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CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
CONFERENCE ON INTERNATIONAL TAXATION
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CONFERENCE ON INTERNATIONAL TAXATION

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A PRESENTATION ON CROSS BORDER SERVICES BY DR. SANJIV AGARWAL FCA, FCS

A PRESENTATION ON CROSS BORDER SERVICES BY DR. SANJIV AGARWAL FCA, FCS

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  • 1. Organized BySaturdayHyderabad Sub-Chapter 23rdMarch, 2013of International Fiscal AssociationHyderabad© Dr. Sanjiv Agarwal1
  • 2. Taxation of Cross Border ServicesThis Presentation Covers Overview of ‘service’ and issues in cross border services Legislative background Export of Services Import of Services Territorial concept Taxable territory Non- taxable territory Taxation of services in negative list regime Place of Provision of Services Rules, 2012 Special Economic Zones2
  • 3. Taxation of Cross Border ServicesWhat is Service‘Service has been defined in clause (44) of the new section65B and means – any activity for consideration carried out by a person for another and includes a declared service (66E)3
  • 4. Taxation of Cross Border ServicesService does not include - any activity that constitutes only a transfer in title of goods or immovableproperty by way of sale, gift or in any other manner a transfer, delivery or supply of goods which is deemed to be a sale ofgoods within the meaning of clause (29A) of article 366 of the Constitution a transaction only in money or actionable claim a service provided by an employee to an employer in the course of theemployment. fees payable to a court or a tribunal set up under a law for the time beingin force4
  • 5. Taxation of Cross Border ServicesThis scope shall not apply to –a) functions performed by M.P., M.L.A., Members of Panchayats /Municipalities who receive any consideration in performing thefunctions of that office as such member; orb) duties performed by any person who holds any post inpursuance of the provisions of the Constitution in thatcapacity; orc) duties performed by any person as a Chairperson or a Memberor a Director in a body established by the Central Governmentor State Government or local authority and who is not deemedas an employee before the commencement of this section.5
  • 6. 6Taxation of Cross Border ServicesFor the purpose of scope of service -(a) an unincorporated association or a AOP and a member thereof shall betreated as distinct persons;(b) an establishment of a person in the taxable territory and any of his otherestablishment in a non-taxable territory shall be treated as establishments ofdistinct persons(c) A person carrying on a business through a branch or agency orrepresentational office in any territory shall be treated as having anestablishment in that territory
  • 7. 7The New Taxability ConceptTaxable3.Exemptions(39)1. Non -Taxableterritory(POPS)2.Negativelist (17)SERVICE FOR A CONSIDERATIONE - MAGIC TESTE: EmployeeM: MoneyA: Actionable claimG: GoodsI: Immovable propertyC: Court Fee9DECLAREDSERVICES
  • 8. Taxation of Cross Border ServicesPeculiar Features in Cross Border Services Service tax is a destination based consumption tax –International practice Double taxation With export of services, taxes should not be exported Imports – taxed at the destination Incentivizing exports Special incentives – rebates, SEZ etc.8
  • 9. Taxation of Cross Border ServicesThe concerns How to tax cross border services How to determine whether the transaction is export How to determine whether the transaction is import How to determine place of provision of services How to value the services so provided Availing tax exemptions / refunds9
  • 10. Taxation of Cross Border ServicesLegislative Background (prior to 1.7.2012) Taxable services provided in India were taxable except J&KState –No concept of territory Tax on export of services governed by Export of Services Rules,2005 Tax on import of services governed by Taxation of Services(Provided from Outside India and Received in India )Rules, 2006 Refunds and rebates under various schemes10
  • 11. Taxation of Cross Border ServicesLegislative Background (prior to 1.7.2012) Service Tax applicable on all taxable services under the jurisdictionincluding import of services unless specifically exempt from the levyof service tax. Such exemptions cover -i) services rendered in the State of Jammu & Kashmirii) services provided to Special Economic Zones (SEZ) and unitsin SEZ’siii) export of service If service is exported, no service tax is payable11
  • 12. Taxation of Cross Border ServicesLegislative Background (prior to 1.7.2012)Activities should be carried out by a person for another person (i.e.,Service provider and service receiver) Both can be in same country (say, India) Both can be in foreign country (say, out of India) Both of them can be in different countries (say, one in India andother outside India) Service provider in India, service receiver outside India ( Export of service) Service provider outside India, service receiver in India (Import of service)12
