CA Jigar Parikh Partner K. G. Patel & Co. Chartered Accountants

Baroda Branch of WIRC of ICAI Place of Provision of Service Rules, 2012 27 June 2014 CA Jigar Parikh Partner K. G. Patel & Co. Chartered Accountants

Contents Background Frame work PoPS Rules Discussion Way forward

Parameters – For determining jurisdiction of provision of service K. G. Patel & Co. Chartered Accountants

SNAPSHOT K. G. Patel & Co. Chartered Accountants

Contents Background Frame work PoPS Rules Discussion Way forward K. G. Patel & Co. Chartered Accountants

Frame work - Location of service receiver and service provider • Need of having this Rule: • Service – activity carried out for a consideration in a taxable territory - A shift from transaction based taxation to activity based taxation • Under section 66C(1) in exercise of powers the Central government has framed ‘Place of Provision of Service Rules,2012’ • The place of provision of service rules, 2012 come into force under notification no.28/2012- S.T. Dated,20-6-2012. • Relevance of the Rules: • To determine the place where a service shall be deemed to be provided so as to ascertain the taxing jurisdiction for a service • If a service does not fall in taxing jurisdiction, service is tax free • A Step towards GST K. G. Patel & Co. Chartered Accountants

Frame work - Location of service receiver and service provider A. If the service provider/receiver has obtained only one registration, may be centralized (in case of multiple places) or otherwise (having only one place) - the premises for which such registration is taken is the location B. In other cases i.e. either no registration is taken or multiple registration is taken the location of service provider/receiver is identified sequentially as follows: a. If services are provided from Business Establishment (place where management and control exist) – Place of such business establishment is the location b. If services are not so provided but from other establishment (fixed establishments i.e. which has the permanent presence of human and technical resources to provide/ receive a service) – Place of such fixed establishment is the location a. If the services are provided from / received by more than one locations – the establishment most directly concerned with the provision of service / use of the service is the location b. In the absence of any places mentioned above – usual place of residence is the location. K. G. Patel & Co. Chartered Accountants

Rule 3 - Location of Service Recipient • Provides that service shall deemed to be provided where the service recipient is located • In case, if location of service recipient is not ascertainable in ordinary course of business: • Service shall deemed to be provided where the service provider is located • Applicability – default rule Illustrative list of services covered under Rule 3 (except where both service receiver and provider are located in taxable territory) K. G. Patel & Co. Chartered Accountants

Rule 3 - Location of Service Recipient Meaning of Service Recipient A G Provision of service Payment in FCY Contractual agreement India Outside India O Service recipient – Contractual (O) or beneficial (A)? K. G. Patel & Co. Chartered Accountants

Rule 3 - Location of Service Recipient Meaning of Service Recipient A G (BO) Provision of service Payment of Invoice India Outside India O (HO) Clarification on harmonious interpretation of both these provisions K. G. Patel & Co. Chartered Accountants

Rule 4 –Place of Performance Place of provision of service – location of performance of service • (*) Where service is provided in respect to goods from remote location by way of electronic means, place of provision shall be location where goods are situated at the time of such provision K. G. Patel & Co. Chartered Accountants

Rule 4 –Place of Performance Goods provided is merely an input Seeds A Performs research Provides research report and receives payment Made available by B India Outside India B Relevant Rule - Rule 3 or Rule 4? K. G. Patel & Co. Chartered Accountants

Rule 4 –Place of Performance Goods made available by a person other than the contractual recipient Service provider Customer Provides maintenance free of charge Equipment purchased with 1 year free maintenance Payment for services India Outside India Equipment supplier Relevant Rule - Rule 3 or Rule 4? K. G. Patel & Co. Chartered Accountants

Rule 5 - Location of Immovable Property Place of provision of service – location of immovable property Provides that service provided directly in relation to an immovable property shall deemed to be provided where such immovable property is located or intended to be located K. G. Patel & Co. Chartered Accountants

Rule 5 – Location of Immovable Property • Guidance note provides criteria for determining service provided directly in relation to Immovable Property • Service is physically performed or agreed to be performed on specific immovable property or property to come into existence • Immovable property is the direct object of the service in the sense that the service enhance the value of property or affects the nature of the property • Purpose of service is to: • Transfer or conveyance of the property or propose to transfer or conveyance the property • Determination of title of the property • Does not cover services having indirect or incidental connection between service provided in relation to immovable property and the underlying immovable property K. G. Patel & Co. Chartered Accountants

