The document discusses the scope of taxation of services under the new service tax regime in India. It covers the key aspects of what constitutes a "service" according to law, the types of services that are taxable and exempt. Some of the major points covered include the definition of service, declared taxable services, exclusions to service, negative list of non-taxable services, and taxability of services provided by employees, directors, partners and more.
3. This Presentation Covers
• Scope of ‘Service’ under New Regime – Inclusions /
Exclusions, Services of Employees/ Directors/
employers/ Partners /Charge of Tax
• Declared Services including Valuation
• Bundled Services – Classification Issues
• Cross Border Services
3
4. ‘Service' has been defined in clause (44) of the section 65B
and means –
any activity
For a consideration
carried out by a person for another
and includes a declared service (66E)
4
5. 5
Services on which Service Tax shall be attracted comprise of :
Those services which satisfy the definition of service u/s 65B (44)
Nine specified declared services u/s 66E
Those services which do not find place in negative list of services
u/s 66D
Those services which are not exempt from levy of Service Tax
under Notification No. 25/2012-ST dated 20.06.2012
to be contd….
5
6. Services on which no Service Tax shall be payable comprise of :
• Services which are specifically excluded from the scope of
definition of service itself u/s 65B(44)
• 17 broad services specified in the negative list of services u/s
66D
• Services which are exempt from levy of Service Tax under N.
No. 25/2012-ST dated 20.06.2012
• Specified services otherwise exempt under specific
notifications
• Activities where service provider and service receiver are in
non –taxable territory
6
Scope of services under Service Tax
6
7. 7
The New Taxability Concept
Taxable
3.
Exemptions
(39)
1. Non -
Taxable
territory
(POPS)
2. Negative
list (17)
SERVICE FOR A CONSIDERATION
E - MAGIC TEST
E: Employee
M: Money
A: Actionable claim
G: Goods
I: Immovable property
C: Court Fee
9DECLAREDSERVICES
8. Activity must be for a consideration (nexus / reciprocity)
Activity – includes both activity as well as non-activity
Consideration – includes both monetary and non
monetary consideration.
Two persons are involved –
Service provider
Service receiver
Only services provided by one person to another are
taxable
Person – natural as well as artificial
8
9. Activity
Not defined in the Act
In common understanding, activity includes –
An act done
A work done
A deed done
An operation carried out
Execution of an act
Provision of a facility etc.
Activity could be active or passive and forbearance to act
Agreeing to an obligation to refrain from an act or to tolerate an
act or a situation - listed as a declared service u/s 66E
9
10. Consideration
Means everything received or recoverable in return for a
provision of service which includes -
Monetary payment
Non-monetary payment
Deferred consideration
Under Indian Contract Act, 1872, Consideration means -
“When, at the desire of the promisor, the promisee or any other person
has done or abstained from doing, or does or abstains from doing, or
promises to do or to abstain from doing, something, such act or
abstinence or promise is called a consideration for the promise”
10
11. Activity for a Consideration
Activity should be carried out by a person for a
consideration
Activity without consideration like-
Donation
Gifts
Free charities
outside the ambit of service
Charity for consideration would be service and
taxable unless otherwise exempted
11
12. Money- 65B(33)
“Money" means legal tender, cheques, promissory note, bill of
exchange, letter of credit, draft, pay order, traveller cheques, money
order, postal or electronic remittance or any similar instrument but shall
not include any currency that is held for its numismatic value
Actionable Claim –Section 3 of Transfer of Property Act, 1882
• Claim to unsecured debts
• Claim to beneficial interest in movable property not in possession of
claimant
• Right to insurance claim
• Arrears of rent
• Lottery claims
12
13. 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
money is located outside India
Fee charged by Indian bank - remitter located outside India
(not taxable as per POPS)
13
14. Person-65B(37)
"person" includes,––
• an individual,
• a Hindu undivided family,
• a company,
• a society,
• a limited liability partnership,
• a firm,
• an association of persons or body of individuals, whether incorporated
or not,
• Government,
• a local authority, or
• every artificial juridical person, not falling within any of the above
14
15. Government – Not defined
Section 3 (22) of General Clause Act, 1897
Includes Central/State Government/ Union Territory
Actions taken in the name of President/ Governor
Most of services provided by Government are in
Negative List or reverse charge is applicable
15
16. 'Service' does not include -
any activity that constitutes only a transfer in title of goods or immovable
property by way of sale, gift or in any other manner.