  • 13. Taxation of Cross Border ServicesLegislative Background (prior to 1.7.2012) Export of services deemed to have taken place based on criteria forexport as per rule 3. For exports, services should be fully or partly performed outsideIndia. Categorization of services for exports:• Immovable property criteria• Performance based criteria• Recipient / user based criteria13
  • 14. Taxation of Cross Border ServicesImmovable property criteria [Rule 3(1)(i)] Immovable property should be located outside India Services provided from India and used outside India Payment received in convertible foreign exchangeE.g. Indian architect prepares a design sitting in India for aproperty located in U.K and hands it over to the owner ofsuch property14
  • 15. Taxation of Cross Border ServicesPerformance Based Criteria [Rule - 3(1)(ii)]• Services performed outside India, either wholly or partly.• Services provided from India and used outside India• Payment in convertible foreign exchangeE.g. An Indian event manager arranges a seminar for an Indian company inU.K.; the service has to be treated used outside India on the basis ofperformance in U.K even though the benefit of such seminar may flowback to the employees serving the company in India.15
  • 16. Taxation of Cross Border ServicesRecipient Based Criteria [Rule - 3(1)(iii)] Services are provided in relation to business and commerce - recipient of serviceshould be located outside India; Services are not provided in relation to business and commerce - recipient ofservice should be located outside India at the time of provision of such service. Services provided from India and used outside India (upto 28.2.2007) Services delivered outside India and used outside India (W.e.f 1.3.2007) Condition of used outside India deleted (W.e.f. 27.2.2010) Payment received in convertible foreign exchangeE.g. A company taking orders from domestic buyers for its principal in UK &US for export of goods by principal in India on commission basis received inconvertible foreign exchange from its principal 16
  • 17. Taxation of Cross BorderServicesImport of Services Taxable under section 66A w.e.f. 18.4.2006 Conditions for taxation Service must be received by a person in India Service provider must be situated outside India Service falls under any clause of 65(105) Service provider has established business / fixed establishment /permanent address outside India Taxation of Services (Provided from Outside India and Received inIndia) Rules, 2006.17
  • 18. Taxation of Cross Border ServicesImport of ServicesCategorization of services (Rule 3)Immovable property criteriaRule- 3(i) - Immovable property should be located in India.Performance based criteriaRule - 3(ii) - Services have been performed in India either wholly orpartlyRecipient based criteriaRule - 3(iii) – The recipient of service should be located in India . Theservice should be in relation to business or commerce. 18
  • 19. Taxation of Cross Border ServicesCase laws - Bombay High Court in the case of Indian National Ship Owners Associationv. Union of India (2009) 18 STT 212 (2009) 13 STR 235 (Bombay) had heldthat levy of service tax on a person who is resident of India but receivesservices from outside India prior to insertion of section 66A is notsustainable. In view of section 66A, offshore services cannot be subjectedto service tax prior to 18.4.2006. Before enactment of section 66A, therewas no authority vested by law in revenue to levy service tax on a personwho was resident in India and received services outside India. In Hindustan Zinc Ltd. v. CCE (2009) 18 STT 67; (2009) 18 STT 67(CESTAT, New Delhi-LB), it was held that where taxable service is providedby a non resident or from outside India, who does not have any office inIndia, recipient of such service could not be held liable for paying service taxprior to 1.1.2005 notwithstanding amendment in rule 2(1)(d) of Service TaxRules, 1994.19
  • 20. Charge of Service Tax ( Section 66B ) w.e.f. 1.7.2012 Service tax shall be charge at the rate of twelve percent on the value of all services other than specified in thenegative list provided or agreed to be provided in the taxable territory by one person to another person Services that are provided in a non-taxable territory are notchargeable to service taxTaxation of Cross Border Services20
  • 21. Up to 30.6.2012Export ofServicesRules, 2005W.e.f. 1.7.2012Rule 6A ofServices TaxRules, 1994Place ofProvisionof ServicesRules,2012+21Taxation of Cross Border Services –Exports
  • 22. Taxation of Cross Border Services Rule 6A has been inserted in Service Tax Rules 1994 videNotification No. 36/2012-ST, dated 20.6.2012 Rule 6A comprises what is export of services Service will be treated as export if —(a) the provider of service is located in the taxable territory ,(b) the recipient of service is located outside India,(c) the service is not a service specified in the section 66D of the Act,(d) the place of provision of the service is outside India,(e) the payment for such service has been received by the provider of servicein convertible foreign exchange, and(f) the provider of service and recipient of service are not merelyestablishments of a distinct person.22
