Place of Provision of Service Rules 2012 CA Dhruvank P. Parikh 11/12/2013CA Dhruvank Parikh

Relevance  There shall be levied a tax (herein after referred to as Service Tax) at the rate of twelve percent 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 and collected in such manner as may be prescribed. (Section 66B of the FA’1994)  In the earlier regime, cross border transactions were governed by Export/Import Rules which were broadly based on positive list approach.  Post 01/07/2012, both – Export as well as Import of Service Rules have been de notified and they have been replaced by “Place of Provision of Service Rules,2012” notified vide notification no. 28/2012-ST dated 20/06/ /12/2013CA Dhruvank Parikh

Person for whom these rules are relevant  Persons who deals in cross border services.  Persons providing services in or receiving services from the state of Jammu and Kashmir.  Persons operating within India from multiple locations, without having centralized registration.  Persons providing services in or receiving services from Special Economic Zones. 11/12/2013CA Dhruvank Parikh

Rule 2 (h) & (i) : Definition  The location of the service provider or the recipient shall be: (a)Where the service provider/receiver has obtained a single registration, whether centralized or otherwise, the premises for which such registration has been obtained. (b)If not covered as per (a) above:  The location of his business establishment  If the service is not provided or used at business establishment, then it will be the location of the fixed establishment where the services are provided or used.  Where the services are provided/used from/at more than one establishment, whether business or fixed, the establishment most directly concerned with the provision of the service.  In absence of such places, the usual place of residence of the Service Provider/Recipient. 11/12/2013CA Dhruvank Parikh

How to determine Taxability??  Which rule applies to the service provided specifically?  What is the Place of Provision as per the above rules ?  Is the place of provision in taxable territory? If yes, tax will be payable. If not, tax will not be payable.  Is the ‘provider’ located in the taxable territory? If yes, he will pay the tax.  If not, the service receiver located in taxable territory? If yes, he may be liable to pay tax on reverse charge basis.  Is the service receiver an individual or government receiving services for a non-business purpose, or a charity receiving services fro a charitable activity? If yes, the same is exempted.  If not, he is liable to pay tax. 11/12/2013CA Dhruvank Parikh

Rule 3 : General Rule or Default Rule or Residuary Rule  Comes into effect only when a later specific rule is not applicable.  If the service falls within the ambit of this rule, the location of the service receiver will be the place of provision of service.  As per the proviso to Rule 3, in case the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the service provider. 11/12/2013CA Dhruvank Parikh

Rule 4(a) : Services in respect of Goods SServices are provided in respect of goods that are required to be made physically available by the recipient of service to the provider of service, or to a person acting on behalf of the provider of service, in order to provide the service. TThe place of provision shall be the location where the services are actually performed. RRepairs, Reconditioning, Storage & Warehousing, Courier service, Cargo Handling Service, Dry cleaning, technicaltesting/inspection/certification etc. 11/12/2013CA Dhruvank Parikh

Examples on Rule 4 (a) A music troupe from France approached Delhi Mumbai Bhopal Jaipur Cargo Handling Firm - India M/s. ABC Ltd. Mr. X 11/12/2013CA Dhruvank Parikh

Proviso to Rule 4 (a) 11. Services provided from a remote location by way of electronic means – Place of provision shall be the location where the goods are situated at the time of provision of service. Vadodara USA 11/12/2013CA Dhruvank Parikh

Proviso to Rule 4 (a)  2. As per second proviso to Rule 4, the provisions contained in Rule 4 (a) shall not apply to in respect of goods whether temporarily imported in India for Repairs, Reconditioning or Reengineering for export subject to conditions as may be specified. 11/12/2013CA Dhruvank Parikh

