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TAXATION

THE CHARTERED ACCOUNTANT AUGUST 2012 93 www. i cai . or g


Place of Provision of Service Rules,
2012 An Overview
Introduction
The law of service tax has undergone a paradigm
shift from the system of taxing specifed services to
the system based on the concept of Negative List.
Under the new system effective from 01-07-2012, all
services except those specifed in the Negative List
and services exempted under the Mega Notifcation
No. 25/2012-ST, dated 20-06-2012 are liable to service
tax in addition to the Declared Services as specifed
under Section 66E read with 65B(44) of the Finance
Act,1994 (the Act).
The new law of service tax which, for the frst time,
defned service, including the declared service,
as any activity carried out by a person for another
for consideration, has brought in several new legal
concepts for the purpose of the taxing statute. One
such concept is the dissemination of the concept
of the Place of Provision of Service. In terms of
Section 66C of the Act, the Place of Provision of
Service Rules, 2012 (the PoPSR) have been issued
The new law of service tax which, for the frst time, defned service, including the declared
service, as any activity carried out by a person for another for consideration, has brought
in several new legal concepts for the purpose of the taxing statute. One such concept is the
dissemination of the concept of the Place of Provision of Service. In terms of Section 66C
of the Act, the Place of Provision of Service Rules, 2012 (the PoPSR) have been issued vide
Notifcation No. 28/2012-ST dated 20-06-2012 and with this the earlier Export of Service
Rules, 2005 and the Taxation of Services (Provided From Outside India and Received in
India) Rules, 2006 have been repealed. The PoPSR specifes the manner of determination
of the place where a service shall be deemed to be provided in terms of Section 66C of the
Finance Act, 2012 read with Section 94 (hhh) of the Act. Read on to get an insight into the
concept
CA. Pulak Saha
(The author is a
member of the Institute.
He can be reached at
pulak64@gmail.com)
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TAXATION

THE CHARTERED ACCOUNTANT AUGUST 2012 94 www. i cai . or g
vide Notifcation No. 28/2012-ST dated 20-06-2012
and with this the earlier Export of Service Rules,
2005 and the Taxation of Services (Provided From
Outside India and Received in India) Rules, 2006
have been repealed. The PoPSR specifes the manner
of determination of the place where a service shall
be deemed to be provided in terms of Section 66C
of the Finance Act, 2012 read with Section 94 (hhh)
of the Act. Section 66B of the Act provides inter alia
that a service is taxable only when it is provided or
agreed to be provided in the taxable territory and
thereby brings into play the place of provision of
service. The PoPSR is based on the fundamental
concept that as indirect tax, service tax is a consumption
based tax which is taxable in the jurisdiction of its
place of consumption. Taxable
territory is defned to include
India excluding J&K; whereas
non-taxable territory is defned
as the territory other than taxable
territory.
Analysis of the Rules
Under the new enactment, the
incidence of taxation is very much
dependent on the determination of
the location of the service provider
and service receiver. In that, one
has to enquire sequentially:
A. the premises for which
registration, whether centralised
or otherwise, has been obtained
by the service provider and
receiver;
B. where the service provider or
receiver is not covered by A
above:
(i) the location of his business
establishment; or
(ii) where services are
provided or received at
a place other than the
business establishment
i.e., a fxed establishment
elsewhere, the location of
such establishment;
(iii) where services are provided
or received at more
than one establishment,
whether business or fxed,
the establishment most
directly concerned with the provision or use
of the service; and
(iv) in absence of such places, the usual place of
residence of the service provider or receiver.
It is important to note that in the case of a service
receiver, the place relevant for determining the location
is the place where the service is used or consumed.
For proper understanding of the terms business
establishment, fxed establishment, establishment
most directly concerned with the supply one has to
refer to the departmental guidance note where such
terms have been explained at length.
Determination of location can be illustrated by way
of the following fow chart:
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THE CHARTERED ACCOUNTANT AUGUST 2012 95 www. i cai . or g
For the purpose of the PoPSR, Rule 2 thereof defnes
some important terms like continuous journey,
intermediary, leg of journey, location of the service
provider, location of the service receiver, means of
transport, banking company, non-banking fnancial
company, online information and database access or
retrieval services, telecommunication service etc. Of
all the defnitions, the defnitions of location of the
service provider and location of the service receiver
are most important and bring in the concept of usual
place of residence in case of a body corporate,
business establishment, fxed establishment and
establishment most directly concerned with the
provision of service.
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According to Rule 3 of the PoPSR, the general
rule is that the place of provision of a service shall be
the location of the recipient of service; in absence of
which and subject to rules 4 to 12 of the PoPSR, the
place of provision of service shall be the location of
the service provider.
Summing up, it is the provider of service who
is normally liable to pay the tax except where he is
stationed outside the taxable territory and the place of
provision is in the taxable territory. However, if the
provider of service is stationed outside the taxable
territory, it is the receiver of service in the taxable
territory who will be liable. This is illustrated below:
Applicability of the PoPSR Rules is tabulated below:
Rule of the PoPSR Applicable to Summary of the Rule
Rule 4 specifed performance
based services
Covers services provided in respect of goods that are required to
be made physically available to the provider of service or his agent
by the recipient of service, services requiring physical presence of
the receiver of service, being an individual or his agent, services
provided electronically from a remote location. But does not cover
services in respect of goods that are temporarily imported in India
for repairs, reconditioning or reengineering for re-export subject to
conditions to be specifed. Place of provision is the place where the
services are actually performed.
Rule 5 services relating to
immovable property
Covers services provided directly in relation to immovable property
including services provided by experts and estate agents, provision
of hotel accommodation by a hotel, inn guest house, club by
whatever name called and includes grant of right to use immovable
property, service for carrying out or co-ordination of construction
work, including services by architects or interior decorators. Place
of provision is the place where the immovable property is situated
or intended to be located.