  • 23. Taxation of Cross Border ServicesRule 6A of Service Tax Rules, 1994 India + Indian currency = Taxable India + Foreign currency =Taxable Non-taxable territory + Indian currency = Taxable Non-taxable territory + Foreign currency = Export /Exempt23
  • 24. Taxation of Cross Border ServicesHow to Determine Taxability –i) Which rule applies to the service provided specifically? In case morethan one rules apply equally, which of these come later in the ordergiven in the rules?ii) What is the place of provision of the service in terms of the aboverule?iii) Is the place of provision in taxable territory? If yes, tax will be payable.If not, tax will not be payable.iv) Is the provider located in the taxable territory? If yes, he will pay thetax.v) If not, is the service receiver located in taxable territory? If yes, hemay be liable to pay tax on reverse charge basis.vi) Is the service receiver an individual or government receiving servicesfor a non-business purpose, or a charity receiving services for acharitable activity? If yes, the same is exempted.vii) If not, he is liable to pay tax.24
  • 25. Taxation of Cross Border ServicesPlace of Provision of Service Rules, 2012 Purpose is to identify taxing jurisdiction for a service In earlier regime focus was to determine taxability in case of exportsand imports only. Present rules replace Export and Import Rules and define localjurisdiction Meant for cross border services, services to J & K, service providersoperating from multiple locations, determining services whollyconsumed in SEZ and a precursor to GST.25
  • 26. Important Terms of POPS Rules, 2012 Taxable Territory [Section 65B(52)] –Taxable territory meansthe territory to which the provisions of this chapter apply.(Taxable territory = India – J & K State) Non-taxable Territory [Section 65B(35)] – Non-taxable territorymeans the territory which is outside the taxable territory.Taxation of Cross Border Services26
  • 27. Taxation of Cross Border Services27
  • 28. Taxation of Cross Border ServicesTaxable Services to qualify as import if - Service provider located in Non-taxable Territory Service recipient located in Taxable Territory Import services from outside India - pay localtaxes on reverse charge mechanism28
  • 29. Taxation of Cross Border ServicesLocation of service provider - Business establishment – Place where essential decisions concerning the generalmanagement are adopted and functions of its central administration are carried out.A service provider or receiver can have only one business establishment Fixed establishment -Place other than Business Establishment which haspermanent presence of human and technical resources to provide or receive service Usual place of residence –Body Corporate : place where incorporatedIndividual : place where he spends most of his time for the period in question orwhere he lives with his family and is in full time employment. An individual cannothave more than one place of usual residence.29
  • 30. Taxation of Cross Border ServicesLocation of the service provider(a) where the service provider has obtained a single registration, whether centralized orotherwise, the premises for which such registration has been obtained(b) where the service provider is not covered under sub-clause (a):(i) the location of his business establishment; or(ii) where the services are provided from a place other than the businessestablishment, a fixed establishment elsewhere, the location of suchestablishment; or(iii) where services are provided from more than one establishment, whetherbusiness or fixed, the establishment most directly concerned with the provision ofthe service; and(iv) in the absence of such places, the usual place of residence of the serviceprovider. 30
  • 31. Taxation of Cross Border ServicesLocation of the service receiver(a) where the recipient of service has obtained a single registration, whether centralizedor otherwise, the premises for which such registration has been obtained;(b) where the recipient of service is not covered under sub-clause (a):(i) the location of his business establishment; or(ii) where services are used at a place other than the business establishment, afixed establishment elsewhere, the location of such establishment; or(iii) where services are used at more than one establishment, whether business orfixed, the establishment most directly concerned with the use of the service; and(iv) in the absence of such places, the usual place of residence of therecipient of service.31
  • 32. Taxation of Cross Border ServicesIndia [U/s 65B(27)](a) the territory of the Union according to Article 1 clauses (2) and (3) of theConstitution;(b) its territorial waters, continental shelf, exclusive economic zone or any othermaritime zone ;(c) the sea-bed and the sub-soil underlying the territorial waters;(d) the air space above its territory and territorial waters; and(e) the installations, structures and vessels located in the continental shelf of Indiaand the exclusive economic zone of India, for the purposes of prospecting orextraction or production of mineral oil and natural gas and supply thereof;32
