2 Place of Provision of Service For the sake of brevity Place of Provision of Service Rules, 2012 have been referred to as PoPS Rules. Question 1 XY & Co., an architectural firm based in Delhi, provides professional services to an Indian Hotel Chain (which has business establishment in Mumbai having centralised registration) in respect of its newly acquired land in London. The Hotel Chain intends to construct a Hotel on that land in London. XY & Co. has designed the site plan and lay out of the proposed Hotel building. State whether the service would be taxable in India on the basis of PoPS Rules. Answer 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. Thus, on application of rule 5 in the instant case, place of provision of service is London and consequently, the service would not be taxable in India. However, as per rule 8 of the PoPS Rules, where the location of the provider of service as well as that of the recipient of service is in the taxable territory, the place of provision of service would be the location of the recipient of service. Since in the given case, both the service provider and the service receiver are located in taxable territory, on application of rule 8 in the instant case, the place of provision would be the location of the service receiver i.e. Mumbai and consequently, the service would be taxable in India. As per rule 14 of the PoPS Rules, if the place of provision of service is determinable in terms of more than one rule, the same is determined as per the rule that occurs later. Therefore, the place of provision in this case will be Mumbai and the service will be taxable in India (as per rule 8). Question 2 Determine the place of provision of services as well as their taxability in each of the following cases:

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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. (vi) ABC Testings 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 Testings Ltd. for the purpose of testing. The testing is carried out in Gujarat (10%), Kerala (30%), and Canada (60%). Answer (i)

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.

(ii) 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]. (iii) 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. The fact that service providing company is located in USA and service recipient is located in Mumbai (India) is not significant.

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Service Tax

(iv) Although all the locations given in this case fall within the taxable territory, PoPS Rules are still applicable as these rules are also useful for those service providers who operate from multiple locations within India without having centralised registration for the purpose of determining the precise taxable jurisdiction applicable to their operations. 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 [Rule 7 of the PoPS Rules]. Therefore, in the present case, ABC Ltd. is liable to pay service tax and the place of provision of services would be Gujarat because greatest proportion of taxable service [i.e. 60%] is provided there. (v) 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]. (vi) 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 [Rule 7 of the PoPS Rules]. 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. Question 3 List any two advantages derived by exporters of taxable services. Answer The advantages that can be derived by exporters of taxable services are: (i)

They can claim rebate of service tax paid on input services or duty paid on inputs, as the case may be, used in providing the service that is exported in terms of rule 6A(2) of the Service Tax Rules, 1994, or

(ii) They can claim refund of CENVAT credit under rule 5 of the CENVAT Credit Rules, 2004. It may be noted that out of the above two benefits, only one can be obtained at a time i.e., both the benefits cannot be availed at the same time. Question 4 ABC Ltd., an Indian company, provides a taxable service to its other establishment in USA. Can the services provided by an establishment of a person in a taxable territory to another

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establishment of the same person in a non-taxable territory be considered as export of service? Answer No. Even though such persons have been specified as distinct persons under Explanation 3 to section 65B(44), yet the transaction between such establishments have not been recognised as export of service in terms of rule 6A(1)(f) of the Service Tax Rules, 1994. As a consequence, there cannot be any export of services between ABC Ltd. and its other establishment in U.S.A. Question 5 Based on the PoPS Rules, determine the place of provision of service as well as their taxability in each of the following independent cases: (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. Answer (1) In this situation, if rule 5 of the PoPS Rules is applied, then place of provision of service would be location of property which is Afghanistan. Since Afghanistan falls within non taxable territory, the foregoing construction services will not be taxable. However, if rule 8 of the PoPS Rules is applied, the place of provision of service will be the location of the service receiver i.e., Gujarat [which falls within the taxable territory] and resultantly, construction services will be taxable. As per rule 14 of the PoPS Rules, if the place of provision of service is determinable in terms of more than one rule, the same is determined as per the rule that occurs later. Therefore, the place of provision in this case will be Gujarat and the service will be taxable (as per rule 8). (2) In this case, since specific sites in respect of which mineral exploration is to be carried out are located in Zimbabwe, the place of provision of service as per rule 5 of the PoPS Rules will be Zimbabwe which does not fall within the ambit of „taxable territo ry‟ and resultantly these services will not be taxable. The fact that service providing company is located in UK and service recipient is located in Chennai (India) is not significant. Question 6 What is the place of provision of service in the following independent cases?

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Service Tax PQ Trade Links of Hyderabad are appointed as commission agent by a foreign company for sale of its goods to Indian customers. In lieu of their services, PQ Trade Links receive a fixed percentage of commission from the concerned foreign company.

(ii) ST Fabricators of Mysore has temporarily imported certain goods from its customer located in Egypt for repairs. The said goods have been re-exported to Egypt after carrying out the necessary repairs without being put to any use in Mysore. Answer (i)

As per rule 9(c) of PoPS Rules, place of provision of intermediary services is the location of service provider. The definition of term “intermediary” as provided under rule 2(f) of PoPS Rules includes the intermediary of goods in its scope. The definition provides that “intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the main „service) or a supply of goods, between two or more persons, but does not include a person who provides the main service or supplies the goods on his account. Accordingly, commission agent of goods are covered under rule 9(c) of PoPS Rules. Thus, the place of provision of services provided or agreed to be provided by PQ Trade Links (as commission agent of goods) to foreign company will be the location o f service provider i.e., Hyderabad.

