issues in pops final

Issues in Place of Provision of

Service Rules, 2012

Naresh Thacker, Partner

Jitendra Motwani, Associate Partner

ELP

April 16, 2014

Pre- 2012

Service Tax was chargeable under Section 66 of the Finance Act, 1994. There shall be levied a tax at the rate of 12% of the value of the taxable

services

Taxable services being defined under Section 65

Significantly, there was no reference in charging section w.r.t place where service performed

Place of provision of service was being determined as follows: In the case of Import- Section 66A read with Taxation of Services (Provided

from outside India and received in India) Rules, 2006 In case of Export- Export of Service Rules, 2005.

Under the Pre-2012 regime, import of service was chargeable to service tax under reverse charge mechanism

Export of service was exempted from service tax.

Change in Charging Section- Post 2012

NEW CHARGING SECTION 66B w.e.f. 01.07.2012

There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent. 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.

(Thus under new charging section, it is a must to determine place of provision of service which was not relevant earlier)

POPS Rules, 2012- Introduction

As part of changes to Service-tax Law, Place of Provision of Services Rules, 2012, (POPS) have been made effective from 1.7.2012 to determine whether service was provided within taxable territory

New rules replace existing Export of Services Rules, 2005 and the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.

POPS Rules are primarily meant for persons who deal in cross border services. They will also be equally applicable for those who have operations with suppliers or customers in the state of Jammu and Kashmir.

POPS Rules, 2012- Introduction

Additionally service providers operating within India from multiple locations, without having centralized registration will find them useful in determining the precise taxable jurisdiction applicable to their operations. The rules will be equally relevant for determining services that are wholly consumed within a SEZ to avail the outright exemption.

Education Guide issued by the CBEC assists to determine whether services are provided in the taxable territory

POPS Rules, 2012- Philosophy

Philosophy of the POPS, as set out in the Education Guide, is that a service should be taxed in the jurisdiction of its consumption. Therefore, exports are not charged to tax, as the consumption is elsewhere, and services pay tax on their importation into the taxable territory.

This philosophy reflected under Rule 3- which provides that a service shall be deemed to be provided where the receiver is located.

However, above principle subject to a number of exceptions. (Rules 4-6 and 9-12)

A chart is provided in the next slide giving a snapshot of the Rules.

POPS Rules- At a Glance

Rule Particulars

3 Service shall be deemed to be provided where the service receiver is located

4 Performance based services

5 Services relating to immovable property

6 Services relating to events

7 Service provided at more than one location

8 Services where provider and receiver are located in taxable territory

9 Specified Services

10 Goods Transportation service (excluding by way of mail / courier)

11 Passenger Transportation Service

12 Services provided on board of a conveyance

Where provision of service is prima facie determinable in terms of more than one rule, it

shall be determined in terms of the rule which occurs later Rule 14

POPS- Rule 3

The main rule 3 is applied when none of the other later rules apply. In other words, if a service is not covered by an exception under one of the later rules, and is consequently covered under this default rule, then the receivers location will determine whether the service is leviable to tax in the taxable territory. (Rule 14)

The principal effect of the Main Rule 3 is that:-

A. Where the location of receiver of a service is in the taxable territory, such service will be deemed to be provided in the taxable territory and service tax will be payable.

B. However if the receiver is located outside the taxable territory, no service tax will be payable on the said service

(Example on next slide will clarify above rule)

Taxable Territory Non- Taxable Territory

ABC SERVICE PROVIDER

DEF RECEIVER

PQR RECEIVER

XYZ SERVICE PROVIDER

1. A company ABC provides a service to a receiver PQR, both located in the taxable territory. Since the location of the receiver is in the taxable territory, the service is

taxable. Service tax liability will be discharged by ABC, being the service provider and being located in taxable territory.

2. However, if ABC were to supply the same service to a recipient DEF located in non-taxable territory, the provision of such service is not taxable, since the receiver is located

outside the taxable territory. 3. If the same service were to be provided to PQR (located in taxable territory) by an overseas provider XYZ (located in non-taxable territory), the service would be taxable,

since the recipient is located in the taxable territory. However, since the service provider is located in a non-taxable territory, the tax liability would be discharged by the receiver,

under the reverse charge principle (also referred to as tax shift).