  • 33. Taxation of Cross Border ServicesS. No. Conditions Tax Liability1 Both service provider and service receiverare in taxable territoryService provider2 Service provided from taxable territory innon taxable territory except J & KNo tax (Export)3 Service provided from non-taxable territory(including J & K) in taxable territoryService receiver (Import)4 Both service provider and service receiverare in non-taxable territoryNo service / No tax33
  • 34. POPS - At a GlanceRule Governing Situation Place of Provision of Service3 General RuleIf recipients location not available in the ordinary course ofbusinessLocation of Service ReceiverLocation of Service Provider4 Service provided in respect of goods that are required to bemade physically available by the service receiver to the serviceprovider t o provide the serviceWhen such services are provided from a remote location byway of electronic meansThis rule shall not apply in case of service provided in respect ofgoods temporarily imported into India for repair or re-export.Service provided entirely or predominantly in the physicalpresence of an individual.Location where service is performed.Location where the goods aresituated at the time of provision ofserviceLocation where service is performed.5 Immovable property based services provided directly in relationto an immovable property (includes grants of right to useimmovable property, services for carrying out or coordination ofcivil work)Location or proposed location ofimmovable property34
  • 35. POPS - At a Glance35Rule Governing Situation Place of Provision of Service6 Services in relation to an event Location of event7If services referred to in Rules 4, 5 &6 provided in many locations,including location in taxable territory.Taxable territory in which greatestproportion is provided8Where service provider and servicereceiver located in taxable territoryLocation of service receiver9Specified services of banking, onlinedata base, intermediary services andhiring means of transport up to onemonth.Location of service provider10 Goods transport serviceGoods transportation agencyservicesDestination of goodsLocation of person liable to pay tax
  • 36. POPS - At a GlanceRule Governing Situation Place of Provision of Service11Passenger transport services Where the passenger embarks onthe conveyance for continuousjourney12Services provided on board aconveyanceFirst scheduled point of departure.14Order of application of rules Later rule to supersede.36
  • 37. Taxation of Cross Border ServicesRule 3- Default Rule The main rule or default rule provides that a service shallbe deemed to be provided , where the receiver is located In case, when location of the service receiver is notascertainable, location of the service provider is the placeof provision of service This rule is applied when none of the other later rulesapply37
  • 38. Rule 3- Default Rule38‘A’Service Provider‘X’Service Provider‘B’Service Receiver‘Y’Service ReceiverTaxable Territory Non- Taxable TerritoryTaxableforATaxable for BNot Taxable
  • 39. Taxation of Cross BorderServicesRule 4- Performance based servicesPlace of provision is the location where services are actually performedGoods which are required to made physically availableServices involve movable objects or things that can be touched, felt orpossessedExamples: Services in respect of goods to be physically made available by receiver(repair, storage / warehousing, technical testing, dry-cleaning, cargo handlingetc). Plastic surgery, beauty treatment services, personal security services, healthand fitness services, photography services internet cafe services etc.Contd……39
  • 40. Taxation of Cross Border ServicesRule 4- Performance based services Market research reports, CA reports do not fall under this rule Indian engineers going to US to repair a ship not taxable in India Foreign engineers coming to India to repair a ship – taxable in India Services provided from a remote location by electronic means –where goods located at that time Not applicable when goods are temporarily imported into India forrepairs, reconditioning or reengineering for re-export40
  • 41. Taxation of Cross Border ServicesRule 5-Services relating to Immovable Property Place of provision is where immovable property is located Applicable for services directly connected with immovable property. Immovable property not defined in the Finance Act, 1994. Immovable property shall include land, benefits to arise out of land, andthings attached to the earth, or permanently fastened to anything attachedto the earth. [ S. 3 (26) of the General Clauses Act, 1897] Definition is inclusive Properties such as buildings and fixed structures on land covered underimmovable property. The property must be attached to some part of earth even if under water.Contd……41
