next page]

Realization of benefit

• •

.

Credit is available for utilization (i.e., it can be set off against ST payable on any service upon which ST is payable). Further, refund of credit in cash is admissible in terms of Rule 5 of CCR, 2004. [Note: Refund claim can be filed on quarterly basis]

• Rebate is sanctioned in cash. [Time-limitation for claiming rebate is ‘1 year from relevant date (=date of export of service) – Sec 83 of FA, 1994 read with Sec 11-B of CEA, 1994]

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Latest issues: REBATE CLAIM Prior filing of declaration is procedural formality *ISSUE: N/N 39/2012 requires filing of declaration prior to export of service. In this declaration, all inputs and inputs services required to be used in providing the service to be exported are to be declared and post-approval of such declaration, rebate can be claimed upon export of service. What will be effect if assessee failed to mention certain input services in the declaration but such services were actually used in providing the ‘exported service’?  Whether rebate benefit of such service is lost? Or  Whether non-mentioning of particulars in declaration is a technical mistake and can be ignored? CONVERGIES INDIA SERVICES PVT LTD – 2012- TRI: Failure to specifically mention certain input services in the declaration required to be filed under N/N 39/2012 is purely technical mistake for which rebate claim could not be denied. WIPRO BOP SOLUTIONS LTD – 2012- TRI: Non-mentioning of certain inputs/input services specifically, can be condoned by sanctioning authority, if on the basis of enquiry and invoices, he is satisfied that same had been received. Crest Premedia Solutions (P.) Ltd.– 2015- TRI: • Rebate on export of services cannot be denied merely because declaration was filed after export and not prior to export; • Filing of declaration is a procedural formality and contents of declaration can be verified even after export. Records such as invoice on which input tax credit is availed and records indicating export of services will reveal all information which is verifiable later.

REBATE CLAIM: APPELLATE REMEDIES in case of rejection Sec 83 of FA, 1994 read with Sec 35-EE of CEA, 1994: only Revision Application to CG (3 Months + COD of 3 Months)

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SERVICES TO SEZ:  1.

State with reference to the provision of the Finance Act, 1994 whether service tax is leviable in the following cases : (i) Taxable services provided to SEZ unit for exclusive use in its authorized operation. (Nov 2010- 2 Marks) As per charging Section, Section 66-B of FA, 1994 provides that service tax shall be payable on services provided or agreed to be provided in taxable territory.  ‘Taxable Territory’ means the territory to which provisions of Chapter-V of FA, 1994 shall apply and as per Sec 64 provisions extends to whole of India except J&K.  Further, India has been defined to include territory of States and Union Territory as well as EEZ. SEZ has not been excluded from definition of ‘taxable territory’ and thus, services provided in SEZ shall be liable to ST. However, exemption has been granted in respect of any taxable service provided to SEZ of developer of SEZ [E/N 12/2013]. Thus, such service being exempted service, ST shall not be payable thereon. Author: E/N 12/2013: Service provided for exclusive use by SEZ unit are eligible for upfront exemption (i.e., direct exemption) under which SP shall not be required to pay ST at all. However, the recipient SEZ unit shall follow procedure prescribed in this regard under E/N 12/2013.



2.

State with reason whether Service tax is payable in the following cases: (i) Services provided to Special Economic Zone (SEZ) unit and SEZ developer, when such service are not used exclusively for authorized operations Regarding services provided to SEZ / SEZ developer for their authorized operations, E/N 12/2013 has been issued. • E/N 12/2013 provides that in respect of services not used exclusively for authorized operations*, upfront exemption from payment of ST is not available. • Exemption in this case shall be available by refund route, i.e, service provider will charge ST in invoice and will pay to CG. Subsequently, SEZ unit or developer will claim refund from CG. [Quantum of admissible refund shall be determined by using the manner as provided for ‘distribution of credit by ISD’. Entire turnover of the SEZ unit / developer shall be taken as turnover of authorized operation and pro-rata credit shall be admissible as refund.] •

The quantum of refund shall be allowed subject to following procedure and conditions. • The service tax paid on the specified services that are common to the authorised operation in an SEZ and the operation in domestic tariff area [DTA unit(s)]shall be distributed amongst the SEZ Unit or the Developer and the DTA unit(s) in the manner as prescribed in Rule 7 of the Cenvat Credit Rules**. For the purpose of distribution, the turnover of the SEZ Unit or the Developer shall be taken as the turnover of authorized operation during the relevant period. Author Notes: 1. Authorized Operations = Operations which a unit is permitted to carry on in SEZ in terms of SEZ Act, 2005 2. Rule 7 of CCR, 2004 = It provides for distribution of credit by ISD to various manufacturing units.

• • • •

SEZ Unit or the developer shall submit refund claim to jurisdictional AC/DC. Refund claim shall be entertained only if payment has already been made of value of service and ST. Refund shall be filed on quarterly basis. Claim shall be filed within 1 year from the end of month in which actual payment of is made or such extended period as the AC/DC shall permit. .

Sr provided to SEZ (exclusive use) Normal Charge

Invoicing [1,00,000 ST]

+

Payment by SEZ To Sr Provider 10 July, 2015

To CG -----

Refund Claim by SEZ [Quarter: July + Aug + Sep] ST paid upon 10 July, 2015. Time limit of 1 year starts from end of month of July. (till next 1 year refund can be claimed). However, he can submit refund claim only by end of quarter (july-Sep)

.

 3.

M/s. Hatim Ltd., having SEZ unit/s as well as DTA unit/s, furnishes the following data for the quarter, July to September. It has opted for refund route under Notification No. 12/2013. Determine the amount of refund under the said notification : i. Service tax paid on services exclusively used for authorized operations within SEZ: Rs. 8 Lakh. ii. Service tax paid on services exclusively used for operations within DTA (domestic Tariff Area) : Rs. 4 Lakh. iii. Service tax paid on services commonly used for SEZ and DTA units: Rs. 16 lakh. (The turnover of SEZ units is Rs. 400 lakh, while that of DTA units is Rs. 1200 lakh.) (Nov 2014- 4 Marks)

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[Service Tax : Levy of Service Tax] ST paid

Options with SEZ Unit (HatimLtd)

Exclusive Services (For exclusive use for Authorized Operations)

8,00,000

Exclusive Services (For exclusive use for Authorized Operations within DTA)

4,00,000

Upfront Exemption (Forms A-1 + A-2 + A-3) - ST need not be paid Exemption by refund route(Refund on ‘quarterly basis’) - Full refund admissible No Exemption

Common Services (For SEZ and DTA Units)

16,00,000

Upfront Exemption - This route not available Exemption by refund route (Refund on ‘quarterly basis’) - Pro-rata refund = ST on common services × TO SEZ Unit / TO all units in DTA or SEZ

Treatment in hands of Hatim ltd [Refund opted for] 8,00,000

Not eligible for refund [Credit can be availed subject to fulfillment of conditions of CCR, 2004] 4,00,000 [Credit of balance amount of ST paid of 12,00,000 (16,00,000 – 4,00,000) can be availed subject to fulfillment of conditions of CCR, 2004]

= (Rs. 16,00,000 * 400 / 1600 ) = Rs 4,00,000 Thus, total amount of refund which can be claimed by Hatim Ltd (in respect of services used in SEZ unit) = Rs 12,00,000

(8,00,000

for exclusive services+ 4,00,000 for common services)

4.