Determination of Place of Service under Rule 3

For example:

Head office in the US- HO. Branch office is in India- BO

Service provider in India and providing service to branch office.

However contract for provision of service between US and Indian Service Provider. Consideration also received from the US HO in convertible foreign exchange.

What is the place of service?

Under Rule 3 place of provision of service is the location of service recipient

Definition of location of service of recipient is (Section 2(i)),

Location of premises where it has obtained centralized registration. If not,

location of business establishment or

If services used at a place other than business establishment, then fixed establishment or

If service used at more than one establishment, establishment most directly concerned with the use of service


In above example, place of recipient cannot be either place of registration since the HO is in US.

Place of recipient also cannot be business establishment since service utilized at place other than business establishment i.e. BO.

Therefore, subject to the said service not falling under Rule 4 to 6 and Rule 9-12- service recipient is BO as it is a fixed establishment .

It is however important to understand what is fixed establishment

Fixed establishment, under the Education Guide is described as-

A place other than business establishment

Such place is characterized by a sufficient degree of permanence and suitable structure in terms of human and technical resources to provide/receive services.

Temporary staff for a short visit cannot be fixed establishment.


A branch office covered under fixed establishment

Emphasis is on the presence of human and technical resources to receive/ provide services. Eg. Property / building on its own cannot be a fixed establishment.

However no clarity on sufficient degree of permanence and suitable structure

eg1. Would a branch office established by a business establishment outside the taxable territory merely for filing returns become fixed establishment?

eg2. Would a server farm utilized by the internet companies for hosting of data be considered to be a fixed establishment?


Example 2:

The main business entity in Country A, establishes subsidiary company in India.

Service agreement with Indian subsidiary to provide promotional and support activities to customers in India. Promotional and support activities involve marketing, demonstration of various products of the Business Establishment A to potential customers and dealers. Agreement states that subisdiary is not an Agent of Business Establishment A. Also subsidiary has no relationship with potential customers/dealers other than demonstrating products.

Place of provision in Country A or India?

Service Recipient is the parent company located in Country A and therefore amounts to export of service.

Decision of Tandus Flooring India by the AAR (2013-TIOL-03- ARA-ST)- Held service recipient is the parent company located in other Country and amounts to export of Service.

Rule 4: Place of provision for services based on performance

The place of provision of following services shall be the location where the services are actually performed, namely:-

(a) services provided in respect of goods that are required to be made physically available by the service receiver to the service provider, in order to provide the service:

Provided that when such services are provided from a remote location by way of electronic means the place of provision shall be the location where goods are situated at the time of provision of service;

(b) services provided in conjunction with the supply of goods under another contract by the service provider;

(c) services provided entirely or predominantly, in the ordinary course of business, in the physical presence of an individual, represented either as the service receiver or a person acting on behalf of the receiver.

Examples under Rule 4

Repair, reconditioning, or any other work on goods (not amounting to manufacture), storage and warehousing, courier service, cargo handling service (loading, unloading, packing or unpacking of cargo), technical testing/inspection/certification/ analysis of goods, dry cleaning etc.

It will not cover services where the supply of goods by the receiver is not material to the rendering of the service e.g. where a consultancy report commissioned by a person is given on a pen drive belonging to the customer.

Certain services like cosmetic or plastic surgery, beauty treatment services, personal security service, health and fitness services, photography service (to individuals), internet caf service, classroom teaching, are examples of services that require the presence of the individual receiver for their provision. As would be evident from these examples, the nature of services covered here is such as are rendered in person and in the receivers physical presence.

Rule 5- Place of service relating to immovable property

The place of provision of services provided directly in relation to an immovable property, including services provided in this regard by experts and estate agents, provision of hotel accommodation by a hotel, inn, guest house, club or campsite, by whatever, name called, grant of rights to use immovable property, services for carrying out or coordination of construction work, including architects or interior decorators, shall be the place where the immovable property is located or intended to be located.


i)The service consists of lease, or a right of use, occupation, enjoyment or exploitation

of an immovable property;

ii) the service is physically performed or agreed to be performed on an immovable property (e.g. maintenance) or property to come into existence (e.g. construction);

iii) the direct object of the service is the immovable property in the sense that the services enhances the value of the property, affects the nature of the property, relates to preparing the property for development or redevelopment or the environment within the limits of the property (e.g. engineering, architectural services, surveying and sub-dividing, management services, security services etc);

iv) the purpose of the service is:

a) the transfer or conveyance of the property or the proposed transfer or conveyance of the property (e.g., real estate services in relation to the actual or proposed acquisition, lease or rental of property, legal services rendered to the owner or beneficiary or potential owner or beneficiary of property as a result of a will or testament);

b) the determination of the title to the property.