  • 42. Taxation of Cross Border ServicesRule 5-Services relating to Immovable PropertyExamples: Services in course of construction, alteration, repair, maintenance etc, of immovableproperty Renting of immovable property Services of real estate agents, architects, engineers etc. relating to land, building or civilengineering works Services connected with oil / gas / mineral exploration Surveying, property management services, hotel accommodation Lease, or a right of use, occupation, enjoyment or exploitation of an immovable property Real estate services in relation to the actual or proposed acquisition, lease or rental ofproperty, legal services rendered to the owner or beneficiary or potential owner orbeneficiary of property as a result of a will or testament 42
  • 43. Taxation of Cross Border ServicesRule 6- Service relating to Events Place of provision is the place where event is actually held Covers admission to events, organizing events and ancillary services relating to events Includes cultural, artistic, sporting, scientific, educational, entertainment event, or acelebration or any other similar eventExamples Conventions Conferences Exhibitions Fairs , Seminars Workshops Weddings Sports Cultural Events etc. Contd……43
  • 44. Taxation of Cross Border ServicesRule 6- Service relating to Events A management school located in UK intends to organize a road show inMumbai and New Delhi for prospective students. Any service provided byan event manager, or the right to entry like participation fee for prospectivestudent will be taxable in India. An Indian fashion design firm hosts a show at USA. The firm receives theservices of a Canadian event organizer. The place of provision of thisservice is the location of the event, which is outside the taxable territory.Any service provided in relation to this event, including entry fee will not betaxable. Provision of sound engineering for an artistic event is a pre-requisite forstaging of that event and should be regarded as a service ancillary to itsorganization. A service of hiring a specific equipment to enjoy the event atthe venue, is ancillary to admission. 44
  • 45. Taxation of Cross Border ServicesRules 7- Services from Multi locations The place of provision shall be the location in taxable territory where greatestproportion of service is provided. Service is performed at different locations like partly from Mumbai , partly fromNew Delhi Where any service stated in 4, 5 and 6 is provided at more than one locationincluding a location in taxable territory and one or more location is outside taxableterritoryExample:• Technical inspection and certification of a product by carrying out testing at twolocations in India and one outside India - Taxable in India where a higher stake isinvolved.45
  • 46. Taxation of Cross Border ServicesRule 8- Both service provider and service receiver located in taxableterritory Where service provider and service recipient is in taxable territory, thelocation of service receiver will be the place of provision Even when the actual provision takes place outside taxable territory , itwill be taxable in India.Example• Indian plane needs repair while in US. Indian maintenance agencysends its engineers to US for repairs or hires engineers in US to repairthe plane. This transaction will be taxable in India superseding earlierclauses.46
  • 47. Taxation of Cross Border ServicesRule 9 - Place of Provision in case of Specified Services The place of provision of service is location of service provider Specified services includes Banking service (to account holders) Online information and database access or retrieval Intermediary services Hiring of means of transport up to a period of one month Account means an account which bears an interest to the depositor. Services provided to holders of demand deposits, term deposits, NRE (non-residentexternal) accounts and NRO (non-resident ordinary) accounts Services linked to or requiring opening and operation of bank accounts such aslending, deposits, safe deposit locker etc. Transfer of money including telegraphic transfer, mail transfer, electronic transfer etc.47
  • 48. Taxation of Cross Border ServicesRule 9 - Place of Provision in case of Specified Services Banking services provided to persons other than account holders will be covered under themain rule (Rule 3- location of receiver). Services not covered under this rule financial leasing services including equipment leasing and hire-purchase; merchant banking services; Forex, broking, and purchase or sale of foreign currency, including money changing; asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services; advisory and other auxiliary financial services including investment and portfolio researchand advice, advice on mergers and acquisitions and advice on corporate restructuringand strategy; banker to an issue service. Contd……48
  • 49. Tax on Money Remittance (Circular No. 163 dated 10.7.2012) No service tax on foreign currency remitted to India from overseas Amount of remittance comprises money Service excludes money transactions Even fee for remittance is not taxable (POPS) Sender of money outside India - bank / company remitting locatedoutside India Fee charged by Indian bank - remitter located outside India (nottaxable as per POPS)49Taxation of Cross Border Services
