Place of Provision of Services Rules, 2012 (Section 66C)

PresentsA Knowledge master classOn

Understanding New Regime of Service Taxation in India

Conducted byDr. Sanjiv AgarwalFCA, FCS

Friday,1st February, 2013Mumbai Dr. Sanjiv Agarwal 1Corporate Knowledge Foundation

SESSION IV

Place of Provision of Services and Other Amendments 2Corporate Knowledge Foundation

This Presentation Covers

Reverse Charge Provisions Concept, Conditions , Full / Partial Reverse Charge Abatements Conditions, Services, Rates , Specific IssuesPlace of Provision of Services Recent Developments in Service Tax

3Services under Reverse Charge

3Changes in Reverse Charge MechanismAuthority for reverse charge u/s 68(2) of Finance Act, 2012

Person liable to pay tax Rule 2(1)(d) of Service Tax Rules, 1994

W.e.f. 1.7.2012, a new scheme of taxation is applicable whereby the liability of payment of service tax shall be both on the service provider and the service recipient (Notification No. 30/2012-ST, dated 20.6.2012 )

The extent to which tax liability has to be discharged by the service receiver specified in the notification.

4Changes in Reverse Charge MechanismCredit of tax paid can be availed by service recipient if it is input service

The credit of tax paid by the service recipient under partial reverse charge would be available on the basis on the tax payment challan (but invoice required)

Service provider under RCM may claim refund of tax paid under rule 5(b) of CCR, 2004

5Liability to pay tax under Reverse Charge by Service Receiver

Under Partial Reverse Charge (Proportional)

Renting of motor vehicles Manpower supply & security services Works contracts

Under Full Reverse Charge (100%)Insurance related services by agentsgoods transportation by roadsponsorship arbitral tribunals legal services company director's servicesservices provided by Government / local authority excluding specified services services provided by persons located in non-taxable territory to persons located in taxable territory.

6Important Points in Reverse Charge Mechanism

Governed by Notification No. 30/2012-ST dated 20.06.2012 w.e.f. 1.7.2012Liabilities of both the service provider and service receiver are independent of each other Reverse charge will not apply where the service receiver is located in non-taxable territory For three specified services provided by business entities being company, society, cooperative society, trust etc, reverse charge will not apply.Reverse charge will also not apply where the service recipient is any person or business entity not being a body corporate in case of three specified servicesSmall scale benefit is available only to service provider (not to service receiver), if entitled

7Important Points in Reverse Charge MechanismService receiver under reverse charge cannot avail exemption of Rs. 10 lakh under Notification No. 33/2012-ST dated 20.06.2012 Valuation of services by services provider and service receiver can be on different principles, if permitted by law (e.g. works contract - Refer Notification No. 30/2012-ST, explanation II) Liability to pay Service Tax for ongoing contracts will be as per Point of Taxation Rules, 2011Reverse charge shall not be applicable if provider of service was liable before 1.7.2012 Service Tax will not be payable by service receiver under reverse charge, if service was provided prior to 1.7.2012, even if payment is made after 30.06.2012

8Important Points in Reverse Charge MechanismIn case of proportional reverse charge (manpower supply & security, works contract and motor vehicle hire to carry passengers), it is advisable that service provider should charge Service Tax only on his portion of Service Tax in the invoice and mention that Service Tax on balance amount is payable by service receiver.

It is the statutory obligation on the service recipient to pay Service Tax, whether under full or proportional reverse charge Service Tax under reverse charge has to be paid by cash vide GAR Challan No. 7 and it cannot be paid by way of utilization of Cenvat Credit.

9Important Points in Reverse Charge MechanismIn case of renting of motor vehicles to carry passengers where abatement is also available, reverse charge basis is proportional depending upon the abatement on the condition that no Cenvat Credit has been availed. The service provider should provide a certificate, either in the invoice itself or separately.

In case of renting of motor vehicle to carry passengers, reverse charge applies only where the motor vehicle is provided with driver and service receiver is not engaged in same business.

In case of director's services, the service provider should not be employed (whole time) director. Employees are not covered under the scope of Service Tax.

10Important Points in Reverse Charge MechanismIn respect of manpower supply and security services, works contract services and renting of motor vehicles to carry passenger, reverse charge shall be applicable only when following two conditions are satisfied

service receiver is a business entity registered as a body corporate, and service provider is any one of the following entities Individual Hindu undivided family (HUF) Firm (including limited liability partnerships) Association of persons If both the above conditions are not satisfied in respect of these three services, Service Tax shall be payable by the service provider in ordinary course.