Examples of land-related services:

i) Services supplied in the course of construction, reconstruction, alteration, demolition, repair or maintenance (including painting and decorating) of any building or civil engineering work;

ii) Renting of immovable property;

iii) Services of real estate agents, auctioneers, architects, engineers and similar experts or professional people, relating to land, buildings or civil engineering works. This includes the management, survey or valuation of property by a solicitor, surveyor or loss adjuster.

iv) Services connected with oil/gas/mineral exploration or exploitation relating to specific sites of land or the seabed.

v) The surveying (such as seismic, geological or geomagnetic) of land or seabed.

vi) Legal services such as dealing with applications for planning permission.

vii) Packages of property management services which may include rent collection,

arranging repairs and the maintenance of financial accounts.

viii) The supply of hotel accommodation or warehouse space.

Rule 6- Place of provision relating to events

The place of provision of services provided by way of admission to, or 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


Illustration 1

A management school located in USA intends to organize a road show in Mumbai and New Delhi for prospective students. Any service provided by an event manager, or the right to entry (participation fee for prospective students, say) will be taxable in India.

Illustration 2

An Indian fashion design firm hosts a show at Toronto, Canada. The firm receives the services of a Canadian event organizer. The place of provision of this service is the location of the event, which is outside the taxable territory. Any service provided in relation to this event, including the right to entry, will be non-taxable

Rule 7- Place of service when provided at more than one location

Where any service referred to in rules 4, 5, or 6 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.

Illustration

An Indian firm provides a technical inspection and certification service for a newly developed product of an overseas firm (say, for a newly launched motorbike which has to meet emission standards in different states or countries). Say, the testing is carried out in Maharashtra (20%), Kerala (25%), and an international location (say, Colombo 55%).

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, in this case Kerala.

Rule 8- When provider and receiver located in taxable territory

Place of provision of a service, where the location of the service provider as well as that of the service receiver is in the taxable territory, shall be the location of the service receiver.

Illustration

A helicopter of Pawan Hans Ltd (India based) develops a technical snag in Nepal. Say, engineers are deputed by Hindustan Aeronautics Ltd, Bangalore, to undertake repairs at the site in Nepal. But for this rule, Rule 4, sub-rule (1) would apply in this case, and the place of provision would be Nepal i.e. outside the taxable territory.

However, by application of Rule 8, since the service provider, as well as the receiver, are located in the taxable territory, the place of provision of this service will be within the taxable territory.

Rule 9- Provision of specified services

The place of provision of 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) Telecommunication services provided to subscribers;

c) Online information and database access or retrieval services;

d) Intermediary services;

e) Service consisting of hiring of means of transport, upto a period of one month.


Examples of services by banking company or financial institution to an account holder, in the ordinary course of business:- i) services linked to or requiring opening and operation of bank accounts such as lending, deposits, safe deposit locker etc; ii) transfer of money including telegraphic transfer, mail transfer, electronic transfer etc.

Examples of online information generated automatically by software from specific data input by the customer, such as web-based services providing trade statistics, legal and financial data, matrimonial services, social networking sites; ii) digitized content of books and other electronic publications, subscription of online newspapers and journals, online news, flight information and weather reports; iii) Web-based services providing access or download of digital content. Eg. Manupatra / Westlaw are examples of provision of legal data.

Examples under Rule 9- Contd

Examples of intermediary services:-

i) Travel Agent (any mode of travel)

ii) Tour Operator

iii) Commission agent for a service [an agent for buying or selling of goods is excluded]

iv) Recovery Agent

Examples of Hiring of Means of Transport

i) Land vehicles such as motorcars, buses, trucks;

ii) Vessels;

iii) Aircraft;

iv) Vehicles designed specifically for the transport of sick or injured persons;

v) Mechanically or electronically propelled invalid carriages;

vi) Trailers, semi-trailers and railway wagons.