  • 50. Taxation of Cross Border ServicesRule 9 - Place of Provision in case of Specified Services Online information and database access or retrieval services are services in relation toonline information and database access or retrieval or both, in electronic form throughcomputer network, in any manner. Essentially delivered over the internet or an electronic network which relies on theinternet or similar network for their provision. Completely automated, and require minimal human intervention. Examplesi) online information generated automatically by software from specific data input bythe customer, such as web-based services providing trade statistics, legal andfinancial data, matrimonial services, social networking sitesii)digitized content of books and other electronic publications, subscription of onlinenewspapers and journals, online news, flight information and weather reportsiii)Web-based services providing access or download of digital content.50
  • 51. Taxation of Cross Border ServicesRule 9 - Place of Provision in case of Specified ServicesOnline information and database retrieval does not includes – Sale or purchase of goods, articles etc. over the internet; Telecommunication services provided over the internet, including fax,telephony, audio conferencing, and videoconferencing; A service rendered over the internet, such as an architectural drawing, ormanagement consultancy; Repair of software, or of hardware, through the internet, from a remote location; Internet back-bone services and internet access services.Contd………51
  • 52. Taxation of Cross Border ServicesRule 9 - Place of Provision in case of Specified ServicesIntermediary means -- broker,- agent, or- any other person, by whatever name called- who arranges or facilitates a provision of a service- between two or more persons- but does not include a person who provides the main service onhis accountContd……….52
  • 53. Taxation of Cross Border ServicesRule 9 - Place of Provision in case of Specified ServicesHiring of means of transport Land vehicles such as motorcars, buses, trucks; Vessels; Aircraft; Vehicles designed specifically for the transport of sick or injured persons; Mechanically or electronically propelled invalid carriages; Trailers, semi-trailers and railway wagons.Non- transport means Racing cars; Containers used to store or carry goods while being transported; Dredgers, or the like. 53
  • 54. Taxation of Cross Border ServicesRule 10- Transportation of Goods Place of destination of goods Except in GTA by road where place of provision is location of personliable to pay taxExample -GTA (ABC) located in Delhi transports a consignment of newmotorcycles from the factory of XYZ in Gurgaon (Haryana), to thepremises of a dealer in Bhopal, (MP). XYZ is a registered assesseeand is also the person liable to pay freight and hence person liableto pay tax.54
  • 55. Taxation of Cross Border ServicesRule 11 – Passenger Transportation Services Place where passenger embarks on conveyance for continuous journey Continuous journey means a journey for which:-(i) a single ticket has been issued for the entire journey; or(ii) more than one ticket or invoice has been issued for the journey, by one serviceprovider, or by an agent on behalf of more than one service providers, at the sametime, and there is no scheduled stopover in the journey Stopover means a place where a passenger can disembark either to transfer to anotherconveyance or break his journey for a certain period in order to resume it at a later pointof time. All stopovers do not cause a break in continuous journey. Only such stopovers will berelevant for which one or more separate tickets are issued.Contd…..55
  • 56. Taxation of Cross Border ServicesRule 11 – Passenger Transportation ServicesExample - A travel on Delhi-London-New York-London- Delhi on asingle ticket with a halt at London on either side, or evenboth, will be covered by the definition of continuous journey. If a separate ticket is issued, New York-Boston-New York, thesame will be outside the scope of a continuous journey.56
  • 57. Taxation of Cross Border ServicesRule 12- Services provided on board conveyances First scheduled point of departure of conveyance for journey On board service of provision of movies, music, games, beauty treatment etc.Example – A video game or a movie-on-demand is provided as on-board entertainmentduring the Kolkata-Delhi leg of a Bangkok-Kolkata-Delhi flight. POP will beBangkok (outside taxable territory, hence not liable to tax). If the same service is provided on a Delhi-Kolkata-Bangkok-Jakarta flightduring the Bangkok-Jakarta leg, POP will be Delhi in the taxable territory,hence liable to tax.57
  • 58. Taxation of Cross Border ServicesRule 14- Order of application of Rules Where more than one rule applies, rulethat occurs later is relevant rule58
