Importance of Location in Service Tax

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of Services Rules, 2005 and Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 stand rescinded.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.