Rule 4 (b) : Services Provided in the Physical Presence of Individual : Place where Services are actually performed. Services provided to an individual, represented either as the recipient of service or a person acting on behalf of the recipient, which requires the physical presence of the receiver or the person acting on behalf of the receiver, with the provider for the provision of the service Mr. A - Bhopal Joins Coaching class in Vadodara XYZ llc. Modeling Agency - USA A Beauty Parlour - Vadodara Contracts 10 Models of XYZ llc. 11/12/2013CA Dhruvank Parikh

Rule : 5 – Services relating to Immovable Property Place of Provision is where the immovable property is located. Services provided directly in relation to Immovable Property. Covers following services: Services provided by experts and estate agents. Prov of Hotel Accommodation by a hotel, inn, guest house, club etc. Grant of right to use Architects or Interior Decorators Services for carrying out or coordination of construction work. 11/12/2013 CA Dhruvank Parikh

Example of Rule 5 Services provided Directly in relation to Immovable Property  Renting of Immovable Property  Surveying of Land or Seabed  Services connected with oil/gas/mineral exploration relating to specific sites of Land or Seabed.  Services supplied in course of Construction, Reconstruction, alteration, Repair or Mant of any building or civil eng work. Services provided indirectly in relation to Immovable Property  Advice or information relating to land prices or property markets as they do not relate to specific sites.  Service of a CA in calculating Tax Return from figures provided by a bus. In respect of Rental Income from Commercial Property.  Land or Real Estate Feasibility Studies  Repairs & Mnt. Of Machinery not permanently embedded to earth.  Agent Service arranging finance for property purchase. 11/12/2013CA Dhruvank Parikh

Rule : 6 – Event related Services Services provided by way of Admission to, Organization of, a cultural, artistic, sporting, scientific, educational, or entertainment event, or a celebration, conference, fair, exhibition, or similar events, and of services ancillary to such admission, shall be the place where the event is actually held. 11/12/2013CA Dhruvank Parikh

Example of Rule : 6  Example of a Service ancillary to organization of an event.  Example of a Service ancillary to admission to an event.  Event related as service that would be treated as not ancillary to admission to an event INDIA CANADA 11/12/2013 CA Dhruvank Parikh

Rule : 7 – Services provided at more than one location: Rule applicable only if Rule 4, 5 or 6 applies. When Service is provided at more than one location including the location of taxable territory, the Place of Provision shall be the location of taxable territory where the greatest proportion of service is provided. Not intended to capture insignificant portion of service is rendered in any part of taxable territory. Very Dangerous Implication of this Rule. 11/12/2013CA Dhruvank Parikh

Example of Rule – 7: Gujarat Rajasthan Colombo 20 %25 %55 % Coaching Institute in India 7 Days in Germany & UK 3 Days in India 11/12/2013CA Dhruvank Parikh

Rule : 8 – Both Service Provider & Service Receiver are located in India Place of Provision would be the location of service receiver. Machinery in London belonging to B Ltd. Do Well Machinery - Vadodara B Ltd. - Bangalore Ask for Service Service Provider 11/12/2013CA Dhruvank Parikh

Rule 9 : Specified Services PPlace of Provision shall be the Location of the Service Provider in following cases: ((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. 11/12/2013CA Dhruvank Parikh

Examples : Indian Film Producer Uploads Mr. Harry in USA Downloads Travel Agent or Recovery Agent Mr Sam in France 11/12/2013CA Dhruvank Parikh

Rule 9 (d) : Hiring of means of Transport up to a period of 1 month Very Dangerous implication of this rule. Place of Provision not dependent on location of means of transport. Depends on the location of the service provider. Nepal Mr. X - India Mr. Y - Nepal Bhutan 11/12/2013CA Dhruvank Parikh

Rule 10 : Goods Transportation Service Other than by way of Mail or Courier Goods Transport Agency XYZ - Vadodara GTA - ABC DEF - Mumbai DEF - Jammu 11/12/2013CA Dhruvank Parikh