Security services means services relating to the security of any property, whether movable or immovable, or of any person, in any manner and includes the services of investigation, detection or verification, of any fact or activity

11Reverse Charge for Legal ServicesService ProviderService ReceiverIndividual Advocate / Firm / LLP

Business entity with turnover > Rs 10lakhsin preceding financial yearArbitral TribunalBusiness entity with turnover > Rs 10lakhin previous financial year

12Reverse Charge Mechanism under various servicesSr. NoDescription of ServiceServiceproviderService receiver1.Services provided by an insurance agent to any person carrying on insurance businessNil100%2.Services provided by a goods transport agency in respect oftransportationof goods by roadNil100%3.Services provided by way of sponsorshipNil100%

13Reverse Charge Mechanism under various servicesSr.NoDescription of ServiceServiceproviderService receiver4.Servicesprovided by an arbitral tribunalNil100%5.Servicesprovided by individual advocate or a firm of advocates by way of legal servicesNil100%

5A.in respectofservicesprovided or agreed to be providedby a director of a company to the said company ( w.e.f 7.08.2012)Nil100%6.Servicesprovided by Government or local authority by way of support services excluding,-renting of immovable property,postal servicestransport of goods / passengersair craft or vesselNil100%

14Reverse Charge Mechanism under various servicesSr.NoDescription of ServiceServiceproviderService receiver7.Hiring of Motor Vehicle(a)renting of a motor vehicle designed to carry passengerson abated valueto any person not engaged in the similar line of business(b) renting of a motor vehicle designed to carry passengerson non abated valueto any person who is not engaged in the similar line of businessNil

60%100 %

40%8.Services provided by way of supply of manpower for any purposeor security services ( w.e.f 07.08.2012)25%75 %

15Reverse Charge Mechanism under various servicesSr.NoDescription of ServiceServiceproviderService receiver9.Servicesprovided in service portion in execution of works contract50%50%10.Servicesprovided by any person who is located in a non-taxable territory and received by any person located in the taxable territoryNil100%

16Reverse Charge ObligationsService ProviderService ReceiverService Tax Payable byIndividual /HUF/Partnership firm /AOPBusiness entity body corporateJointIndividual /HUF/Partnership firm /AOPIndividual /HUF/partnership firm /AOP100 % by service providerBusiness entity Body Corporate / CompanyIndividual /HUF/Partnership firm /AOP100 % by service provider

Business entity Body CorporateBusiness entity Body Corporate100 % by service provider

17Abatements in Service Tax

Besides full exemption to 39 categories of services vide Notification No. 25/2012-ST dated 20.06.2012Earlier there were a number of exemption notifications that prescribed the abatements for various categories of services (including 1/2006)Abatements merged into a single Notification No 26/2012 - ST dated 20/6/12 Valuation rules contain abatement for Works Contract and Supply of Food Services

18Specific AbatementsSl. No.Description of taxable serviceTaxable value(%)Conditions1Financial leasing services including equipment leasing and hire purchase10Nil2Transport of goods by rail(exemptedupto30.9.2012)30Nil3Transport of passengers, with or without accompanied belongings by rail ( exemptedupto30.9.2012)30Nil4Supply of food or any other article of human consumption or any drink, in a premises, including hotel, convention center, club, pandal, shamiana or any place specially arranged for organizing a function70CENVAT credit on anygoodsclassifiable under chapter 1 to 22 of the Central Excise Tariff Act, 1985 has not been taken under the provisions of the CENVAT Credit Rules, 2004.

19Specific AbatementsSl. NoDescription of taxable serviceTaxable value(%)Conditions5Transport of passengers by air, with or without accompanied belongings40CENVAT crediton inputs or capitalgoods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.6Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes60Same as above.7Transport of goods by road by Goods Transport Agency25CENVAT credit oninputs, capital goods and input services, used for providing the taxable service, has not been takenunder the provisions of the CENVAT Credit Rules, 2004.8Services provided in relation to chit70Same as above.

20Specific AbatementsSl. NoDescription of taxable serviceTaxable value(%)Conditions9Renting of any motor vehicle designed to carry passengers40Same as above.10Transport of goods in a vessel from one port to another50Same as above.11Tour operator services(i) provided by a tour operator in relation to a package tour25(i) CENVAT credit oninputs, capital goods and input services,used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.(ii) The bill issued for this purpose indicates that it is inclusive of charges for such a tour.

