CA Jigar Parikh Partner K. G. Patel & Co. Chartered Accountants Place of Provision of Service Rules, June 2014 Performance Destination Location 1 Baroda Branch of WIRC of ICAI

PoPS Rules Way forward Discussion Background Frame work Contents 2

Export / Import RulesPlace of Provision of Service Location of Service Recipient Place of Performance Location of Immovable Property Location of Events Multi-location Performance Location of Service provider and Recipient Specified Services Transportation of Goods Passenger Transportation On Board a Conveyance Parameters – For determining jurisdiction of provision of service 3K. G. Patel & Co. Chartered Accountants

SNAPSHOT General Rule B2B transactions: Location of recipient B2C transactions: Location of provider Specific Rules Performance based services Services relating to immovable property Services relating to event Banking, online, intermediary, transport hiring (up to 1 month) services Goods transportation services Passenger transportation services Services provided on board of conveyance Other aspects Services provided at more than one location Services provided in non-taxable territory and service provider and recipient located in taxable territory Services falling under more than one rule 4K. G. Patel & Co. Chartered Accountants

PoPS Rules Way forward Discussion Background Frame work Contents 5K. G. Patel & Co. Chartered Accountants

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

Frame work - Location of service receiver and service provider A. If the service provider/receiver has obtained only one registration, may be centralized (in case of multiple places) or otherwise (having only one place) - the premises for which such registration is taken is the location B. In other cases i.e. either no registration is taken or multiple registration is taken the location of service provider/receiver is identified sequentially as follows: a. If services are provided from Business Establishment (place where management and control exist) – Place of such business establishment is the location b. If services are not so provided but from other establishment (fixed establishments i.e. which has the permanent presence of human and technical resources to provide/ receive a service) – Place of such fixed establishment is the location a. If the services are provided from / received by more than one locations – the establishment most directly concerned with the provision of service / use of the service is the location b. In the absence of any places mentioned above – usual place of residence is the location. 7K. G. Patel & Co. Chartered Accountants

PoPS Rules Way forward Discussion Background Frame work Contents 8K. G. Patel & Co. Chartered Accountants

Provides that service shall deemed to be provided where the service recipient is located In case, if location of service recipient is not ascertainable in ordinary course of business: − Service shall deemed to be provided where the service provider is located Applicability – default rule Rule 3 - Location of Service Recipient 9K. G. Patel & Co. Chartered Accountants Sr. NoDescription of Service 1Consultancy Service 2Transaction of back office processing services 3Development of Information technology Software 4Service of Marketing / sales promotion of goods Illustrative list of services covered under Rule 3 (except where both service receiver and provider are located in taxable territory)

Rule 3 - Location of Service Recipient 10K. G. Patel & Co. Chartered Accountants Meaning of Service Recipient A A G G O O Contractual agreement India Outside India Payment in FCY Provision of service Service recipient – Contractual (O) or beneficial (A)?

Rule 3 - Location of Service Recipient 11K. G. Patel & Co. Chartered Accountants Meaning of Service Recipient A A G (BO) O (HO) India Outside India Payment of Invoice Provision of service Definition of Service PoPS Rules HO and BO are treated as distinct person Establishment of same person – establishment directly related treated as recipient Clarification on harmonious interpretation of both these provisions

Applicable when Service is providedExamples In respect to goods that are required to be made physically available by service recipient to service provider in order to provide the service (*) Repair and Reconditioning of goods Storage and Warehousing, Cargo Handling, Courier, Technical Testing/Inspection / Analysis Authorised Service Station In conjunction with supply of goods under another contract by service provider Annual Maintenance Contract Erection and Commissioning Service Entirely or predominantly, in ordinary course of business, where physical presence of individual is required in order to provide the service Fitness Services Photography Service, Class room teaching, internet café (*) Where service is provided in respect to goods from remote location by way of electronic means, place of provision shall be location where goods are situated at the time of such provision Rule 4 –Place of Performance Place of provision of service – location of performance of service 12K. G. Patel & Co. Chartered Accountants

13K. G. Patel & Co. Chartered Accountants Goods provided is merely an input Seeds A A B B Made available by B India Outside India Provides research report and receives payment Performs research Rule 4 –Place of Performance Relevant Rule - Rule 3 or Rule 4?