State with reason whether Service tax is payable in the following cases: (i) Services provided by SEZ to DTA (Domestic Traffic Area).

[CA Final, May 2009 - 2 Marks each]

Charging section for levy of ST is Sec 66-B of FA, 1994, which provides for levy of service tax on services provided or agreed to be provided in taxable territory. Taxable territory has been defined to mean territory to which provisions of Chapter V of FA, 1994 applies. Sec 64 of FA, 1994 provides that Chapter V shall apply to whole of India except State of J&K. It shall be noted that SEZ has not been excluded from applicability of Chapter V. Thus, any services provided by SEZ Unit shall attract ST levy Tutorial Notes: Charging Section Treatment of SEZ

Central Excise [CEA, 1944] Sec 3 of CEA, 1944 Sec 3 specifically excludes SEZ. Thus, excisable goods produced or manufactured by SEZ in India are not subject to ED.

Service Tax [Finance Act, 1994] Sec 66-B of FA, 1994 Sec 66-B does not provide for exclusion of SEZ. Thus, taxable services rendered by SEZ in India are subject to ST. [It shall be noted that SEZ unit generally export services and services exported by it shall not be subject to ST (as in that case, place of provision of service shall be outside India, i.e., outside taxable territory.]

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PLACE OF PROVISIONING OF SERVICE RULES, 2012: POPS RULES [(Rule 3 to 6 + RULE 7 & 8) + Rule 14] Rule 3 1. State with reason whether Service tax is payable in the following cases: (i) Service Provider is abroad. He renders service to a Subsidiary of an Indian Company located abroad. Payment to him is done by Indian Holding Company. [CA Final, May 2007 - 2 Marks] Location of SP Location of SR Broad Description of Service Applicable Rule Outside India Outside India (outside TT) General Service Rule 3 (outside TT) [Nature of service has not been [Subsidiary is located abroad] [SR is one who is actually consuming the service specified] **]

The nature of service rendered has not been given and hence, it has been presumed such service is one which does not fall under any other specific rule of POPS, 2012. That being so, the POP of such service shall be determined as per Rule 3. In terms of that rule, POP shall be place of location of service receiver. Thus, in given situation, POP shall be outside India, i.e., outside taxable territory. Thus, such service shall not be liable to ST in India. *Author : 1. Holding company and subsidiary company are legal distinct person/ entity. Who is service receiver? – One receiving the service (subsidiary) or one making payment (holding) • The SR shall be the one who is consuming the service (who is actually getting benefitted because of the service). Invoicing and payment shall not decide who is service receiver. 2.

Student shall further appreciate that in such case, even if POPS had been in India, such service would stand exempted by Mega Exemption 25/2012 (Entry No 37(c) - (Sr provided by SP in Non-TT to SR in NON-TT is exempt).

Rule 4  2. Real Security Ltd. provides security services to Mr. Ratan Oct, 2015. Personal Security Guard was provided to him during his stay in India, USA, Canada, Japan, UK and Germany, G Force Ltd. can raise invoice on Ratan at the end of Oct, 2015. During this month, Ratan was in Mumbai 15 Days, in Chennai for 3 days. He was in business tours during the other days. Determine the Place of Provision of this Security Service. Description of Service: Security Service Applicable rule for determination of POPS: Rule 4(b) of POPS Rules, 2012 (as service is provided to individual service recipient and provisioning of service requires physical presence of individual) POPS as per Rule 4(b) = Place where service is performed Under given situation, service has been performed at various locations – out of which some are in non-taxable territory (USA, Canada, Japan, UK, Germany) and some are in taxable territory (Mumbai and Chennai). Rule 7 of POPS Rules, 2012 shall be applicable to the situation. It provides that in such situation, service shall be deemed to be provided at that location in taxable territory in which greatest proportion of service is provided. Thus, in case before us, the POPS shall be Mumbai (as Mumbai being place in taxable in which greatest proportion of security service was provided by Real Security Ltd). POPS of service being Mumbai (taxable territory), the service shall attract ST liability. 3.

What would be the POPS in the following case? (i) OP Fabricators of Mumbai has temporarily imported certain goods from its customer located in Hongkong for repairs. The said goods have been re-exported to Hongkong after carrying out the necessary repairs without being put to any use in Mumbai. [ICAI RTP – MAY 2015] SP (OP Fabricators) Location of SP = MUMBAI = Taxable Territory SR (Foreign Customer) Location of SR = Hongkong = Non-Taxable Territory Nature of Service Repair of goods Service (Performance based service requiring SR to make goods physically available (description of service) to the SP) Applicable POPS Rule Rule 3 [since proviso to Rule 4(a) has made Rule 4(a) inapplicable to the given situation.] POPS = Location of SR = Hongkong = Non-Taxable Territory ST levy

POPS being in non-taxable territory, repair will not attract ST levy in terms of Sec 66-B of FA, 1994.

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Author • Rule 8 of POPS Rules is not applicable to the situation as SR is not located in TT. Qualification of this service as ‘export of service’ • No ST levy • This service will quality as ‘Export transaction’ in terms of Rule 6-A of STR, 1994 (as POPS= Outside India and Payment received in foreign exchange and all other conditions of Rule 6-A are also satisfied) and related benefits on input stage (either refund of cenvat credit or rebate) shall be available additionally.

 4.

Determine the place of provision of services as well as their taxability in following case: ABC Testing Ltd., an Indian firm provides ‘technical inspection and certification service’ in respect of a newly developed product of an overseas firm (for a newly launched car which has to meet emission standards in different Countries). The overseas firm has provided its newly developed product to ABC Testing Ltd. for the purpose of testing. The testing is carried out in Gujarat (10%), Kerala (30%), and Canada (60%). [ICAI Practice Manual] Service Provider = ABC Testing Ltd., an Indian Firm, i.e., located in in taxable territory Service Receiver = Overseas Firm, i.e., located in non-taxable territory Description of Service = Technical Inspection & certification services Applicable Rule for determination of POPS = Rule 4 of POPS Rules, 2012 read with Rule 7 of POPS Rules, 2012 In this case, the service of technical inspection and certification of new product being a performance based service which requires service received to make such goods physically available to the service provider, the place of provision of services as per Rule 4 of the PoPS Rules. In terms of Rule 5, place of provision of service is the place where service is performed. But since service is being provided at more than one place, Rule 7 of POPS Rules, 2012 shall also be applied alongwith. In terms of Rule 7 of POPS Rules, 2012, where any performance based service referred to in rule 4 is provided at more than one location, including a location in the taxable territory, its place of provision shall be the location in the taxable territory where the greatest proportion of the service is provided. In the given case, notwithstanding the fact that the greatest proportion of service is outside the taxable territory, the place of provision will be the place in the taxable territory where the greatest proportion of service is provided, which in this case is Kerala. Thus, testing services provided in this case will be taxable in India. Author: Rule 8 of POPS Rules is inapplicable as both SP and SR are not of taxable territory.