Sale of developed plots is a service (Narne Constructions Pvt. Ltd. v UOI
2013 (29)STR 3 (SC)
a transfer, delivery or supply of goods which is deemed to be a sale of goods
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 the
employment.
fees payable to a court or a tribunal set up under a law for the time being in
force
16
17. This scope shall not apply to –
a) functions performed by M.P., M.L.A., Members of
Panchayats / Municipalities who receive any consideration
in performing the functions of that office as such member;
or
b) duties performed by any person who holds any post in
pursuance of the provisions of the Constitution in that
capacity; or
c) duties performed by any person as a Chairperson or a
Member or a Director in a body established by the Central
Government or State Government or local authority and
who is not deemed as an employee before the
commencement of this section.
17
18. 18
For the purpose of scope of service -
(a) an unincorporated association or a AOP and a member thereof shall be
treated as distinct persons;
(b) an establishment of a person in the taxable territory and any of his other
establishment in a non-taxable territory shall be treated as establishments of
distinct persons.
(c) A person carrying on a business through a branch or agency or
representational office in any territory shall be treated as having an
establishment in that territory
19. Draft Circular (F. No. 354 /127/2012-TRU dated 27.7.2012) issued for clarification
on certain activities / facilities / reimbursements to employees by the employers
(a) Treatment of supplies made by the employer to employees
Amount deducted from salary / paid for service provided by the employer to
employee is for consideration and hence taxable
Employer who provides some services free of cost (e.g. crèche, gymnasium or
a health club) are not liable to tax
(b) Treatment of reimbursements made by the employer to the employee
Reimbursements of expenditure incurred on behalf of the employer in course
of employment would not amount to a service, hence non-taxable
19
20. (c )Treatment of supplies and reimbursements made by the
employer to ex-employees/ pensioners
Same tax treatment for ex- employees of the company –
Reimbursement of expenses on behalf of
company – non-taxable ?
Facilities for consideration – taxable
Facilities free of cost - non taxable ?
20
21. Director’s services to the company are taxable w.e.f 1.7.2012
Sitting fees, commission, bonus, etc. are subject to service
tax
W.e.f. 1.7.2012 upto 6.8.2012, service tax to be deposited by
the directors while from 7.8.2012 vide Notification No.
45/2012, Service Tax on such services will be deposited by
the company under reverse charge
WTDs /MDs /EDs who are under contractual employment
with the company and receive salary or remuneration from
the company will not be covered - considered as employees
of the company
21
22. Interest paid on loan by director to company, dividend on shares, other
professional charges on account of services not rendered as a director
(in professional capacity) are not liable to Service Tax under reverse
charge
In case of nominee director, the nominating company who receives fees
will be liable to pay service tax
The invoice / receipt to be issued by the directors within 30 days
In case of nominee directors, the invoice will be issued by the
nominating company if payment made to such Company
In the case of Government nominees, the services shall be deemed to
be provided by the Government but liable to be taxed under reverse
charge basis (support service)
22
23. Partnership firm is not a distinct legal entity apart from the
partners under the Partnership Act, 1932
Partner is not an employee of the firm -contract of
employment requires two distinct firms, viz., employer and
employee
Partners are the real owners of the assets of Firm to the extent
of their share
Salary paid to partner is only profit known by a different
name
It is only a transaction in money
Incomes received from firm treated as income from Profits
and Gains of Business or Profession under I T Act, 1961
Partnership Act, 1932 can not be over-looked
23
24. Non commercial construction for non-government purpose
Private roads (not meant for general public)
Residential construction of more than one unit
Commercial artists/performers
Film actors/ directors /reality show judges
Tourism boats
Board director’s sitting fee
Non-compete fee
Arbitrators to business entities
Discourses and lectures/ yoga classes
Public parking
to be contd.. 24
25. Banking services to Government
Unrecognized IPRs
Services to RBI
Hotel telephone calls
Video library facilities by hotels
Matrimonial sites
Astrologers
Laundry services
Works contracts for movable properties
All sub-contracts except exempted works contracts
On board catering and other facilities
Executive Lounge at railway station/ airport
25
26. Section 66 (upto 30.6.2012)
There shall be levied a tax @ 12 percent of the value of
taxable services as referred to in section
65(105), i.e., taxable services
Not to apply w.e.f. 1.07.2012
26
27. Section 66B (W.e.f 1.7.2012)
There shall be levied a tax at the rate of twelve per cent
on the value of all services, other than those services
specified in the negative list, provided or agreed to be
provided in the taxable territory by one person to
another and collected in such manner as may be
prescribed
27
28. Essential ingredients for charge of Service Tax
There should be a service involved
Such service should not be one included in the negative list
as defined in section 66D.