Rule 9- Contd

Web based services providing access or download of digital content.

Following not included:

Sale or purchase of goods, articles over the internet- eg. Flipkart

Telecommunication services provided over the internet- eg. Skype

Service rendered over the internet such as architectural drawing etc.

Repair of software/hardware from remote location over internet

Internet backbone services. Eg. Services provided by ISPs.

Illustration I- Service receiver located in India.

Service provider located outside India. Servers also located outside India-

Pre POPS- import of service.

Post POPS- place of provision of service is location of service provider i.e. outside India.

Rule 9- Contd

Illustration II- Service receiver located abroad

Service provider located India.

Servers located in India

Pre POPS- service consumed and benefit of same outside India (Category III of the Export of Service Rules) . If consideration in foreign exchange- then export of service

Post POPS- Based on Rule 9- place of provision of service India.

Intermediary Services

Intermediary- someone who arranges or facilitates provision of service between 2

persons.

Provision of main service on his own account is excluded

Intermediary wrt to goods and wrt service

Commission charged by intermediary wrt to goods excluded.

Characteristics of intermediary-

Cannot alter the nature or value of service

Value of intermediary service is distinguishable from value of main service

Service provided by intermediary is distinguishable from the main service.

egs.: Travel agent; tour operator; commission agent; recovery agent.

Examples of Intermediary Services

Illustration I-

Online Market Based Company X situated in UK.

Establishes a subsidiary company Y in India.

Enters into a service agreement with Y for marketing and promotion of X.

Consideration paid in foreign exchange.

Whether Y is intermediary ?

Depends on the facts and circumstances and Service Agreement.

If the service agreement is specifically restricted to only providing marketing and promotion and the subsidiary does not have any relationship with the clients of X in India, then Y would not be an intermediary for the following reasons,

It is not acting as an agent of X. Its role is limited only to provide marketing service to X.

Intermediary envisages two works being done simultaneously by an intermediary- facilitation of service between principal and client and simultaneously, providing service to principal. In present case, there is no facilitation of service to client.


However, if service agreement states that Y is responsible for collection of fees, and that it is paid a commission, Y would qualify as an intermediary.

Illustration II-

Bank A in India part of large multi national Bank established all over the world

Bank A performs various services to its Foreign Branch (eg. Originating service whereby facilitates the provision of service by offshore branch to Indian Client)

Whether such service qualifies as intermediary service.

Question of whether the Bank A is an intermediary depends on the type of service provided to Foreign branch.

For instance, if Bank is providing an originating service i.e. a service involving identification, evaluation and recommendation of a target to Foreign branch for financial services- Bank A facilitates the service, gets commission and therefore satisfies condition of intermediary. Rule 9 (c) squarely applicable (Note that Rule 9 (a) is not applicable since there is no service being provided to account holders)


However, if Bank A is providing some service to Foreign Branch which does not involve third parties and the service is being provided on its own account, then Rule 9 is inapplicable.

Rule 10- Place of provision of goods transportation services.

The place of provision of services of transportation of goods, other than by way of mail or courier, shall be the place of destination of the goods:

Provided that the place of provision of services of goods transportation agency shall be the location of the person liable to pay tax.

Illustration

A consignment of cut flowers is consigned from Chennai to Amsterdam. The place of provision of goods transportation service will be Amsterdam (outside India, hence not liable to service tax).

Conversely, if a consignment of crystal ware is consigned from Paris to New Delhi, the place of provision will be New Delhi.

Rule 11- Passenger Transportation Service The place of provision in respect of a passenger transportation service

shall be the place where the passenger embarks on the conveyance for a continuous journey.

33

1 Delhi-London-New

York- London New

York

Delhi Yes, New Delhi, being the

place of provision for

continuous journey with

single return ticket.

2 New York-London-

Delhi

New York No, New York is place of

provision for

continuous journey with

single return

ticket

Rule 12- service provided on board conveyance

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.

Illustration

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. The place of provision of this service will be Bangkok (outside taxable territory, hence not liable to tax).

If the above service is provided on a Delhi-Kolkata-Bangkok-Jakarta flight during the Bangkok-Jakarta leg, then the place of provision will be Delhi (in the taxable territory, hence liable to tax).