Rule 5 5. Mention the place of provision of services in respect of the following service: (i) Services relating to immovable property. (ii) Services provided at more than one location. (May 2013 - 3 Marks)

6.

Services

Place of Provision

i)

Services relating to immovable property

Rule 5 POPS Rules shall be applicable if services are directly relating to immovable property. The POPS shall be the place where immovable property is located or intended to be located. However, if SP and SR both are in taxable territory, then POPS shall be location of SR, i.e., taxable territory.

ii)

Services provided at more than one location

Services falling under Rule 4, 5 or 6: Rule 7 of POPS Rules shall be applicable if service provided is one which falls under Rule 4 (performance based services) or Rule 5 (services directly related to immovable property) or Rule 6 (services relating to event) and out of multiple locations, one of the location is in taxable territory. In such situation, the POPS shall be the location in taxable territory in which greatest proportion of service is rendered. Services falling under other cases /Rules: In all other cases, POPS shall be determined under the respective applicable rule only without applying Rule 7.

Determine whether the following activities qualify as "Services directly in relation to Immovable Property", and accordingly decide the applicability of Rule 5 of POPS, 2012. • Testing of Land Soil for stability purpose • Exploration of Oil/Gas in specific land/seabed • Hotel Accommodation • Valuation of Immovable Property for Loan purposes • Repairs on Machinery, which is not permanently attached to earth

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Consultancy on Land Prices in Chennai Agent who arranges Home Loan Calculation/Planning of Capital Gains on sale of immovable property.

Nature of Service Testing of Land Soil for stability purpose

Remarks As it is related to land, it is considered as directly related to immovable property. (Rule 5 is applicable) Such services are directly related to immovable property, i.e. land/seabed. Exploration of Oil/Gas in specific land/seabed (Rule 5 is applicable) Such service involves enjoyment of building i.e. immovable property. Hence Hotel Accommodation it is directly related to immovable property. (Rule 5 is applicable) Valuation of Immovable Property for Loan Such service is directly in relation to specific immovable property. (Rule 5 is purposes applicable) Repairs on Machinery, which is not permanently Machinery is movable, and hence the service is not directly related to immovable property. attached to earth (Rule 5 is NOT applicable) - But Rule 4 shall apply. As the service is related to general market prices, and not related to any Consultancy on Land Prices in Chennai specific site, it is not directly related to immovable property. ((Rule 5 is NOT applicable) - But Rule 3 shall apply. Such service is related to the arrangement of loans, and not directly related to Agent who arranges Home Loan the immovable property. (Rule 5 is NOT applicable) - But Rule 9 (intermediate of banking services) shall apply. Calculation/Planning of Capital Gains on sale of Service does not directly affect the immovable property. The computation is related to tax, and not directly related to immovable property. ((Rule 5 is immovable property. NOT applicable) - But Rule 3 shall apply. 7.

Mrs. Neelam Goel, an interior designer based in Delhi provides her service to an Indian Hotel Chain (which has business establishment in Mumbai) for its newly acquired property in London. State whether the service would be taxable in India on the basis of Place of Provision of Service Rules, 2012 (PoPS Rules). [ICAI Practice Manual] Location of Service Provider: Neelam Goel is of Delhi (taxable territory) Location of Service Receiver: Hotel Chain is located in Mumbai (taxable territory) Description of service: Interior Decoration service (a service directly relating to immovable property) POPS of service: Rule 5 of POPS Rules, 2012 Rule 8 of POPS Rules, 2012 Final Answer Test POPS of Sr Test POPS of Sr Selected Rule POPS POPS= Location of = London, i.e., POPS = = Mumbai, i.e., Rule 8 POPS= Mumbai, immovable property Non-taxable Location of taxable territory [Rule 14 of POPS Rules, i.e., taxable territory Service recipient 2012 provides that out territory of 2 applicable rules, later shall be selected] Therefore, the place of provision in this case will be Mumbai and the service will be taxable in India (as per rule 8).

8.

State with reason whether Service tax is payable in the following cases: (i) An interior decorator provides service to Mr B (of J&K) of beautification of spaces in Srinagar (J&K). [CA Final, Nov 2005 - 2 Marks] Location of SP Location of SR Broad Description of Service Applicable Rule Service directly relating to immovable property Rule 5 India (within TT- J&K (outside) presumed) Service of interior decorator is a service which relates directly to the immovable property and therefore, POPS of such service shall be determined as per Rule 5 thereof. In terms of Rule 5, POP shall be the place where immovable property is located. Thus, in given case, the POP shall be J&K, i.e., outside taxable territory. That being so, such service shall not be liable to ST.

9.

Based on the Place of Provision of Service Rules, 2012, determine the place of service as well as their taxability in each of the following independent cases :

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(1) A Mumbai based builder provides construction services to Gujarat based company in respect of construction of its new building in Afghanistan. (2) A UK based company has been awarded mineral exploration contract in respect of specific sites in ZIMBABWE by a Chennai based corporation. (2 marks each) Sec 66-B of FA, 1994 creates a charge on any service activity only when it is provided or agreed to be provided in the taxable territory, i.e, anywhere in India but except in J&K. For determining where service is provided or deemed to be provided, Place of Provision of Service Rules, 2012 shall be applied. Determination of POPS and related taxability of service: (1) Construction service directly relates to immovable property and hence, Rule 5 of POPS Rules is applicable which provides that POPS shall be location of immovable property, i.e., Afghanistan. However, since both SP (Builder-Mumbai) and SR (CompanyGujrat) are in taxable territory, Rule 8 of POPS Rules is also applicable which provides POPS shall be location of SR, i.e., Gujarat. Further, out of the 2 rules, Rule 8 shall prevail as Rule 14 of POPS Rules provides that later of the two rules shall prevail. Thus, POPS of Service = Rule 8, of POPS Rules = ‘Gujarat’, i.e., taxable territory ST is chargeable on construction of building in Afghanistan. Summary presentation: POPS of service: Rule 5 of POPS Rules, 2012 Test POPS of Sr POPS= Location of = Afghanistan, i.e., immovable property Non-taxable territory

Rule 8 of POPS Rules, 2012 Test POPS of Sr POPS = = Gujarat, i.e., Location of taxable territory Service recipient

Final Answer Selected Rule POPS Rule 8 POPS= [Rule 14 of POPS Rules, Gujarat, i.e., 2012 provides that out of 2 taxable applicable rules, later shall territory be selected]

(2) Mineral exploration is a service which directly relates to immovable property and hence, Rule 5 of POPS Rules is applicable which provides that POPS shall be location of immovable property, i.e., ZIMBABWE. However, since both SP (UK based company) and SR (Chennai) are not in taxable territory, Rule 8 of POPS Rules is not applicable. Thus, POPS of Service = Rule 5, of POPS Rules = ZIMBABWE, i.e., non-taxable territory ST is not chargeable on mining service. Summary presentation: POPS of service: Rule 5 of POPS Rules, 2012 Test POPS of Sr POPS= Location of = ZIMBABWE, immovable property i.e., Non-taxable territory

Rule 8 of POPS Rules, 2012 Test POPS of Sr POPS = Location Not Applicable of Service recipient

Selected Rule Rule 5 [Rule 14 of POPS Rules, 2012 - NA]

Final Answer POPS POPS= ZIMBABWE, i.e., non-taxable territory

Since POPS of service is outside India, this service has potential of becoming ‘EXPORTED SERVICE’ if it satisfies other conditions also as stipulated in Rule 6-A of STR, 1994. If it can be said to be ‘exported service’, then rebate of input or input service used in providing this service can be claimed.