Rule : 11 – Passenger Transportation Services The Place of Provision is the Place where the passenger embarks on the conveyance for a continuous journey. Continuous Journey – A journey for which: (a)A single ticket has been issued for the entire journey; or (b)More than one ticket has been issued, by one service provider or by an authorized agent, at the same time And there is no scheduled stopover between any legs of the journey for which one or more separate tickets are issued. 11/12/2013CA Dhruvank Parikh

Example of Rule 11 Sr. No.JourneyPlace of ProvisionTaxability 1.Mumbai - DelhiMumbaiYes 2.Mumbai – Delhi –London – Delhi - London MumbaiYes 3.New York - DelhiNew YorkNo 4.Delhi – Jammu - DelhiDelhiYes 5.Jammu – Delhi - JammuJammuNo 6.(a)Delhi – Bangkok – Delhi (b)Bangkok – Kuwait - Bangkok (a)Delhi (b)Bangkok (a)Yes (b)No 7.(a)Delhi – Jammu (b)Jammu – Delhi (a)Delhi (b)Jammu (a)Yes (b)No 8.(a)Sydney – Mumbai – Sydney (b)Mumbai – Delhi (c)Delhi – Ahmedabad (d)Ahmedabad - Mumbai (a)Sydney (b)Mumbai (c)Delhi (d)Ahmedabad (a)No (b)Yes (c)Yes (d)Yes 11/12/2013CA Dhruvank Parikh

Rule 12 : Services provided on board a Conveyance First Scheduled Point of Departure of that conveyance for journey Price is included in Fare Price is not included in Fare Rule 12 not applicable Rule 12 is applicable 11/12/2013CA Dhruvank Parikh

Rule 13 : Rule making Power This rule empowers the Central Government to notify any description of service or circumstances in which the place of provision shall be the place of effective use and enjoyment of a service. Powers are granted to enable the Central Government to issue notifications to: (i)Correct injustice on account of double taxation and (ii)Curb the tax avoidance practices 11/12/2013CA Dhruvank Parikh

Rule 14 : Order of Application of POPS Rules 2012  Where the provision of a service is, prima facie, determinable in terms of more than one rule, the rule that occurs later among the rules that merit equal consideration will be applicable for determining place of provision. USA Mr. X - India Owner Mr. Y - India 11/12/2013CA Dhruvank Parikh

Thanking You all CA Dhruvank Parimal Parikh Naresh & Co /12/2013CA Dhruvank Parikh

11/12/2013CA Dhruvank Parikh

How & Why Point of Taxation? 11/12/2013CA Dhruvank Parikh

CashAccrual 11/12/2013CA Dhruvank Parikh

Issue of Invoice – An important aspect o Rule 4(A) (as amended) of Service Tax Rules 1994 prescribes the time limit of issue of invoice as follows:  Banking Company or a Financial Institution, including a NBFC 45 Days  Service Providers other than above 30 Days 11/12/2013CA Dhruvank Parikh

Rule – 3 : Determination of Point of Taxation: Issue of Invoice As per Rule 4A of ST Rules’94 Date of issue of Invoice Date of Payment Not as per Rule 4A of ST Rules’94 Date of Completion of Service whichever is earlier 11/12/2013 CA Dhruvank Parikh

Example : Sr No.Date of Provision / Completion of Service Date of issue of Invoice Date of Payment Point of Taxation 1.10/04/201330/04/201315/05/2013????????????? 2.10/04/201330/04/201315/04/2013????????????? 3.10/04/201312/05/201330/04/2013????????????? 4.10/04/201330/04/2013Part payment on 15/04/2013 and remaining on 10/05/2013 ????????????? 5.10/04/201312/05/2013Part payment on 05/04/2013 and remaining on 05/05/2013 ????????????? 6.10/04/201330/04/2013Part payment on 05/04/2013 and remaining on 16/04/2013 ??????????????? 11/12/2013CA Dhruvank Parikh