Rule 13- Power to Notify Description of certain Services

Rule 13 gives Power to the Central Government to notify any description of service or circumstances in which the place of provision of service shall be the place of effective use and enjoyment of service.

The Education Guide states that the rule an enabling power meant to correct any injustice being met due to the applicability of rules in foreign territory in a manner which is inconsistent with the POPS leading to double taxation.

Due to cross border nature of many services, it is also possible in certain situations to set up businesses in non taxable territory while the effective enjoyment, or in other words, consumption, may be in taxable territory.

Rule also mean as an anti-avoidance measure where the intent of law is sought to be defeated through ingenious practices unknown to ordinary ways of conducting business.

Rule 14- Order of Application of Rules

Notwithstanding anything stated in any rule, where the provision of a service is, prima facie, determinable in terms of more than one rule, it shall be determined in accordance with the rule that occurs later among the rules that merit equal consideration.

Illustration I

An architect based in Mumbai provides his service to an Indian Hotel Chain (which has business establishment in New Delhi) for its newly acquired property in Dubai. If Rule 5 (Property rule) were to be applied, the place of provision would be the location of the property i.e. Dubai (outside the taxable territory). With this result, the service would not be taxable in India. Whereas, by application of Rule 8, since both the provider and the receiver are located in taxable territory, the place of provision would be the location of the service receiver i.e. New Delhi. Place of provision being in the taxable territory, the service would be taxable in India. By application of Rule 14, the later of the Rules i.e. Rule 8 would be applied to determine the place of provision.

Case Studies under POPS Case Study 1

ABC Pvt. Ltd. is providing depository service to various clients. ABC is not a Banking Company, Financial Institution or NBFC. ABC has certain NRI clients who are situated outside India and do purchase and sell shares in India and their demat account is maintained by the ABC in India. ABC recovers Demat charges and other depository charges (e.g. annual account maintenance charges) from the NRI clients.

Question: In terms of the POPS rules whether service tax is payable on the services provided to NRI Clients?

The above situation will be covered under Rule of 3 of POPS. Under Rule 3, the place of provision of service would be place of the service recipient. Since the NRI viz. the service recipient is situated outside India, the place of provision of service is outside India.

Case Study 1- Contd

However, in the aforesaid scenario the Department may demand service tax on the ground that the service falls under Rule 9 on the ground that service provided by ABC are in the nature of intermediary services.

Rule 9 of POPS will not be applicable in this case since the Education Guide issued by CBEC has categorically clarified that stock brokers are not covered under said Rule 9 . The relevant portion of the Education Guide is reproduced below,

5.9.6 For the purpose of this rule, an intermediary in respect of goods (such as a commission agent i.e. a buying or selling agent, or a stockbroker) is excluded by definition

Hence such services appear to be covered under Rule 3.

Case Study 2

ABC Pvt. Ltd. is conducting Insurance broking business in India jointly with a foreign company XYZ Inc. For this purpose ABC and XYZ has formed a company PQR Ltd. in India. After a period of 5 years, ABC decides to quit the insurance broking business and gives No Objection Certificate to XYZ to continue business with other Indian company and further ABC agrees for not to carry insurance broking business in India for next three years. For this purpose the XYZ Inc. has paid a sum of US $ 5 mn to ABC for issue of NOC as well as for non compete fees.

Question: Whether service tax is payable on the non compete fees paid by XYZ Inc to ABC Pvt., under POPS rules?

Case Study 2- Contd

The payments made by XYZ to ABC would be consideration for a service, as the act of agreeing to refrain from competing for 3 years is a declared service falling under clause (e) of section 66E. The relevant provision reads as follows,

66E: Declared Services: (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;

In the present case, since the aforesaid service does not fall under any of the categories listed under Rules 4-6 and 9-12 of the POPS, Rule 3 of the POPS would be applicable and the place of the provision of service would be location of service recipient. Since the non compete fees are being paid by XYZ, located outside taxable territory and the consideration is in convertible foreign exchange, the non-compete services will tantamount to export of services covered under Rule 6A of Service-tax Rules.

Case Study 2- Contd

However, situation will be different if the amount is sourced through the company formed between XYZ inc and new Indian Partner.