 10. Determine the place of provision of services as well as their taxability in each of the following cases: (i) Mr. A, the owner of an immovable property located in New Delhi gives the said property to Mr. B of London on rent, for commercial purposes. Mr. B pays the rent in UK pounds. (ii) Mr. Rahul, a Delhi based interior decorator, provides his professional services in respect of an immovable property which is located in San Diego, U.S.A. (iii) A U.S.A. based company possessing specialization in mineral exploration has been awarded a contract for mineral exploration in respect of specific sites in Canada by Mumbai based Mr. Ram Kapoor (iv) ABC Ltd. agrees to provide services connected with oil exploration [by virtue of single agreement for consolidated consideration] to XYZ Ltd. in respect of specific sites located in Assam, Gujarat and Maharashtra. The proportion of services provided by ABC Ltd. in above States worked out to be 25%, 60% and 15%. ABC Ltd. does not have a centralized registration. (v) Rohit, a consulting engineer provides his professional consultancy services to a U.K. based company in respect of its three immovable properties located in U.K., USA and Dubai. [ICAI Practice Manual] (i) Service Provider = A, location of A is not specified in question Service Receiver = B, location of B is London, i.e., non-taxable territory Description of Service = Renting of immovable property, a service directly relating to immovable property Applicable Rule for determination of POPS = Rule 5 of POPS Rules, 2012 (POPS= Location of immovable property)

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As per rule 5 of the PoPS Rules, in case of a service that is ‘directly in relation to immovable property’, the place of provision is where the immovable property is located, irrespective of where the provider or receiver is located. Since in the given case, the immovable property in question is located in New Delhi, the place of provision of service is New Delhi and resultantly, the service would be taxable in India. The fact that payment is made in foreign currency does not have any bearing on deciding the taxability of a service. Author: Rule 8 of POPS Rules is inapplicable as both SP and SR are not of taxable territory.

(ii) Service Provider =Rahul, location is Delhi, i.e., taxable territory Service Receiver = no information provided, but presumed to be located in non-taxable territory* Description of Service = interior decoration service, a service directly relating to immovable property Applicable Rule for determination of POPS = Rule 5 of POPS Rules, 2012 (POPS= Location of immovable property) Since in the given case, the immovable property in question is located in San Diego, the place of provision of service is San Diego, U.S.A. and resultantly, the service would not be taxable in India [Rule 5 of the PoPS Rules]. 1. 2.

Author: Rule 8 of POPS Rules is inapplicable as location of SR has been assumed to be in non-taxable territory Such service transaction may qualify as ‘export of service’ if all conditions of Rule 6A of STR, 1994 are fulfilled.

(iii) Service Provider =USA Based company, i.e., located in non-taxable territory Service Receiver = Mumbai based Ram Kumar, i.e., located in taxable territory* Description of Service = Mineral exploration service Applicable Rule for determination of POPS = Rule 5 of POPS Rules, 2012 In this case, since specific sites in respect of which mineral exploration is to be carried out are located in Canada, the place of provision of services as per Rule 5 of the PoPS Rules will be Canada which does not fall within the ambit of ‘taxable territory’ and resultantly, these services will not be taxable in India. Author: Rule 8 of POPS Rules is inapplicable as both SP and SR are not of taxable territory.

(iv) Service Provider = ABC Ltd., impliedly located in taxable territory (as carrying multiple ST registrations) Service Receiver = XYZ Ltd., presumed to be located in taxable territory Description of Service = Mineral exploration service, provided at multiple sites in taxable territories Applicable Rule for determination of POPS = Rule 5 of POPS Rules, 2012 read with Rule 7 of POPS Rules, 2012 In this case, since specific sites in respect of which mineral exploration is to be carried out, the place of provision of services as per Rule 5 of the PoPS Rules. In terms of Rule 5 of POPS Rules, the place of provision of service shall be the place where immovable property is located. But since service is being provided at more than one place, Rule 7 of POPS Rules, 2012 shall also be applied alongwith. In terms of Rule 7 of POPS Rules, 2012, where any immovable property related service referred to in rule 5 is provided at more than one location, including a location in the taxable territory, its place of provision shall be the location in the taxable territory where the greatest proportion of the service is provided. Therefore, in the present case, the place of provision of services would be Gujarat because greatest proportion of taxable service [i.e. 60%] is provided there and thus, ST shall be leviable on service.

1. 2.

Author: If POPS of service is in taxable territory, then ST is leviable irrespective of location of SP and SR. Information as to ABC LTD (SP) having multiple ST registration in India is of no use in determination of POPS.

Knowledge: How to determine location of SP and SR? Location of Service provider, ABC ltd., which is not having multiple service tax registration but not centralized registered: Location of service provider shall be determined as per Rule 2 of POPS Rules, 2012. Since service provider is having multiple service tax registration, the premise directly concerned with provisioning of service shall be treated as ‘location of service provider’. In the absence of any specific information in question, it is presumed to be in taxable territory. Location of Service Receiver, XYZ ltd. Location of service receiver shall be determined as per Rule 2 of POPS Rules, 2012. It appears that XYZ Ltd is not a ST assessee. Further, it is using the services received at more than one location. Thus, establishment most directly concerned with use of services shall be treated as location of SR.

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(v) Service Provider =Rohit, presumed to be located in non-taxable territory Service Receiver = UK based company, i.e., located in non-taxable territory Description of Service = Consulting engineering service Applicable Rule for determination of POPS = Rule 5 of POPS Rules, 2012 (POPS= Location of immovable property) Since in this case, consulting engineer’s services provided by Rohit are in respect of locations which fall within non-taxable territory, place of provision of the services provided is U.K., USA and Dubai for the respective services and hence, no service tax is chargeable by Mr. Rohit [Rule 5 of the PoPS Rules]. Author: Though services are being provided at multiple locations, but Rule 7 of POPS Rules is inapplicable as none of the location is in taxable territory. All locations being in non-taxable territory, the service as a whole is being provided into non-taxable territory only.