21Sl. NoDescription of taxable serviceTaxable value(%)Conditions(ii) provided by a tour operator in relation to a tour, solely arranging or booking accommodation10(i) CENVAT credit oninputs, capital goods and input services,used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.(ii) The invoice, bill orchallanissued indicates that it is towards the charges for such accommodation.(iii) This exemption shall not apply in such cases where the invoice, bill orchallanissued by the tour operator, in relation to a tour, only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation.Specific Abatements

22Sl. NoDescription of taxable serviceTaxable value(%)Conditions(iii) Services, other than services specified above in (i) or (ii)40(i) CENVAT credit oninputs, capital goods and input services,used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.(ii) The bill issued indicates that the amount charged in the bill is the gross amount charged for such a tour.Specific Abatements

23Sl. NoDescription of taxable serviceTaxable value(%)Conditions12.Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority25(i) CENVAT credit oninputsused for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004.

(ii) The value of land is included in the amount charged from theservice recipient.Specific Abatements

24Specific AbatementsDraft Circular F. No.354 /146/2012 TRU dated 27.09.2012 (Air Travel)Charges which are directly related to journey such as re-confirmation fee, date change fee, seat upgrade fee, preferred seat charges etc. will be covered by abatement

Charges which are not related to journey such as meal charges, escort charges etc. will not be covered by abatement.

Excess baggage charge may be leviable to service tax without abatement

Pet charges may be leviable to service tax without abatement

For cancellation charges billed separately as administrative charge, abatement will not be applicable

25

Place of Provision of Service Rules, 2012Purpose is to identify taxing jurisdiction for a serviceIn earlier regime focus was to determine taxability in case of exports and imports only. Present rules replace Export and Import Rules and define local jurisdiction;Meant for cross border services, services to J & K, service providers operating from multiple locations, determining services wholly consumed in SEZ and a precursor to GST.

26 Important Terms of POPSLocation of Service Provider or ReceiverBusiness Establishment - Place Where essential decisions concerning the general management are adopted and functions of its central administration are carried out. A service provider or receiver can have only one business establishment Fixed Establishment -Place other than Business Establishment which has permanent presence of human and technical resources to provide or receive serviceUsual Place of Residence Body Corporate : place where incorporated, Individual : place where he spends most of his time for the period in question or where he lives with his family and is in full time employment. An individual cannot have more than one place of usual residence.

27Place of Provision of ServicesWhat is the place of provision of services

Performance based services Location of performance

Immovable property related services Location of immovable property

Services relating to events Location of event held

28Place of Provision of Services Services provided at more than one location Location in the taxable territory where the greatest proportion of service is provided.

Services where both service provider and receiver are located in the taxable territory Location of service receiver

Specified services Location of service provider.

Goods transportation services Place of destination of goods. (In GTA Service Location of the person liable to pay tax

Passenger Transportation service Place were the passenger embarks.

Services provided on board a conveyance Location of first scheduled point of departure.

29Rule 3- Default Rule Place of provision is the location of the service receiver

In case, when location of the service receiver is not ascertainable, location of the service provider is the place of provision of service

30Rule 3- Default Rule AService ProviderXService ProviderBService ReceiverYService ReceiverTaxable TerritoryNon- Taxable TerritoryTaxable for ATaxable for BNot Taxable

31Rule 4- Performance based servicesPlace of provision is the location where services are actually performedExamples: Services in respect of goods to be physically made available by receiver (repair, storage / warehousing, technical testing, dry-cleaning, cargo handling etc). Market research reports, CA reports do not fall here.Indian engineers going to US to repair a ship not taxable in India.Foreign engineers coming to India to repair a ship taxable in India.Services provided from a remote location by electronic means taxable where goods located at that time.

32Rule 5-Services relating to immovable property Place of provision is where immovable property is located Applicable for services directly connected with immovable property. Examples:Services in course of construction, alteration, repair, maintenance etc;Renting of immovable property;Services of real estate agents, architects, engineers etc relating to land, building or civil engineering works;Services connected with oil / gas / mineral exploration;surveying; property management services, hotel accommodation

33Rule 6- Service relating to EventsPlace of provision is the place where event is actually held.Covers admission to events , organizing events and ancillary services ExamplesConventionsConferencesExhibitionsFairsSeminarWorkshops , wedding , sports etc.

34Rules 7- Services from different location Place of provision - Part performance of service at different locations then the location where greatest portion of service is provided Where any service stated in 4, 5, 6 is provided at more than one location including a location in taxable territory and one or more location is outside taxable territory - The place of provision shall be the location in taxable territory where greatest proportion of service is provided.Example:Technical inspection and certification of a product by carrying out testing at two locations in India and one outside India. Taxable in the Indian state where a higher stake is involved.