TAXATION

THE CHARTERED ACCOUNTANT AUGUST 2012 96 www. i cai . or g
Rule of the PoPSR Applicable to Summary of the Rule
Rule 6 services relating to
events
Covers services relating to events by way of admission to or
organisation of a cultural, artistic, sporting, scientifc, educational
or entertainment event or a celebration, conference, fair, exhibition
or similar events and of services ancillary to such admission. Place
of provision is the place where the event is actually held.
Rule 7 Services covered by
Rules 4, 5 or 6 of
the PoPSR provided
at more than one
location
Where any service referred to in Rules 4, 5 or 6 of the PoPSR is
provided at more than one location, including a location in the
taxable territory, the place of provision shall be the taxable territory
where the greatest proportion of the service is provided.
Rule 8 where the provider
and recipient of
service are located in
taxable territory
Place of provision of service shall be the location of the recipient of
service.
Rule 9 certain specifed
services
The rule covers services by a banking company or a fnancial
institution or a NBFC to account holders; online information and
database access or retrieval services, intermediary services and
service consisting of hiring of means of transport up to one month.
Place of provision of service shall be the location of the service
provider.
Rule 10 goods transportation
services other than
service by mail or
courier.
Place of provision of service shall be the destination of the goods
except in case of a goods transportation agency service where the
place of provision shall be the location of the person liable to
pay tax.
Rule 11 passenger
transportation service
Place of provision of service shall be the place where the passenger
embarks on the conveyance for a continuous journey.
Rule 12 service provided on
board a conveyance
Covers all services on board a passenger transport conveyance.
Place of provision of service shall be the frst scheduled point of
departure of that conveyance for the journey.
As a protective measure, Rule 14 of the PoPSR
provides that where the provision of a service is prima
facie determinable in terms of more than one of the
above rules deserving equal consideration, the place of
provision of service shall be determined in accordance
with the rule that occurs later among the applicable
rules.
Conclusion
The PoPSR, apart from its general applicability in
the determination of the jurisdiction of the taxability
of a service may be found to be useful for service
provider operating from multiple locations within India
and also for those engaged in cross border services
and services in relation to SEZ. The PoPSR are not
stand alone rules and have to be read in harmony with
relevant statutory provisions; for example Rule 6
covers services relating to events by way of admission
to entertainment event whereas the Negative List of
services under Section 66D includes under clause
(j) admission to entertainment events or access to
amusement facilities. Therefore, application of this
rule would demand very careful analysis of the facts
and legal provisions by the tax payer. On the other
hand, its undesirable use by the revenue cannot be
ruled out also.

Note: The assessees wishing to claim any beneft under the
new rules whether, or not, available earlier may be advised
to seek written confrmation from the revenue.
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