Rule 6 11. Determine the PLACE OF PROVISION OF SERVICE: a) Mr. B, a well-known comedian from Delhi, organizes a stage-show in Japan. For organizing the stage-show, he takes the services from a Mumbai based event organizer. Service Provider = Event Organiser of Mumbai, located in taxable territory Service Receiver = Mr B of Delhi, located in non-taxable territory Description of Service = Event management (organization of event- stage show) Applicable Rule for determination of POPS = Rule 6 of POPS Rules, 2012 (POPS= Place where event is held) … Rule 6 is applicable as service is of organization of event. As per Rule 6, POPS shall be the place where event is held. In our case, it will be Japan, which is non-taxable territory. … Rule 8 is also applicable as both SP and SR are located in India. As per Rule 8, POPS shall be the location of SR. In our case, it will be Delhi (location of Mr B), which is taxable territory. POPS shall be as per Rule 8, since Rule 14 of POPS Rules, 2012 provides for selection/application of that rule which occurs last in numerical order. Thus, POPS of event organization service shall be Delhi. The place of provision of taxable service being taxable territory, the service shall be chargeable to ST.

POPS RULES [(Rule 9 to 12) + Rule 15] Rule 9  [Expected] 12. Mr. Sumit has a permanent residence at Ahmedabad. He has a savings bank account with Ahmedabad Branch of Safe and Sound Bank. On April 1, 2012, Mr. Sumit opened a safe deposit locker with the Ahmedabad Branch of Safe and Sound Bank. Mr. Sumit went to USA for official work in December, 2012 and has been residing there since then. Mr. Sumit contends that since he is a nonresident during the year 2013-14 in terms of the Income-tax Act, service tax cannot be levied on the locker fee charged by Safe and Sound Bank for the year 2013-14. Examine the correctness of the contention of Mr. Sumit. [ICAI RTP – NOV 2014] Challenge to ST liability on ground of being Non-resident: Leviability of service tax is determined in terms of the provisions of Finance Act, 1994 and not in terms of Income-tax Act, 1961. The fact that Mr. Sumit is a non-resident is irrelevant for determining the taxability of services received by him. ST liability shall be determined in terms of Sec 66-B of FA, 1994 Any service is taxable if it does not fall into negative list and is provided in taxable territory. Service provided in banking is not into negative list and thus, its taxability shall depend upon whether its place of provisioning is taxable territory or not which shall be determined as per Sec 66-C read with Rule 9 of POPS Rules, 2012. Nature of Service • Provisioning of Locker (Service provided by Banking Co to saving account holder)

Applicable Rule of POPS Rule 9

POPs shall be

POPS for the situation

PoPS = Location of Sr Provider

PoPS = Ahmedabad POPS of service being taxable territory, service shall be chargeable to ST.

Note: 1. As per rule 9 of POPS, 2012, the place of provision of services provided by a banking company, or a financial institution, or a non-banking financial company, to account holders is the location of the service provider.

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Account has been defined under rule 2(b) of POPS Rules to mean an account bearing interest to the depositor, and includes a nonresident external account and a non-resident ordinary account. Services linked to or requiring opening and operation of bank accounts such as lending, deposits, safe deposit locker etc. are few examples of services that are provided by a banking company or financial institution to an “account holder” in the ordinary course of business.

Service provider is Ahmedabad branch of Bank. Presuming that such branch is registered independently (i.e., bank has not opted for centralized registration), location of service provider shall be location of fixed establishment (i.e., branch location). [Author: If bank is centralized registration, then POPS shall be location of place for which single centralized registration has been taken. Since, no information as to that is available in question, it has been assumed otherwise]

 13. What would be the POPS in the following case? (i) UV Airlines, an airlines located in New Delhi, has hired aircrafts from a foreign Airlines for a period of 15 days. [ICAI RTP – MAY 2015] SP (Foreign Airlines) Location of SP = Foreign = Non-Taxable Territory SR (UV Airlines) Location of SR = New Delhi = Taxable Territory Nature of Service Hiring of Means of Transport (Means of transport is Aircraft in given case) (description of service) Applicable POPS Rule Rule 3 [Hiring of aircraft, whether short-term or long-term, does not fall u/Rule 9] POPS = Location of SR = New Delhi = Taxable Territory ST levy

POPS being in taxable territory, hiring of aircraft will attract ST levy in terms of Sec 66-B of FA, 1994.

14. State with reason whether Service tax is payable in the following cases: (i) Services provided by Indian agents undertaking marketing in India of Goods of a foreign seller. Broad Description of Service Intermediary Service (within the

[CA Final, Nov 2009 - 2 Marks] Applicable Rule meaning Rule 9

Location of SP India (within TT)

Location of SR Outside India (outside TT)

[Indian Agent= Presumed to

[Foreign Seller = Implied that he is belonging

of Rule 2 of POPS Rules)

be belonging to any place

outside India]

[It has been presumed that Indian Agent is acting as selling agent of foreign seller (Marketing of Goods = cause sale

other than J&K]

and gets commission)]]

Rule 9 of POPS, 2012 covers services of an intermediary. Intermediary has been defined under Rule 2 as one who arranges or facilitates either provision of service or supply of goods between 2 or more persons. Thus, Indian agent selling goods of foreign seller is an intermediary (as he is facilitating supply of goods between two persons) and thus, Rule 9 shall be applicable. POP of this service shall accordingly be determined as per Rule 9. In terms of that rule, place of provision of service shall be ‘taxable territory (i.e., location of service provider). The place of provision of service being taxable territory, service will be liable to ST. (ii) MN Trade Links of New Delhi are appointed as commission agent by a foreign company for sale of its goods to Indian customers. In lieu of their services, MN Trade Links receive a fixed percentage of commission from the concerned foreign company. SP (MN Trade Links –Selling Agent) SR (Foreign Company) Nature of Service (description of service) Applicable POPS Rule

Location of SP = New Delhi = Taxable Territory Location of SR = Foreign = Non-Taxable Territory Intermediary Service

ST levy

POPS being in taxable territory, Service attracts ST levy in terms of Sec 66-B of FA, 1994.

Rule 9 POPS = Location of SP = New Delhi = Taxable Territory

15. Discuss the taxability of services of freight forwarder: (i) Services provided on his own account (ii) Services provided as an intermediary (Based upon EDUCATION GUIDE)

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Author: • A FREIGHT FORWARDER, forwarder, or forwarding agent, also known as a non-vessel operating common carrier (NVOCC), is a person or company that organizes shipments for individuals/ corporations to get goods from the manufacturer to a market, customer or final point of distribution. Forwarders contract with a carrier to move the goods. • A freight forwarder arranges for export and import shipments. • There could be two possible situations here- one when he acts on his own account, and the other, when he acts as an intermediary.

