Importance of Location in Service Tax
Dr. Sanjiv Agarwal
Finance Act, 2012 w.e.f. 1-7-2012 had inserted section 66C
w.e.f. 1-7-2012 which provides for determination of place of provision of
service having regard to the nature and description of various services. The
Place of Provision of Services Rules, 2012 shall determine the place where such
services are provided or deemed to have been provided or agreed to be provided
or deemed to have been agreed to be provided. It may be noted that with the notification of Place of Provision of Services Rules, 2012,
Export of Services Rules, 2005 and Taxation of Services (Provided from Outside
India and Received in India) Rules, 2006 stand rescinded.
The Finance Act, 2012
also defined what is ‘taxable territory’ and ‘non-taxable territory’.
Non-taxable Territory (Clause 35) and Taxable
Territory (Clause 52)
According to section
65B of the Finance Act, 1994, following meanings have been given to non-taxable
territory and taxable territory:
A non-taxable
territory means a territory which is outside the taxable territory and taxable
territory means the territory to which provisions of Finance Act, 1994 apply.
Taxable territory has been defined in sub-section 52 of section
65B. It means the territory to which the provisions of Chapter V of the Finance Act, 1994 apply i.e. whole of
India excluding the state of Jammu and Kashmir. “Non-taxable territory” is defined in
sub-section 35 ibid accordingly as the territory other than the taxable
territory.
Relevance of Location
The location of a
service provider or receiver (as the case may be) is to be determined by
applying the following steps sequentially —
(a) where the service provider or receiver has obtained only one registration, whether
centralized or otherwise, the premises for which such registration has been obtained;
(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 fixed establishment elsewhere, the location of such establishment;
(iii) where services
are provided or received at more than one establishment, whether business or
fixed, the establishment most directly concerned with the provision or use of
the service; and
(iv) in the absence of
such places, the usual place of residence of the service provider or receiver.
CBEC Clarification on Place of Provision
According to CBEC Letter F.No. 334/1/2012-TRU dated 16.03.2012 explaining the Finance Bill, 2012 amendments, in order to determine whether the place of
provision of service is in taxable territory, following questions/steps may be
addressed by the assessee —
1.
Which rule applies to my service specifically? In case more than
one rules apply equally, which of these come later in the order given in the
rules?
2.
What is the place of provision in terms of the above rule?
3.
Is the place of provision in taxable territory? If yes, tax will
be payable. If not, tax will not be payable.
4.
Are you ‘located’ in the taxable territory? If yes, you will pay
the tax.
5.
If not, is the service receiver located in taxable territory? If
yes, he may be liable to pay tax on reverse charge basis.
6.
Is the service receiver an individual or government receiving
services for a non-business purpose, or a charity receiving services for a
charitable activity? If yes, the same is exempted.
7.
If not, he is liable to pay tax.
8.
If both are out of India, no tax is payable.
The service providers and
service receivers should therefore, follow the above rules for determining the tax
liability.
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