14K. G. Patel & Co. Chartered Accountants Goods made available by a person other than the contractual recipient Service provider Customer Equipment supplier Payment for services India Outside India Equipment purchased with 1 year free maintenance Provides maintenance free of charge Relevant Rule - Rule 3 or Rule 4? Rule 4 –Place of Performance

Place of provision of service – location of immovable property Provides that service provided directly in relation to an immovable property shall deemed to be provided where such immovable property is located or intended to be locateddirectly in relation to an immovable property Rule 5 - Location of Immovable Property Land related ServicesNon-land related Services Renting of immovable property,Repair and maintenance of machinery which is not permanently installed / attached to earth Services of real estate agents, auctioneers, architects, engineers relating to land, buildings or civil engineering works Advice or information relating to land prices or property markets Supply of hotel accommodation, guest house, club or warehouse space Land or Real Estate Feasibility studies carried out for the purpose of Investment Services supplied in course of construction, reconstruction, alteration, demolition, repair or maintenance of building Filing tax return for business in respect of rental income earned from commercial property Legal services with respect to applications for planning permission Legal consultancy services relating capital gain tax on sale of immovable property 15K. G. Patel & Co. Chartered Accountants

Rule 5 – Location of Immovable Property Guidance note provides criteria for determining service provided directly in relation to Immovable Property Service is physically performed or agreed to be performed on specific immovable property or property to come into existence Immovable property is the direct object of the service in the sense that the service enhance the value of property or affects the nature of the property Purpose of service is to: − Transfer or conveyance of the property or propose to transfer or conveyance the property − Determination of title of the property − Does not cover services having indirect or incidental connection between service provided in relation to immovable property and the underlying immovable property 16K. G. Patel & Co. Chartered Accountants

17K. G. Patel & Co. Chartered Accountants India Outside India Oil Extraction platform L & T NY Inc. Contractual arrangement to provide designing/ engineering services Provides designing/ engineering services and receives consideration in Forex Relevant Rule - Rule 3 or Rule 4? Rule 5 – Location of Immovable Property

Rule 6 – Location of occurrence of Event Place of provision of service – location of event Coverage of the Rule: Services: - in relation to admission; - by way of organising cultural, artistic, sporting, scientific, educational, or entertainment event, or a celebration, conference, fair, exhibition, or similar event; - ancillary to admission of an event 18K. G. Patel & Co. Chartered Accountants

Rule 6 - Location of Event 19K. G. Patel & Co. Chartered Accountants DescriptionOld RegimeNew Regime Payment to organizerTaxable (Performance based)Taxable (location based) Participation feesNon – taxableTaxable Prospective Students Road Show Management School India Outside India Attend Organisor Pay for planning and organizing Plans and organise show Pay participation fees

Rule 7 – Multi - location performance Provides that service (stated in Rule 4, 5 or 6) provided from multiple locations, including location in taxable territory, shall deemed to provided in the taxable territory where the greatest proportion of service is provided. Chennai (12%) Singapore (55%)Mumbai (23%) Delhi (10%) 20K. G. Patel & Co. Chartered Accountants Old Regime New Regime ExportTaxable

Rule 8 – Location of receiver and provider Place of provision of service – location of Service Provider Covers situations where place of provision of service outside the taxable territory, however service provider and recipient located in taxable territory – PoPS is locatio of service recipient 21K. G. Patel & Co. Chartered Accountants A A B B Setting up laboratory of B Contractual arrangement India Outside India Old Regime New Regime Not taxable Taxable

Rule 9 - Location for specified services Place of provision of service – location of Service Provider Following are the specified services where the place of provision is the location of the service provider:- i) Services provided by a banking company, or a financial company, or a non-banking financial company to account holders; ii) Online information and database access or retrieval services; iii) Intermediary services; iv) Service consisting of hiring of means of transport, up to a period of one month. 22K. G. Patel & Co. Chartered Accountants

Rule 9 - Location for specified services Intermediary Services A broker, an agent or any other person who arranges or facilitates provision of services between two or more persons Involved with two or more supplies at any one time: - supply between the principal and the third party - supply of his own service (agency service) to his principal 23K. G. Patel & Co. Chartered Accountants Tour Operator Travel Agent Stock Broker Commission Agent ? Illustration of services.. For goods For service Indian Agents providing service to overseas money transfer service provider

Rule 9 – Intermediary services Service of Sub - contractor 24K. G. Patel & Co. Chartered Accountants Customer ABC Insurance Company India Outside India XYZ Engages to market and facilitate insurance service Sub contracts marketing and facilitation Markets and facilitates insurance services

Rule 9 – Online information & Database access or retrieval service 25K. G. Patel & Co. Chartered Accountants Money Value inc. ABC India Outside India Payment of subscription charges Old Regime New Regime Taxable under reverse charge Not Taxable

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

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

28 Rule 10 – Transportation of goods K. G. Patel & Co. Chartered Accountants Place of provision of service – Destination of goods* *In case of GTA – place of provision of service is location of person liable to make payment of freight; *Destination of goods other then mail and courier S. No.Location of service provider Location of service receiver – person liable to pay freight Destination of goods PoPS 1J & KGurgaonMumbaiGurgaon 2J & KDelhiJ & KDelhi 3 MumbaiJ & KMumbai 4J & K DelhiJ & K (not taxable) 5GurgaonJ & K Gurgaon

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

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

PoPS Rules Way forward Discussion Background Frame work Contents 31K. G. Patel & Co. Chartered Accountants