(a) Taxability of services provided by freight forwarder provided on his own account When a freight forwarder provides service on his own account, i.e., he buys-in and sells freight/transport as a principal, then description of his service shall be ‘transportation of goods’. In such scenario, the place of provision of service shall be determined in terms of Rule 10 of POPS RULES, 2012. Accordingly, the place of provision of service shall be the place of destination of the goods. Note: • Services of FREIGHT FORWARDER: A freight forwarder provides domestic transportation within taxable territory (say, from the exporter’s factory located in Pune to Mumbai port) as well as international freight service (say, from Mumbai port to the international destination), under a single contract, on his own account (i.e. he buys-in and sells fright transport as a principal), and charges a consolidated amount to the exporter. This is a service of transportation of goods for which the place of supply is the destination of goods. Since the destination of goods is outside taxable territory, this service will not attract ST. Here, it is presumed that ancillary freight services (i.e. services ancillary to transportation- loading, unloading, handling etc) are “bundled” with the principal service owing to a single contract or a single price (consideration).

(b) Taxability of services provided by freight forwarder as an intermediary When a freight forwarder provides service as an intermediary, i.e., he buys-in and sells freight/transport on behalf of principal, then description of his service shall be ‘intermediary service’. In such scenario, the place of provision of service shall be determined in terms of Rule 9 of POPS RULES, 2012. Accordingly, the place of provision of service shall be the location of service provider (i.e., location of freight forwarder). 16. Mr A is providing a service of hiring of a fleet of cars to a company on an annual contract. What will be place of provision of service if his business establishment is located in New Delhi, and the company is located in Faridabad (Haryana)? (Based upon EDUCATION GUIDE) The nature of service provided by Mr A is ‘hiring of means of transport’ on annual basis. Such hiring contract is of motor vehicle (car) and is of more than one month (which for convenience can be ‘long term hiring contract’). The place of provisions of such service shall be determined as per provisions of Rule 3. Accordingly, the place of provision of service shall be the location of service receiver, which in instant case is Faridabad (Haryana).

Rule 10 17. What shall be the place of provision of GTA service when a specified category of person is liable to pay freight and is located in taxable territory? [Technical Guide on Transportation (ICAI – Jan 2015 Edition)] Rule 11 of POPS RULES, 2012 provides that in case of GTA service, POPS shall be the location of person liable to pay ST. Where person liable to pay freight is of specified category and also located in taxable territory, then such person is liable to pay ST. Accordingly, POPS as per Rule 11 shall be the location of such person. For Eg., • When A Ltd of Punjab avails the services of GTA located in Gujarat and makes the payment of freight for Rs 40000/-, in such a case, the POPS becomes Punjab as the person liable to make freight is one of the specified persons located in taxable territory. 18. What shall be the place of provision of GTA service when a specified category of person is liable to pay freight but is located in nontaxable territory? [Technical Guide on Transportation (ICAI – Jan 2015 Edition)] Rule 11 of POPS RULES, 2012 provides that in case of GTA service, POPS shall be the location of person liable to pay ST. Where person liable to pay freight is of specified category but is located in taxable territory, then GTA shall be liable to pay ST. Accordingly, POPS as per Rule 11 shall be the location of GTA. For Eg., • When A Ltd of Kashmir avails the services of GTA located in Gujarat and makes the payment of freight for Rs 40000/-, in such a case, the POPS becomes Gujarat and the tax, if any has to be paid by service provider i.e., GTA as the person liable to pay freight is one of the specified persons, but is located in a non taxable territory.

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19. Determine what shall be the POPS in case of GTA service provided in different situations? [Technical Guide on Transportation (ICAI – Jan 2015 Edition)] GTA service Person liable to Location of person Person liable POPS as per to pay ST Rule 11 pay freight liable to pay freight Non-Specified Taxable Territory GTA Location of GTA Mr A of Punjab avails the services of GTA located = Gujarat in Gujarat and makes the payment of freight of category 40000/Taxable Territory GTA Location of GTA Mr A of Punjab is registered with Central Excise Non-Specified = Gujarat Department as a manufacturer and to whom, category Factories Act, 1948 do not apply avails the services of GTA located in Gujarat and makes the payment of freight of 40000/Mr A of Punjab is registered with Central Excise Department as a dealer avails the services of GTA located in Gujarat and makes the payment of freight of 40000/-

Specified category

Taxable Territory

Mr A

Location of Mr A = Punjab

Mr A of Kashmir avails the services of GTA located in Gujarat and makes the payment of freight of 40000/-

Non-Specified category

NonTerritory

Taxable

GTA

Location of GTA = Gujarat

A Ltd of China avails the services of GTA located in Gujarat and makes the payment of freight of 40000/-

Specified category

Non-Taxable Territory

GTA

Location of GTA = Gujarat

A Ltd of Rajasthan avails the services of GTA located in Nepal and makes the payment of freight of 40000/Mr A of Rajasthan avails the services of GTA located in Nepal and makes the payment of freight of 40000/-

Specified category

Taxable Territory

A Ltd

Location of A Ltd = Rajasthan

Non-Specified category

Taxable Territory

GTA

Location of GTA = Nepal

 20. When GTA is transporting goods outside India and the person paying freight is located outside India, in such a case, the freight may be received in foreign currency. In such a case, can the service be said to be exported? [Technical Guide on Transportation (ICAI – Jan 2015 Edition)] For determining whether there is export of service or not, the conditions stated in Rule 6A of STR, 1994 is required to be seen which are reproduced as under: (g) the provider of service is located in the taxable territory (i.e., entire India excluding J&K) (h) the recipient of service is located outside India

(i.e., outside India)

(i)

the service is not a service specified in the section 66D of the Act (i.e., not a negative list service)

(j)

the place of provision of the service is OUTSIDE INDIA (Determined as per POPS Rules, 2012)

(k) the payment for such service has been received by the provider of service in convertible Foreign Exchange; AND (l) the Provider of service and Recipient of service are not merely establishment of a distinct person** in accordance with Explanation 3(b) of Sec 65-B (44) of the Act. In case of GTA service, when the person paying freight is located in a non-taxable territory, in such a case, the place of provision of (the reason being that in such case, GTA shall be the person liable to pay ST and hence, as per Rule 10 of POPS Rules, 2012, POPS shall be the location service will be the place of service provider, GTA of person liable to pay ST) . Where the place of provision of service in case of GTA becomes India (i.e., taxable territory), then such service shall be chargeable to ST. Further, even if the consideration for service is received in foreign exchange, it will not be considered as ‘export of service’ in terms of Rule 6-A of STR, 1994. Thus, the services provided by GTA in neighbouring countries such as Pakistan, Nepal, Bhutan and Bangladesh will not be treated as Export.

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Shipping Company collects consignment from the clients located in India and delivers them Japan. The clients located in India are paying for consignment charges in Indian Rupees. Whether this service shall be chargeable to ST? In the given case, though the consignment is to be delivered outside India and as per Rule 10 of POPS Rules, 2012, ‘The place of provision of a service shall be the destination of goods’. Destination of goods is Japan, which is outside India, therefore, place of provision of service becomes non-taxable territory; hence, this transaction will not be taxable. Author: Whether this service transaction may qualify as ‘EXPORT OF SERVICE’ in terms of Rule 6-A of STR, 1994 …

It will not qualify for export because the consideration is not received in convertible foreign exchange.