Continuous Supply of Services??? Provided or agreed to be provided continuously or on recurrent basis, Under a contract, for a period exceeding 3 months With the obligation for payment periodically or from time to time Where the Central Government, by a notification in Official Gazette, prescribes provision of a particular service to be a continuous supply of service, whether or not subject to any condition. 11/12/2013CA Dhruvank Parikh

Defined Continuous Supply of Service Service portion in execution of Works Contract Telecommunication Services 11/12/2013CA Dhruvank Parikh

POT in case of CSS: In case of Continuous supply of service (CSS): Where the provision of whole or part of service is determined periodically, on completion of an event in terms of a contract, and The service receiver is required to make the payment to the service provider on completion of such an event, The date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service. 11/12/2013CA Dhruvank Parikh

Example : StageExpected Date Date of issue of Invoice Date of Payment Amount (Rs.Lacs) Deemed Date of Completion of Service Point of Taxation Initial / Booking 02/07/ /07/ % comp of building 15/03/201322/03/201329/03/ /03/201322/03/ % comp of building 20/06/201321/07/201325/07/ /06/ % comp of building 30/09/201320/10/201307/10/ /09/201307/10/ /12/2013CA Dhruvank Parikh

Important Notes to Rule 3:  Completion of Service – Covers all auxiliary activities but doesn’t cover irrelevant grounds. Circular No. 144/13/2011-ST dated 18/07/2011  Small Advances up to Rs. 1,000/- not to change POT  Reminders issued by Insurance Companies – not regarded as issuance of Invoices. Circular No. 166/01/2013-ST dated 01/01/ /12/2013CA Dhruvank Parikh

Rule 2A : Date of Payment Change in effective rate of Tax or Service is taxed for the first time. Credit in the bank account is after 4 working days Date of credit in the Bank Account Date of accounting of payment in the books Date of actual credit in the bank account Whichever is earlier 11/12/2013CA Dhruvank Parikh

Example : An invoice of Rs. 15,00,000/- is issued for services on 01/06/2013 A cheque for the same is received and accounted for in the books on 15/06/2013 The amount of cheque was credited in the bank on 06/07/2013 Meanwhile on 01/07/2013, the aforesaid service was brought in the ambit of taxable service. What will be the date of Payment????? 11/12/2013 CA Dhruvank Parikh

Rule 4 : Change in Effective Rate of Tax Sr No. Services Provided Issue of Invoice Receipt of Payment Point of Taxation 1.BeforeAfter Earlier of Date of Receipt of Payment or Date of Invoice 2.Before AfterDate of Invoice 3.BeforeAfterBeforeDate of Receipt of Payment 4.AfterBefore Earlier of Date of Receipt of Payment or Date of Invoice 5.AfterBeforeAfterDate of Receipt of Payment 6.After BeforeDate of Invoice 11/12/2013CA Dhruvank Parikh

Rule 4 : Change in Effective Rate of Tax  In a nut shell, there are 3 following possible events in any transaction that one needs to find out/chart out to decide POT: 1.Completion of Provision of Service 2.Date of Invoice 3.Date of Payment  Out of the above 3, happening / occurring of any 2 events before or after the change in effective rate of tax would be the deciding factor for POT.  Hence this rule is also popularly known as “2 by 3 Rule.” 11/12/2013CA Dhruvank Parikh

Example : Change in effective rate of tax wef 01/04/2013 Sr. No. Date of Provision of Service Date of InvoiceDate of PaymentPoint of Taxation 1.25/03/201305/04/201308/04/2013??????????? 2.25/03/ /04/2013??????????? 3.25/03/201308/04/201330/03/2013??????????? 4.04/04/201328/03/201331/03/2013??????????? 5.04/04/ /03/2013??????????? 6.04/04/201331/03/201308/04/2013??????????? 11/12/2013CA Dhruvank Parikh