(ii) Rule 4(a) of PoPS Rules provides that the place of provision of services provided in respect of goods that are required to be made physically available by the recipient of service to the provider of service in order to provide the service, is the location where the services are actually performed. However, second proviso to rule 4(a) lays down that clause (a) of rule 4 will not apply in the case of a service provided in respect of goods that are temporarily imported into India for repairs and are exported after the repairs without being put to any use in the taxable territory, other than that which is required for such repair. Consequently, such a case will be covered under rule 3 of PoPS Rules (general rule) and the place of provision of service will be the location of service receiver. In the given case, goods have been temporarily imported by ST Fabricators and have been re-exported after the repairs without being put to any use in Mysore (taxable territory). Therefore, place of provision of repair services carried out by ST Fabricators will be determined by rule 3 of PoPS Rules. Consequently, the place of provision of service will be the location of service receiver i.e. Egypt. Question 7 With reference to PoPS Rules, answer the following question:

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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 ` 500 per passenger in addition to the fare of ` 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-Singapore-Malaysia flight during the Singapore-Malaysia leg?

(ii) 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, 2013, Mr. Sumit opened a safe deposit locker with the Ahmedabad Branch of Safe and Sound Bank. Mr. Sumi t went to USA for official work in December, 2013 and has been residing there since then. Mr. Sumit contends that since he is a non-resident during the year 2014-15 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 2014-15. Examine the correctness of the contention of Mr. Sumit. Answer (i)

As per rule 12 of PoPS Rules, the place of provision of services provided on board a conveyance during the course of a passenger transport operation, including services intended to be wholly or substantially consumed while on board, shall be the first scheduled point of departure of that conveyance for the journey. Hence, in this case the place of provision of this service will be Singapore, which is outside the taxable territory. However, if the above service is provided on a Delhi-Bangalore-Singapore-Malaysia flight during the Singapore-Malaysia leg, then the place of provision of this service will be Delhi, which is in the taxable territory.

(ii) 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. As per section 66B of Finance Act, 1994, service tax is levied on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another. As per rule 9 of PoPS Rules, 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. Account has been defined under rule 2(b) of PoPS Rules to mean an account bearing interest to the depositor, and includes a non-resident external account and a nonresident 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.

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Service Tax Since, in the present case, services (safe deposit locker) are provided by Ahmedabad Branch of Safe and Sound Bank to an account holder (Mr. Sumit), rule 9 of PoPS Rules will apply. Thus, the place of provision of service would be Ahmedabad and since Ahmedabad falls in taxable territory, locker fee would be liable to service tax.

Question 8 Briefly explain the following: (i)

"Intermediary services" under the PoPS Rules.

(ii) Place of provision of service of hiring of means of transport. Answer (i)

Intermediary is defined under rule 2(f) of PoPS Rules. The definition provides that intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the main „service‟) or a supply of goods, between two or more persons, but does not include a person who provides the main service or supplies the goods on his account. Accordingly, services provided by an intermediary in respect of both goods or services are covered under rule 9 of the PoPS Rules and thus, the place of provision for the same would be the location of service provider.

(ii) Rule 9(d) of PoPS Rules provides that the place of provision of service consisting of hiring of means of transport excluding vessels (except yachts) and aircrafts, upto a period of one month; is the location of the service provider. Therefore, hiring of vessels or aircraft, whether for upto one month or more, will be covered by the general rule 3 of PoPS Rules, i.e., the location of the service receiver. Hiring of yachts would, however, continue to be governed by rule 9 of PoPS Rules i.e., in case of hiring of yachts upto one month, the place of provision of service would be the location of service provider. Question 9 Mention the services specified in rule 9 of the PoPS Rules in respect of which, the place of provision shall be the location of the service provider. Answer As per rule 9 of the PoPS Rules, the place of provision of the following services shall be the location of the service provider: (a) Services provided by a banking company, or a financial institution, or a non-banking financial company, to account holders; (b) Online information and database access or retrieval services; (c) Intermediary services;

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(d) Service consisting of hiring of all means of transport other than,(i)

aircrafts, and

(ii) vessels except yachts, upto a period of one month.

Exercise 1.

Determine the place of provision of service in each of the following independent cases:(i)

ABC School of Business, a management school located in USA, intends to organize road show in Delhi. Mr. A, provides event management services in relation to such road show.

(ii)

An Indian Fashion Designing firm hosts a show at Toronto, Canada. The firm receives services of Canadian Event Manager.

(iii) A helicopter of Pawan Hans Ltd (India based) develops a technical snag in Nepal. The engineers are deputed by Hindustan Aeronautics Ltd., Bangalore, to undertake repairs at the site in Nepal. 2.

Determine the place of provision of service in each of the following independent cases:(i)

A consignment of cut flowers is consigned from Chennai to Amsterdam.

(ii)

A consignment of crystal ware is consigned from Paris to New Delhi.

(iii) 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. (iv) A video game or a movie-on-demand is provided on a Delhi-Kolkata-Bangkok-Jakarta flight during the Bangkok-Jakarta leg.

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