Rule 11 22. Mention the place of provision of services in respect of the following service: • Services in respect of Passenger Transportation. (May 2013 - 3 Marks) Services in respect of passenger transportation: Rule 11 of POPS Rules shall be applicable and POPS shall be the place from where the passenger embarks for continuous journey. Thus, a passenger visiting different places with single Ticket (Delhi-Mumbai- Goa-Delhi), then POPS shall be Delhi (the place from where he embarked for his continuous journey). 23. Determine the PLACE OF PROVISION OF SERVICE and state whether ST is payable* in given cases : a) Mr. A travelled on a Bagdogra-Dibrugarh-Singapore-Dibrugarh-Bagdogra flight where a single ticket with no stopover has been issued by Parkinson Airlines. Description of Service: Transportation of passengers (by air) Applicable rule for determination of POPS: Rule 11 of POPS Rules, 2012** POPS as per Rule 11 = Place from where passenger embarked on conveyance for continuous journey In the given question, since the entire journey is on ‘single ticket with no stopover’ and thus, entire journey is ‘continuous journey’ for purposes of rule 11. Thus, single POPS of the service is Bagdogra, which falls in taxable territory and hence, such service attracts ST levy u/s 66-B of FA, 1994. However, no service tax would be payable as there is an exemption for air transportation of passengers, embarking from Bagdogra airport located in West Bengal [Notification No. 25/2012 (Entry No 23)]. Author: 1. Rule 8 of POPS Rules is applicable on any service provided if both SP and SR are located in taxable territory. Reference to Rule 8 has not been used in this question as Rule 8 does not have any impact on services whose POPS is governed by later rules (i.e., Rule 9, 10, 11, 12) 2.

The flight ticket is ongoing and return ticket. CBEC has in its education guide has stated the aforesaid example clarifying that exemption shall be applicable to entire ticket [Author: in terms of E/N 25/2012, exemption is applicable to flight originated from, or terminated in, specified areas (north eastern states and Bagdodra in West Bengal)]

Rule 12  [Expected] 24. With reference to Place of Provision of Services Rules, 2012, answer the following question: (i) A movie-on-demand is provided as on-board entertainment during the Bangalore-Delhi leg of a Singapore-Bangalore-Delhi flight against a charge of Rs. 500 per passenger in addition to the fare of Rs. 25,000 per passenger. What will be the place of provision of service in this case? Will your answer change, if the above service is provided on a Delhi-Bangalore-SingaporeMalaysia flight during the Singapore-Malaysia leg? [ICAI RTP – NOV 2014] POPS of services of ‘On-board entertainment’ provided during Bangalore-Delhi leg of Singapore-Bangalore-Delhi Flight Nature of Service • Service on board

Applicable Rule of POPS Rule 12

POPs shall be

POPS for the situation

PoPS = First Scheduled Point of Journey

PoPS = Singapore = Non-TT POPS of service being non-taxable territory, service shall not be chargeable to ST

Note: The service of movie on board and travel by air are provided and charged for separately. There being no bundling, POPS of each service shall be determined separately. The applicable rule for determination of POPS of ‘services provided on-board’ shall be rule 12.

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POPS of services of ‘On-board entertainment’ provided during Singapore-Malaysia leg of Delhi-Bangalore-Singapore- Malaysia Flight … Applying rule 12, the POPS in such case shall be Delhi (i.e., the first scheduled point from where the flight starts). Delhi, being taxable territory, such service would be liable to service tax. Author: • Under Rule 12, POPS shall be determined by the journey of the means of transport and not by the journey completed by each of the passenger. • Further, in case of return trip the return leg of conveyance (means of transport) shall be regarded as separate transport operation.

More questions for practice Service / Activity Data entry service by A Ltd to a German Company

POPS Rule 3 POPS= Location of SR = Germany = Non-TT

Remarks • POPS being Non-TT, no ST leviable. • It qualifies as export of service under Rule 6-A of STR, 1994 and is eligible for export incentives.

2.

Commission Agent’s services by Mr A (Location= Delhi) to Singapore based foreign company for sale of iron ore

Rule 9 POPS = Location of SP = Delhi = TT

• POPS being TT, ST leviable. • It does not qualify as export of service under Rule 6-A of STR, 1994 even if commission is earned in the foreign exchange.

3.

Telecom Service provided by Airtel (Location: Gurgaon) to Mr A (location: Mumbai)

• POPS being TT, ST leviable.

4.

Telecom Company of Mumbai provided telecom service in India to international inbound roamers registered with foreign telecom network operators, who were in India at the time of providing service

Rule 3 POPS = Location of SR = Mumbai = TT [Rule 8 also yields to same results] Rule 3 POPS = Location of SR (foreign telecom operator) = Non-TT

5.

Z in India issues advertisement in TV Media in UK and pays advertisement charges to X, Foreign TV Channel Company

Rule 3 POPS = Location of SR (Z) = TT

6.

Z in India issues advertisement in Print Media in UK and pays advertisement charges to X, Foreign TV Channel Company

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• Service of Advertisement in print media is into negative list • ST not leviable on such service. • There is no need of determination of POPS.

7.

X in USA providing legal consultancy to Z in India in respect of litigation against Z in USA.

• POPS being TT, ST leviable. • Z is liable to pay ST under reverse charge.

8.

X, a CA in J&K provides audit services to Z, located in Delhi

9.

Z wants to participate in exhibition in Germany for which it makes payment to X, organizer of exhibition in Germany, in foreign exchange.

Rule 3 POPS = Location of SR (Z) = TT Rule 3 POPS = Location of SR (Z) = TT Rule 6 POPS = Place where event is held = Germany = Non-TT

10.

Z, an Indian company, intends to provide training to its engineer. Training is provided by X who is in USA. Payment made by Z to X in foreign exchange. X provides training to engineer of Z through vedio conferencing and e-mails.

Rule 3 POPS = Location of SR = Z = TT

• POPS being TT, ST leviable. • Z is liable to pay ST under reverse charge.

11.

X, a software company, in USA provides facility of downloading software. After downloading, X provides a password on payment, so that software can be used for 1 year. Z in India downloads software and makes payment to X through Paypal in Foreign Exchange.

Rule 3 POPS = Location of SR = Z = TT

• POPS being TT, ST leviable. • Z is liable to pay ST under reverse charge.

1.

• POPS being Non-TT, no ST leviable. • It qualifies as export of service under Rule 6-A of STR, 1994 and is eligible for export incentives. [VODAFONE ESSAR CELLULAR LTD – 2013- TRI] • POPS being TT, ST leviable. • Z is liable to pay ST under reverse charge

• POPS being TT, ST leviable. • Z is liable to pay ST under reverse charge. • POPS being Non-TT, ST not leviable.

• • •

. .

Software on CD = Goods [TCS-SC] Software in electronic form is not goods. Hence, transaction of electronic supply of software is ‘service’. Supply of such software is not ‘provisioning of online information/ database access or retrieval service’. Rule 9 is not applicable. Default rule is applicable.