If the amount is being sourced through the Newly formed Indian company between XYZ with its new Indian partner, then the service receiver would be the Indian Company (the fixed establishment) which will be using/consuming the said service. Therefore, if the payment is received through the newly formed Indian company, the location of recipient of service would be within taxable territory and service tax would be leviable.

Case Study 3

ABC Pvt. Ltd. (an Indian Co.) has an office premises at Nariman Point which is the only asset in its Balance Sheet. Similarly ABC has only rental income in its Statement of Profit & Loss. XYZ Inc. (a foreign company) wants to buy the office premises and has appointed a Real Estate Broker Mr. Y (an Indian party) to assist him in purchase of office premises. The shareholders of the ABC Pvt. Ltd. wants to sell its office premises by way of sale of shares which is purchased by XYZ Inc. Mr. Y has assisted in this deal to XYZ Inc. and hence charged his fees to XYZ Inc.

Question: Decide applicability of POPS rules to payments made by XYZ to Real Estate Broker Mr. Y as brokerage for assisting in the abovementioned transaction.

Case Study 3- Contd

Normally, if the sale of the office premises was through a simple money transaction, then the place of provision of service would be determined under Rule 5 i.e. location of the immovable property as the said service is provided by broker Y directly in relation to immovable property by an estate agent and therefore Service tax will be payable on the same

However, the sale of office premises presently is through a transfer of shares, i.e. the shareholders of the ABC would sell the office premises to the XYZ, who in turn would buy certain shares in ABC. Significantly the term goods is defined underS.65B(25) to mean,

every kind of movable property other than actionable claim and money; and includes securities

A probable point of view that arises in the above case is that Y essentially would be facilitating the sale of goods i.e. movable property thereby taking the service outside the purview of Rule 5.

Case Study 3- Contd

However, the stand would be difficult to sustain given that Rule 5 brings under it any service provided directly in relation to an immovable property . The phrase in relation to an immovable property is to be construed widely and would bring the above service of facilitating the sale transaction under Rule 5. Therefore irrespective of whether the transaction is a simple money transaction or facilitated by way of sale of shares , the applicable Rule for determining the taxability is Rule 5 which is the place where the immovable property is located. In view thereof service tax will be payable on the brokerage received by Y.

Case Study 4

ABC Co. is an Indian company and provides recruitment services to clients located in India and outside India. Some of the overseas clients have their fixed establishments within India like a branch or a subsidiary or associate company. The recruited person may be placed by the client at their fixed establishment outside India or in India. The contract of services is executed between ABC Co. and the overseas client, invoice for provision of service is issued by ABC to the client and the payment is also received directly from the client. The location where the candidate (recruitee) is to be placed is known to the company right at the time of entering into the contract.

Question: Whether the Company is liable to charge service tax for providing recruitment services to the foreign clients situated outside India-

If the recruited person is placed outside India.

If the recruited person is placed in India.

Case Study 4- Contd

The place of provision of service for the above scenario is to be determined under Rule 3 i.e. location of service recipient.

Therefore, question is who is the service recipient in the present case, whether it is foreign client or the branch of foreign client in India.

When the recruited person is placed outside India.

The service receiver, when the person is placed outside India is the place outside India since the service provided by ABC is being consumed/used by the place located outside India. Therefore, the service recipient is outside the taxable territory.

When the recruited person is placed within India.

Normally, it should not have mattered where the recruited person is placed since the agreement is between the foreign company and ABC. Further consideration also is received from the foreign company.

However, the overseas client i.e. company receiving the recruitment services also have places in India.

Case Study 4- Contd

Therefore one has to look into the definition of location of service receiver as given under Rule 2(i)(b) which provides that where services are used at more than one establishment, whether business or fixed, the establishment most directly concerned with the use of the service;

Further, the Education Guide has clarified that in case of multiple establishments of a person, the establishment that actually provides, or receives (i. e. uses or consumes), a service, that establishment would be treated as directly concerned with the provision of service, notwithstanding the contractual position, or invoicing or payment.

In the present case, it is the Indian Place that uses or consumes the service since the employee is going to be placed there. Therefore, the location of service recipient would be the Indian place i.e. within taxable territory and service tax is required to be paid.

Case Study 5

Sargam Ltd. (S) is in the business of supplying contents such as songs, wall papers, etc. to telecom operators. Such songs are downloaded by the customer of telecom operator through WAP connections on mobile phone. In few cases, telecom operators are located in J&K.