35Rule 8- Both service provider and service receiver located in taxable territory Place of provision where provider and recipient is in taxable territory then the location of service receiver will be the place of provision Where provider and recipient are both in taxable territory even when the actual provision takes place outside taxable territory the taxation shall arise in India. ExampleIndian plane needs repair while in US. Indian maintenance agency sends its engineers to US for repairs or hires engineers in US to repair the plane.This transaction will be taxable in India superseding earlier clauses.

36Rules 9 and 10Place of provision in case of specified services location of service providerExamplesBanking service (to account holders)Online information and database access or retrieval;Intermediary ServicesHiring of means of transport up to a month

Rule 10- Transportation of goods place of destination of goods - except in GTA by road where place of provision is location of person liable to pay tax.

37Rules 11 & 12 & 14Rule 11 Passenger transportation services place where passenger embarks on conveyance for continuous journey.

Rule 12- services provided onboard conveyances First scheduled point of departure of conveyance for journey E.g. on board service of provision of movies, music, games, beauty treatment etc.

Rule 14- Order of application of Rules- where more than one rule applies, rule that occurs later is relevant rule.

38Valuation of Services ReimbursementsGross amount charged by the service provider for such services provided or to be provided (Section 67)Service Tax (Determination of Value) Rules, 2006, Rule 5 Inclusions in or exclusion from value of expenditure / costsExpenditure / costs incurred in course of providing services treated as considerationExpenditure / costs incurred as pure agent of recipient of service excluded conditionally RE arises where person paying is under no obligation to pay and pays on behalf of otherOnly when service recipient is having obligation, (legal or contractual) to pay certain amount to any third party and such amount is paid by service provider on behalf of service recipient, question of RE arises [ Sri Bhagavathy Traders v. CCE (2011) 24 STR 290 Cestat-LB]

39Intercontinental Consultants and Technorats Pvt. Ltd. v U.O.I. 2012 (12)TMI 150 (Delhi HC- DB)Earlier stayed (2008)12 STR 689 (Delhi)Petitioner providing consulting engineering services in respect of highway projects to NHAIReceives payment not only for its service but also reimbursed (out of pocket) expenses incurred on hotel, travel etc.Held not to pay service tax on reimbursed expensesRule 5 is ultra-vires of the provisions of section 66 and 67 of the Act.

Reimbursement of Expenses

40Reimbursement of ExpensesCharge of service tax cannot exceed gross amount chargedThe word for such service are important in Section 66/67Rule 5 exceeds rule making authority u/s 67 /94Expenditure or costs incurred by service provider can never be included in gross amount charged Rule 5(i) and its illustration may lead to double taxationDefinition of gross amount charged not wide enough to include RECharge of service tax u/s 66 also excludes RERequirement to lay Rules before Parliament doesnt save invalid Rules.

41CBEC Circular No. 967/1/2013 dated 1.1.2013 [based on Collector of Customs, Bombay v Krishna Sales Pvt. Ltd. (1993) 9 TMI 124(SC)]Recovery proceedings to be initiated against a confirmed demand if Appeal to Commissioner (Appeal)No appeal is filed against OIO - after expiry of 60 days for filling appealAppeal filed without stay application after such an appeal has been filedAppeal filed with stay application within 30 days from the day of appeal filed or if heard and no stay is granted , whichever is earlier

Recovery Proceedings

42Appeal to TribunalNo appeal is filed against OIO - after expiry of 90 days from OIO Appeal filed without stay application after appeal has been filedAppeal filed with stay application within 30 days from the date of appeal filed or if heard and no stay is granted , whichever is earlier No appeal is filed against OIA confirming demand for first time - after expiry of 90 days from OIAAppeal filed against OIA confirming demand for first time without stay application to CESTAT immediately after appeal has been filed

Recovery Proceedings

43Appeal filed against OIA conforming demand for first time with stay application to CESTAT with in 30 days from the day of appeal filed or if heard and no stay is granted , whichever is earlier All cases where Commissioner (Appeals) confirms demand in OIO Immediately on the issue of OIATribunal or high court confirms the demand immediately , if no stay is in operation

Recovery Proceedings

44In Ultratech Cement Ltd. v UOI, by Andhra Pradesh High CourtIn Exide Industries Limited v UOI by Bombay High Court Interim stay against recovery of the amount involved, till the appellate authority disposes of the application for stay

Circular on Recovery Proceedings Stayed

45THANK YOU FOR YOUR PRECIOUS TIME AND ATTENTIONDr. Sanjiv AgarwalFCA, FCS, Jaipurasandco@gmail.comsanjivservicetax@gmail.com46