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[Service Tax : Levy of Service Tax] 

Latest Clarification from CBEC

MONEY REMITTANCES from abroad to India: Foreign Money Transfer Service Operator (MTSO) (like Western Union) provide service of transferring money from outside India to Indian recipient in India. This facility is used by persons outside India for remitting money from outside India to their relatives in India. Manner of Transaction: Entire sequence of transactions in remittances of money from overseas through Money Transfer Service Operator (MTSO) route is as under : Step 1 : Remitter located outside India (say 'Mr. A') approaches an MTSO/Bank (say, Western Union / Bank of America) located outside India for remitting the money to a beneficiary in India; ' Western Union / Bank of America' charges as fee from 'Mr. A'. Step 2 : ' Western Union / Bank of America' avails the services of an Indian entity (agent) (say 'Canara Bank') for delivery of money to the ultimate recipient of money in India (say 'Mr. A's father'); 'Canara Bank' is paid a commission/fee by ' Western Union / Bank of America'. Step 3 : 'Canara Bank' may avail service of a sub-agent (M/s. D Money Transfer co.). 'D Money Transfer Co.' charges fee/commission from 'Canara Bank'. Step 4 : 'Canara Bank' or 'D Money Transfer co.,' as the case may be, delivers the money to 'Mr. A's father' and may charge a fee from 'Mr. A's father'. [Usually, no fee is charged from receiver of money but sometimes some fee/charges may be recovered from such receiver of money]

CBEC Circular No 180/06/2014-ST (14th Oct, 2014) Levy of ST on activities involved in relation to INWARD REMITTANCES from abroad to beneficiaries in India through Money Transfer Service Operator (MTSOs) liable to tax in India. Clarification: The Board has clarified as under — a)

Remittance received in India from abroad - Transaction in money - Not service • No service tax is payable on the amount of foreign currency remitted to Indian from overseas. As remittance comprises money, it does not it itself constitute any service in terms of the definition of 'service' u/Sec 65-B(44).

b)

Agency / representational services provided by Indian entity/bank (here, Canara Bank) to a foreign MTSO (here, Bank of America) in relation to money transfer - Amounts to intermediary service & commission, fee, etc. liable to ST • The Indian bank or other entity acting as an agent to MTSO in relation to money transfer, facilitates in the delivery of the remittance to the beneficiary in India. In performing this service, the Indian Bank/entity facilitates the provision of Money transfer Service by the MTSO to a beneficiary in India. For their service, agent receives commission or fee. Hence, the agent falls in the category of intermediary as defined in rule 2(f) of the POP Rules, 2012. • As per Rule 9(c), place of provision of service is the location of service provider. Hence, service provided by an agent, located in India (in taxable territory), to MTSO is liable to ST. • The value of intermediary service provided by the agent to MTSO is the commission or fee or any similar amount, by whatever name called, received by it from MTSO and ST is payable thereon.

c)

Services of sub-agents to main agents also liable to service tax • Services provided by subagents to such Indian Bank/entity located in the taxable territory in relation to money transfer is leviable to ST, as sub-agents also fall in the category of intermediary. Therefore, ST is payable on commission received by subagents from Indian bank/entity.

d)

Sum recovered by Indian agent / sub-agent from recipient of remittance in India - Liable to service tax & further currency conversion services provided to such recipient also liable to service tax • Amount charged separately, if any, by the Indian bank/entity/agent/sub-agent from the person who receives remittance in the taxable territory, for the service provided by such Indian bank/entity/agent/sub-agent would also be liable to service tax, as the service is provided by Indian bank entity/agent/sub-agent to a person located in taxable territory and the Place of Provision is in the taxable territory. • Service tax would apply on the services provided by way of currency conversion by a bank / entity located in India (in the taxable territory) to the recipient of remittance in India, as any activity of money changing comprises an independent taxable activity. For this purpose, service tax is payable in terms of Rule 2B of the Service Tax (Determination of Value) Rules; further, service provider has an option to pay service tax at prescribed rates in terms of Rule 6(7B) of the Service Tax Rules 1994 (COMPOSTION SCHEME)

NOTE: • Earlier Circular superseded : Earlier Circular No. 163/14/2012-ST, dated 10.7.2012 held hat these services are not liable to service tax, as they are covered by Rule 3 of the POP Rules. Said circular has been withdrawn. • Many assesses had not paid ST on this activity on the basis of 2012 CBEC Circular. Hence, retrospective exemption has been granted to activity of money transfer by MTSO for the period (1st July, 2012 to 13th July, 2014). – N/N 19/2015 dated 14th Oct, 2015 Illustration. A of US sends US$ 1,000 to his father in India as follows — • Mr. A pays US$ 1,050 to Western Union (US$ 1,000 + US$ 50 as charges) • Western Union pays US$ 1,030 to Canara Bank (India) (US$ 30 as charges) • Canara Bank pays US$ 1,005 to M/s. D (US$ 5 as charges). • M/s. D pays Rs. 59,900 (US$ 1,000 × Rs. 60 per USD less Rs. 100 towards charges) to Mr. A's father. .

RBI rate has all through been Rs. 61 per US$. Please clarify the taxability of this chain in light of the recent Circular.

© DG Education (P) Ltd

[Service Tax : Levy of Service Tax]

SOLUTION In light of the Circular No. 180/06/2014-, US$ 1,000 remitted by Mr. A to his father is a transaction in money and is therefore, not a service and is not liable to service tax. The taxability of various charges is as follows — Service Provider Service Recipient Amount Taxability $50 Bank of America Mr. A (US) Not taxable (US) [SP (Foreign bank) and SR (Mr A) both are in Non-TT] [Non-TT] [Non-TT] Canara Bank Bank of America $ 30 [Applicable exchange rate shall be Intermediary services under Rule 9(c) of POPS Rules, determined as per Sec 67-A (it may be RBI 2012 (US) or other rate as used for accounting POPS = Rule 9 = Location of SP = TT [Non-TT] [TT] purposes as per generally accepted ST levy attracted accounting principles)] and therefore, taxable in hands of Canara Bank $ 5 [Applicable exchange rate shall be Intermediary services under Rule 9(c) of POPS Rules, M/s. Dalal M/s. Canara Bank determined as per Sec 67-A (it may be RBI 2012 [TT] [TT] or other rate as used for accounting POPS = Rule 9 = Location of SP = TT purposes as per generally accepted ST levy attracted accounting principles)] and therefore, taxable in hands of M/s. Dalal. M/s. Dalal [TT]

M/s. Dalal [TT] .

Mr. A's father [TT]

Mr. A's father [TT]

Margin in currency conversion

Currency conversion services

.

.

Which shall be computed as per Rule 2B of the Service Tax (Determination of Value) Rules, 2006, • TV = US $ 1,000 × [RBI Rate Rs. 61 Payment at Rs. 60] = Rs. 1,000

POPS = Rule 3 = Location of SR = TT ST levy attracted

Rs. 100 additional charges

Liable to service tax in hands of M/s. Dalal

and therefore, taxable in hands of M/s. Dalal.