Rule 5 – Location of Immovable Property Oil Extraction platform L & T Provides designing/ engineering services and receives consideration in Forex India Outside India Contractual arrangement to provide designing/ engineering services NY Inc. Relevant Rule - Rule 3 or Rule 4? K. G. Patel & Co. Chartered Accountants

Rule 6 – Location of occurrence of Event Place of provision of service – location of event Coverage of the Rule: Services: - in relation to admission; - by way of organising cultural, artistic, sporting, scientific, educational, or entertainment event, or a celebration, conference, fair, exhibition, or similar event; - ancillary to admission of an event K. G. Patel & Co. Chartered Accountants

Rule 6 - Location of Event Prospective Students Road Show Organisor Attend Plans and organise show India Pay participation fees Pay for planning and organizing Outside India Management School K. G. Patel & Co. Chartered Accountants

Rule 7 – Multi - location performance • Provides that service (stated in Rule 4, 5 or 6) provided from multiple locations, including location in taxable territory, shall deemed to provided in the taxable territory where the greatest proportion of service is provided. Chennai (12%) Mumbai (23%) Singapore (55%) Delhi (10%) K. G. Patel & Co. Chartered Accountants

Rule 8 – Location of receiver and provider Place of provision of service – location of Service Provider Covers situations where place of provision of service outside the taxable territory, however service provider and recipient located in taxable territory – PoPS is locatio of service recipient A B Contractual arrangement India Outside India Setting up laboratory of B K. G. Patel & Co. Chartered Accountants

Rule 9 - Location for specified services Place of provision of service – location of Service Provider Following are the specified services where the place of provision is the location of the service provider:- i) Services provided by a banking company, or a financial company, or a non-banking financial company to account holders; ii) Online information and database access or retrieval services; iii) Intermediary services; iv) Service consisting of hiring of means of transport, up to a period of one month. K. G. Patel & Co. Chartered Accountants

Rule 9 - Location for specified services • Intermediary Services • A broker, an agent or any other person who arranges or facilitates provision of services between two or more persons • • Involved with two or more supplies at any one time: • - supply between the principal and the third party • - supply of his own service (agency service) to his principal Tour Operator Stock Broker Illustration of services Travel Agent Commission Agent ? For goods • Indian Agents providing service to overseas money transfer service provider For service • . K. G. Patel & Co. Chartered Accountants

Rule 9 – Intermediary services Service of Sub - contractor ABC Sub contracts marketing and facilitation India Markets and facilitates insurance services Outside India XYZ Customer Engages to market and facilitate insurance service Insurance Company K. G. Patel & Co. Chartered Accountants

Rule 9 – Online information & Database access or retrieval service ABC Payment of subscription charges India Outside India Money Value inc. K. G. Patel & Co. Chartered Accountants

Rule 10 – Transportation of goods • Provides that place of provision of service with respect to transportation of goods shall be the place of destination of the goods • Said rule not applicable in case of transport of goods by way of mail or courier (covered under Rule 4) • Place of provision of service for Goods Transport Agency shall be the location of person liable to pay tax Transport of goods by vessel K. G. Patel & Co. Chartered Accountants

Rule 10 – Transportation of goods • Service of Freight Forwarder • - Clearance of goods; service of loading / unloading of goods • - includes agency charges and other charges (Bundled services) – Taxable entirely • - What if contract is separated in to (a) outside India services (b) ocean freight & (c) services in India Transport of goods by vessel (Ocean Freight) K. G. Patel & Co. Chartered Accountants

Rule 10 – Transportation of goods Place of provision of service – Destination of goods* *In case of GTA – place of provision of service is location of person liable to make payment of freight; *Destination of goods other then mail and courier K. G. Patel & Co. Chartered Accountants

Rule 11 and 12 • Rule 11 – Transportation of passenger • Place of provision of service with respect to Passenger Transportation Service shall be the place where passenger embarks on the conveyance for a continuous journey • “Continuous journey” means: • a journey for which a single or more than one ticket or invoice is issued at the same time, • either by one service provider or through one agent acting on behalf of more than one service provider, and • which involves no stopover between any legs of the journey for which one or more separate tickets or invoices are issued • Rule 12 – On Board a Conveyance • Place of provision of service provided on Board during the course of Passenger Transport Operation, intended to be wholly or partially consumed while on Board shall be the first scheduled point of departure of that Conveyance for the journey K. G. Patel & Co. Chartered Accountants