Queries and discussion 32K. G. Patel & Co. Chartered Accountants

Discussion Place of Provision of Service Rules & SEZ Location of SEZ well with in ‘taxable territory’ and hence services provided are taxable (Shobha Developers – 276 ELT 214) Exemption provided by Notification 40/2012 – ST; Services wholly consumed in SEZ for authorized operations of SEZ Taxability on sub-contractor – intermediary (Exemption only if received by SEZ unit / SEZ developer) Impact on Cenvat credit – Whether reversal required – Rule 6 of CCR, 2004? Rule 6(6A) as amended w.e.f specifically provides that provisions of rules 6(1) to rule 6(4) shall not apply to; (a)services provided to SEZ unit or developer for their authorised operations, without payment of service tax or (b)export of service. 33K. G. Patel & Co. Chartered Accountants

Discussion Whether service tax liability is attracted when place of provision of service as determined by applying these rules is outside India? An Indian author has allowed an International Publisher in Germany to publish a book against some Royalty say 10% of Published Price against sale of Books in Foreign countries except India and the royalty in earned in Foreign currency. Does it comes under the perview of service tax ? If so, whether it can be treated as export of service. (Intellectual property services) A hotel is tying up a worldwide marketing group (not having any permanent establishment in India) who are charging one time fee with the nomenclature of joining fee & Membership Fee and also some recurring charges in the name of maintenance / Quality Assurance Fee & marketing charges. Whether Service Tax is applicable on the same under reverse mechanism? (Promotion and marketing Service) We are the resident Co. of Nepal. Indian Co. provided us services for Repairing of Machinery at our Plant. Payment will be sent in Indian Rupees. (Repairs and Maintenance Services) 34K. G. Patel & Co. Chartered Accountants

Africa based Company is arranging series of seminars to ‘save tigers’ across world under contract with Animal Lovers Limited, Jaipur at various locations namely Jamaica, Gir, London, Singapore. What will be the place of provision? Indian company is procuring orders for supply of goods / machines from other Indian Companies for a foreign Company and earning commission from the foreign company in foreign currency. Would service tax be applicable on the commission earned by the Indian Company? (Business Auxiliary Service) When the Event management company of Malaysia is contracted by Red Chilli Entertainment to organize film fare awards at Pataya. what is place of provision of service? Whether banking services by SBI to a Bank of America bank is covered in Rule 9? (Lead banker or similar) Whether taxation services, international advisory assignment services provided online to US clients by an Indian tax consultancy firm is covered as online information and data base access and retrieval services in Rule 9 of POP Rules? Whether the design services to US company by Indian firm in relation to construction of a complex in Bangalore is liable to service tax in India? 35K. G. Patel & Co. Chartered Accountants Discussion

What is place of provision of service in respect of coaching by Bangalore coaching academy to US company employees provided in USA? What is place of provision of service when movie on demand is provided on board a flight from Mumbai to USA? 36K. G. Patel & Co. Chartered Accountants Discussion

Review business transactions  undertaken outside India  with establishments located outside India  in the State of J&K  with HO or BO to determine place of provision Make necessary changes in contract and other documentation Identify points for clarification/ representation 37K. G. Patel & Co. Chartered Accountants Way Forward

38K. G. Patel & Co. Chartered Accountants Pre-Budget Memorandum by ICAI – Interim Budget Sr. No.ParticularSuggestion 1Intermediary Services under Place of provision of Service Rules- Clarification will assist better Compliances It is suggested that the general rule of location of recipient of service be applied to intermediaries also and the exception be done away with. It is suggested that the location of recipient of service in international trade be treated as the place of provision of service. Clarification be issued to provide that the recipient of the service would be the person making payment for the service when the agent/broker brings together two parties of different taxable territories.

39K. G. Patel & Co. Chartered Accountants Pre-Budget Memorandum by ICAI – Interim Budget Sr. No. ParticularSuggestion 2Certification under Place of Provision Rules, 2012 in line with income tax – overseas payments It is suggested that a declaration and certification by a Chartered Accountant with respect to liability of service tax on payment made outside India be prescribed in service tax law in line with income-tax provisions. This could be verified by the bankers while effecting payment to overseas service provider. The introduction of such a mechanism will safeguard the interest of revenue as also would simplify the procedural compliance for the assessee with regard to Place of Provision Rules, 2012 which is generally quite complex and may be missed out of ignorance or oversight.

THANK YOU CA Jigar Parikh – The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although the endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 40K. G. Patel & Co. Chartered Accountants

Whether if place of provision of service is outside India as per Place of provision of Services Rules, is it considered as export of services? (i) the provider of service is located in the taxable territory; (ii) the recipient of service is located outside India; (iii) the service is not a service specified in the section 66D of the Act (Negative List); (iv) the place of provision of the service is outside India; (v) the payment for such service has been received by the provider of service in convertible foreign exchange; and (vi) the provider of service and recipient of service are not merely establishment of a distinct person in accordance with item (b) of Explanation 2 of clause (44) of section 65B of the Act. 41K. G. Patel & Co. Chartered Accountants Export of Service