  • 59. Taxation of Cross Border ServicesExemptions under N. No. 25/2012-ST, dated 20.6.2012Entry No. 31 Services by an organizer to any person in respect of abusiness exhibition held outside IndiaEntry No. 34 Services received from a provider of service located in a non-taxable territory by(a) Government, a local authority, a governmental authority or anindividual in relation to any purpose other than commerce, industry orany other business or profession; an entity registered under section12AA of the Income Tax Act, 1961 for the purposes of providingcharitable activities; or(b) a person located in a non-taxable territory59
  • 60. Taxation of Cross Border ServicesRebate of inputs/input services for export of services (NotificationNo. 39/2012-ST dated 20.06.2012) Rebate is granted of whole of duty paid on excisable inputs or whole ofservice tax and cess paid on all input services used in providingservice exported Exported to any country other than Nepal and Bhutan Subject to conditions, limitations and procedure as prescribed in thesaid Notification. Form ASTR-2 is to be used.60
  • 61. Taxation of Cross Border ServicesRebate of Service Tax on the taxable service which are received by anexporter of goods and used for exports of goods (Notification No.41/2012-ST, dated 29.06.2012 ) In suppression to Notification No. 52/2011-ST dated 30.12.2011 Applicable w.e.f. 1.7.2012. Rebate shall be granted by way of refund of service tax paid on the specified services Specified services would mean —(i) in the case of excisable goods, taxable services that have been used beyond theplace of removal, for the export of said goods;(ii) in the case of goods other than (i) above, taxable services used for the export ofsaid goods;but shall not include the following input services, viz, - construction, works contracts,renting of motor vehicles, general insurance, servicing, repair & maintenance, outdoorcatering, health, life insurance etc. meant for employees etc.Contd……61
  • 62. Taxation of Cross Border ServicesRebate of Service Tax on the taxable service which are received by anexporter of goods and used for exports of goods (Notification No.41/2012-ST, dated 29.06.2012) Rebate can be claimed on the basis of rates as mentioned in scheduleor as per procedure (Para 2) or based on documents (Para 3) Cenvat Credit of service tax paid on specified services used for exportof goods should not be taken. No rebate can be claimed under this notification by developer of SEZ orunit in SEZ. If export proceeds are not received within time allowed or withinextended time, such rebate shall be deemed to have never beenallowed and shall be recovered back in terms of recovery provisions.Forms used –Form A1 – Application for claiming rebate of Service Tax on specifiedservices used for export of goods.Form A2 – Declaration by exporter for obtaining Service Tax code.62
  • 63. Taxation of Cross Border ServicesDetermination of point of taxation in case of specified services orpersons (Rule 7 of POT Rules, 2011) POT shall be the date on which payment is made When the payment is not made within a period of six months of the date ofinvoice, the POT shall be determined as per normal provision In case of associated enterprises, where the person providing the serviceis located outside India, POT shall be the date of debit in the books ofaccount of the person receiving the service or date of making the paymentwhichever is earlier.63
  • 64. 64Special Economic Zone (SEZ) Specified duty-free zone deemed to be a foreign territory Objectives of promotion of goods and services leading to enhanced economicactivities, investment promotion, development of infrastructure, creation ofemployment opportunities etc. SEZs could be multiple product SEZs, sector specific, IT sector, free trade andwarehousing, gem and jewellery sector, biotechnology etc. Enjoy tax benefits Indirect tax exemptions include customs duty, central excise duty, service tax,central sales tax, stamp duty and other miscellaneous taxes and duties Direct tax exemptions include income tax, dividend distribution tax, securitiestransaction tax, minimum alternate tax etc.Taxation of Cross Border Services
  • 65. Taxation of Cross Border ServicesSpecial Economic Zone (SEZ) Every developer and the entrepreneur shall be entitled to exemption, drawbackand concessions (Section 26(e) of SEZ Act, 2005)(e) exemption from service tax under Chapter V of the FinanceAct, 1994 on taxable services provided to a developer, or unit to carry onauthorized operations in the special economic zone Section 51(1) contains a non-obstante clause Rule 31 of SEZ Rules, 2006 - Exemption to SEZ / units in SEZ from Service Taxon taxable services rendered to developer of SEZ / Units for authorizedoperations In case of inconsistency between the provisions of the SEZ Act and any other lawin force, the provisions of the SEZ Act shall prevail W.e.f. 1.07.2012, the refund to SEZ will be granted under N. No. 40/2012-ST,dated 20.06.201265
  • 66. Taxation of Cross Border Services66Exemption Status to SEZs
  • 67. Taxation of Cross Border Services67
  • 68. Taxation of Cross Border Services68
  • 69. THANK YOUFORYOURPRECIOUS TIMEANDATTENTIONDr. Sanjiv AgarwalFCA, FCS, Jaipurasandco@gmail.comsanjivservicetax@gmail.com69

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