Rule 13 and 14 • Rule 13 – Power to notify description of service • Central Government has the power to notify the description of service or circumstance in which the place of provision shall be the effective use and enjoyment of a service • The said Rule provide powers in order to prevent double taxation or non taxation of provision of service • Rule 14 – Order of Application of Rules • Where more than one Rule is applicable for determining the place of provision of service, the same shall be determined in accordance with the Rule that occur later among the Rules that merit equal consideration K. G. Patel & Co. Chartered Accountants

Queries and discussion K. G. Patel & Co. Chartered Accountants

Discussion • Place of Provision of Service Rules & SEZ • Location of SEZ well with in ‘taxable territory’ and hence services provided are taxable (Shobha Developers – 276 ELT 214) • Exemption provided by Notification 40/2012 – ST; Services wholly consumed in SEZ for authorized operations of SEZ • Taxability on sub-contractor – intermediary (Exemption only if received by SEZ unit / SEZ developer) • Impact on Cenvat credit – Whether reversal required – Rule 6 of CCR, 2004? • Rule 6(6A) as amended w.e.f. 1-7-2012 specifically provides that provisions of rules 6(1) to rule 6(4) shall not apply to; • services provided to SEZ unit or developer for their authorised operations, without payment of service tax or • export of service. K. G. Patel & Co. Chartered Accountants

Discussion • Whether service tax liability is attracted when place of provision of service as determined by applying these rules is outside India? • An Indian author has allowed an International Publisher in Germany to publish a book against some Royalty say 10% of Published Price against sale of Books in Foreign countries except India and the royalty in earned in Foreign currency. • Does it comes under the perview of service tax ? If so, whether it can be treated as export of service. (Intellectual property services) • A hotel is tying up a worldwide marketing group (not having any permanent establishment in India) who are charging one time fee with the nomenclature of joining fee & Membership Fee and also some recurring charges in the name of maintenance / Quality Assurance Fee & marketing charges. • Whether Service Tax is applicable on the same under reverse mechanism? (Promotion and marketing Service) • We are the resident Co. of Nepal. Indian Co. provided us services for Repairing of Machinery at our Plant. Payment will be sent in Indian Rupees. (Repairs and Maintenance Services) K. G. Patel & Co. Chartered Accountants

Discussion • Africa based Company is arranging series of seminars to ‘save tigers’ across world under contract with Animal Lovers Limited, Jaipur at various locations namely Jamaica, Gir, London, Singapore. What will be the place of provision? • Indian company is procuring orders for supply of goods / machines from other Indian Companies for a foreign Company and earning commission from the foreign company in foreign currency. Would service tax be applicable on the commission earned by the Indian Company? (Business Auxiliary Service) • When the Event management company of Malaysia is contracted by Red Chilli Entertainment to organize film fare awards at Pataya . what is place of provision of service? • Whether banking services by SBI to a Bank of America bank is covered in Rule 9? (Lead banker or similar) • Whether taxation services, international advisory assignment services provided online to US clients by an Indian tax consultancy firm is covered as online information and data base access and retrieval services in Rule 9 of POP Rules? • Whether the design services to US company by Indian firm in relation to construction of a complex in Bangalore is liable to service tax in India? K. G. Patel & Co. Chartered Accountants

Discussion • What is place of provision of service in respect of coaching by Bangalore coaching academy to US company employees provided in USA? • What is place of provision of service when movie on demand is provided on board a flight from Mumbai to USA? K. G. Patel & Co. Chartered Accountants

Way Forward • Review business transactions • undertaken outside India • with establishments located outside India • in the State of J&K • with HO or BO • to determine place of provision • Make necessary changes in contract and other documentation • Identify points for clarification/ representation K. G. Patel & Co. Chartered Accountants

Pre-Budget Memorandum by ICAI – Interim Budget K. G. Patel & Co. Chartered Accountants

THANK YOU CA Jigar Parikh E-mail – jigar@kgpco.in The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although the endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. K. G. Patel & Co. Chartered Accountants

Export of Service • Whether if place of provision of service is outside India as per Place of provision of Services Rules, is it considered as export of services? • (i) the provider of service is located in the taxable territory; • (ii) the recipient of service is located outside India; • (iii) the service is not a service specified in the section 66D of the Act (Negative List); • (iv) the place of provision of the service is outside India; • (v) the payment for such service has been received by the provider of service in convertible foreign exchange; and • (vi) the provider of service and recipient of service are not merely establishment of a distinct person in accordance with item (b) of Explanation 2 of clause (44) of section 65B of the Act. K. G. Patel & Co. Chartered Accountants

CA Jigar Parikh Partner K. G. Patel & Co. Chartered Accountants