Poser ABC Airlines has issued a ticket on 25/03/2013 for travel to USA by executive class at Rs /-. The passenger Mr. P undertakes the journey on 05/04/2013. Rate of Service Tax is 10.30% up to 31/03/2013 and 12.36% thereafter. POT???? Circular No. 155/06/2012-ST dated 09/04/ /12/2013CA Dhruvank Parikh

Rule 5 : Service becomes taxable for the first Time Invoice issued - Before Payment received - Before Issue of invoice – After but within 14 days OR 11/12/2013CA Dhruvank Parikh

Example : Service becomes taxable w.e.f 01/07/2013 Sr. No.Date of provision of service Date of invoiceDate of Receipt of Payment as per Rule 2A Taxable 1.01/06/201325/06/201330/06/2013No 2.01/06/201330/06/201305/07/2013Yes 3.30/06/201314/07/201330/06/2013No 4.01/07/201330/07/201315/07/2013Yes 5.15/06/ /06/2013 – part 15/07/2013 – part No Yes 6.30/06/201316/07/201330/06/2013Yes 11/12/2013CA Dhruvank Parikh

Application of Rule 2A and Rule 5 A Service provider provided service on 20/06/2013 for a value of Rs. 25,00,000/-. He issued invoice for the same and received payment by an account payee cheque on 30/06/2013 and the same was entered in the books on the same date i.e 30/06/2013. The cheque was deposited in the bank on 04/07/2013 and the same was credited in his bank account on 06/07/2013. The said service was leviable to tax wef 01/07/2013. Whether he is liable to pay tax?????? 11/12/2013CA Dhruvank Parikh

Rule 7 : Reverse Charge Mechanism 11/12/2013CA Dhruvank Parikh

Rule 7 : Associated Enterprise Person providing service is located outside India, the Point of Taxation shall be: Date of Debit in the books of accounts of the person receiving the service Date of making the Payment OR Whichever is earlier 11/12/2013 CA Dhruvank Parikh

POT ??? A person imported/received some services into India from a foreign vendor to whom $10000/- is paid and the following are the worth noting events in that connection:  Services received in India – 31/12/2012  Date of Invoice – 31/03/2013  50 % Payment made – 30/09/2013  Rest payment made – 31/10/ /12/2013CA Dhruvank Parikh

Rule 8 : Copyrights, Trademarks, Designs, Patents etc. Whole Amount of consideration is not ascertainable at the time of performance of Service and subsequently the use of these service gives rise to any payment of consideration: Service shall be treated as having been provided each time when: An invoice is issued by the provider Payment is received by the provider OR Whichever is earlier 11/12/2013 CA Dhruvank Parikh

Example: M-series ltd. is having a copy right of classical songs of Yo Yo Honeysingh. M-series ltd. gave these rights to Z-series ltd on 20/04/2011. The consideration payable by Z-series ltd. for acquiring the copyright has been Rs. 10 per CD sold by it. FYCD’s soldConsiderationDate of InvoiceDate of Payment LacsRs. 80 Lacs29/07/201216/08/ LacsRs. 60 Lacs03/06/201323/05/ LacsRs. 70 Lacs16/06/ /12/2013CA Dhruvank Parikh

Rule 8A : Best Judgment Assessment If the relevant POT cannot be determined due to non availability of invoice or Date of Payment, than the CEO shall: Call of such documents as deemed necessary Give an opportunity of being heard Determine the POT vide an order in writing to the best of his judgment. 11/12/2013CA Dhruvank Parikh

CENVAT Credit vis-à-vis POT: Till 01/04/2011, ST was payable on receipt basis. Hence even the ST credit was available on Payment basis. But what should be after introduction of POT??? Rule 4 (7) of CCR amended. 11/12/2013CA Dhruvank Parikh

A foremost challenge No similar conditions under all the Indirect Taxes. A challenge to the Central Government to bring all the indirect taxes under a single umbrella of GST. 11/12/2013CA Dhruvank Parikh