Which POP rule will be applicable in such cases?

The service that is provided by S is essentially access to online information and database to telecom operators. Such service is directly covered under Rule 9 (b) of POPS.

The Education Guide also clarifies that Rule 9(b) covers web-based services providing digital contents. The relevant portion is reproduced below,

5.9.5 What are Online information and database access or retrieval service

Examples of such service are: (iii) web based services providing access or download of digital content

Case Study 5- Contd

In terms of Rule 9, service is deemed to be provided where Service provider is located.

In this case, the location of Sargam Ltd. will be relevant from taxability point of view. If Sargam Ltd. is situated in any part of India, other than J&K, service-tax will be deemed to be provided at such place and will be taxable. Since the criteria for determining place of provision of service is the location of service provider, the location of customers/telecom operators is irrelevant.

Case Study 6

Company ABC Pvt. Ltd. is incorporated in Bhutan. ABC is developing a township project (the project) in the Bhutan. ABC has appointed consultant from India say XYZ Ltd., to provide various consultancy services in relation to the project to ABC Ltd. The consultant XYZ raises invoice in INR to the ABC and ABC makes payment to the XYZ in INR only.

Question: Whether XYZ is required to charge any service tax on the services provided to ABC?

XYZ will not be required to charge any service tax on the services provided to ABC if the service is not within the taxable territory.

The relevant provision for determining the place of provision of service for the above scenario is Rule 5 of POPS since the service provided by consultants is in relation to an immovable property

Case Study 6- Contd

If service of the consultant is directly in relation to the project, then under Rule 5, the place of provision of service is the location of immovable property.

The Education Guide specifically includes within the purview of Rule 5, the service of architects, engineers and similar experts or professional people, relating to land, buildings or civil engineering works.

Therefore, in the given facts, the consultancy services, which are directly in connection to the immovable property would be deemed to be at the location of the immovable property i.e. Bhutan, outside the taxable territory. Hence service is not taxable.

Case Study 6- Contd

Question: If XYZ decides to pay and amount of 6% on the value of exemted services under Rule 6 of the Cenvat Credit Rules 2004, Whether XYZ can recover 6% from ABC?

Yes, the 6% amount on account of reversal of credit under rule 6 can be recovered by XYZ from their clients in view of circular No. 870/08/2008-CX dt. 16.5.2008 issued by CBEC wherein it has been clarified that such recovery will not amount to recovery of taxes. However, client cannot take any cenvat in respect of such reimbursement as same amount is not considered duty for cenvat purposes.

Case Study 7

ABC India has obtained services of GTA located in India for transporting certain goods to XYZ ( an entity in Nepal). The freight is to be paid by XYZ.

Question: Discuss the applicability of POPS Rules in respect of freight paid by XYZ.

Rule 10 of the POPS provides that the place of provision of services of transportation of goods, shall be the place of destination of the goods. Proviso to Rule 10 states that place of provision of services of goods transportation agency shall be the location of the person liable to pay tax.

In the present case no tax will be payable as the destination of goods is Nepal and the same is outside the taxable territory. Further even in terms of the proviso, liability to pay tax has been shifted on the person who is liable to pay the freight i.e. XYZ, which is located in Nepal. Therefore, in the present scenario the services are deemed to be rendered in Nepal which is outside taxable territory and hence no service-tax will be payable in this case.

Case Study 8

Courier Company C collect the parcel from their Mumbai customer (consignor) & deliver the same to Company D (another courier company) in UK. In UK D received the parcel & door step the same to Consignee in UK. In above process Company C raises the sales bill (including Service Tax) to their local customer in Mumbai & collects the amount in INR from their Mumbai Customer. At the same time, D raises the invoice to C (Charges which D paid for clearance at UK airport & door step the same parcel to consignee in UK). In the said transaction, payment made by Local Company C to D is liable to Service Tax?

The place of provision of service, in the present case would be Rule 3. This is because Rule 10, relating to transportation of goods, categorically excludes courier companies.

Case Study 8

Since the service provider i.e. D, is outside India and the service recipient, C, is in India, the place of provision of service under Rule 3 is India i.e. taxable territory.

In the give circumstances, C will be required to pay service-tax under reverse charge mechanism.

Thank you

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