Services should be provided or agreed to be provided.
Services should be provided in the taxable territory only.
Services should be provided by one person to another
person.
Tax shall be levied on value of services so provided or
agreed to be provided.
Collection shall be in prescribed manner.
28
29. Provided or to be provided v. provided or agreed to be provided
Before actual provision of service is made, all relevant
information on chargeable event must be known
On account advance payment without any identification of
services or activities may not be liable to service tax
Services which have only been agreed to be provided but
are yet to be provided are taxable
Receipt of advances for services agreed to be provided
become taxable before the actual provision of service
Advances that are retained by the service provider in the
event of cancellation of contract of service by the service
receiver become taxable as these represent consideration
for a service that was agreed to be provided.
29
30. 30
Clause 44 of section 65B defines service – it includes a declared service.
There are 9 categories of services or activities as declared services implying that
on all such nine declared services, Service Tax shall be payable
Does not include any such transfer, delivery or supply of any goods which is
deemed to be a sale within the meaning of Article 366(29A) of the Constitution of
India.
What is declared services is defined in section 65B(22) to mean any activity
carried out by a person for another person for a consideration and declared as
such under section 66E of the Act.
They are amply covered by the definition of service but have been declared with a
view to remove any ambiguity for the purpose of uniform application of law all
over the country
31. Renting of Immovable Property
Renting (Section 65B (41)) -
allowing, permitting or granting access, entry, occupation, usage or any such
facility, wholly or partly, in an immovable property, with or without the transfer
of possession or control of the said immovable property and includes
letting, leasing, licensing or other similar arrangements in respect of
immovable property
Renting of certain kinds of immovable properties is specified in the negative list
• Renting of vacant land, with or without a structure incidental to its
use, relating to agriculture.
• Renting of residential dwelling for use as residence
• Renting out of any property by Reserve Bank of India
• Renting out of any property by a Government or a local authority to a non-
business entity
31
Declared Services
32. Renting of Immovable Property
Exemptions to Renting of Immovable property
Threshold level exemption up to Rs. 10 lakh.
Renting of precincts of a religious place meant for general public is exempt.
Renting of a hotel, inn, guest house, club, campsite or other commercial places
meant for residential or lodging purposes, having declared tariff of a room below
rupees one thousand per day or equivalent is exempt.
Renting of immovable property to / by educational institution in respect of
exempted education (W.e.f. 1.04.2013)
32
Declared Services
33. Declared Services
Nature of Activity Taxability
Renting of property to educational body Not chargeable to service tax; exemption
Renting of vacant land for animal
husbandry or floriculture
Not chargeable to service tax as it is covered in
the negative list entry relating to agriculture
Permitting use of immoveable property for
placing vending/dispensing machines
Chargeable to service tax as permitting usage of
space is covered in the definition of renting
Allowing erection of communication tower
on a building for consideration.
Chargeable to service tax as permitting usage of
space is covered in the definition of renting
Renting of land or building for
entertainment or sports
Chargeable to service tax as there is no specific
exemption.
Renting of theatres by owners to film
distributors
Chargeable to service tax as the arrangement
amounts to renting of immovable property.
Renting of immovable property outside India not taxable in India even if owners are
in India
33
34. Construction Activities [Section 66E (b)]
Construction activities means construction of a complex, building, civil
structure or a part thereof, including a complex or building intended for
sale to a buyer, wholly or partly, except where the entire consideration is
received after issuance of completion certificate by the competent
authority.
It includes construction of -
Complex
Building
Civil structure or part thereof
Complex or building intended for sale to a buyer except where
entire consideration is received after issuance of completion
certificate by the competent authority.
Actual sale after construction-if any consideration received before such
completion certificate, it will also be taxed.
34
Declared Services
35. Construction Activities [Section 66E (b)]
Construction is not defined
Construction includes
additions,
alteration,
replacement, or
remodeling
of any existing civil structure
35
Declared Services
36. Construction Activities [Section 66E (b)]
Who is Competent Authority to issue Completion Certificate
Government
Any authority authorized to issue CC under any law
In absence of any requirement to issue CC,
• Architect under Architect Act, 1972
• Chartered Engineer registered with Institution of Engineers
• Licensed surveyor (of local body / development or planning
authority)
36
Declared Services
37. Construction Activities [Section 66E (b)]
Residential Complex
Complex comprising of one or more buildings having more than one
residential unit
Even two units would be called ‘complex’
Single residential unit – self contained residential unit designed for
use, wholly / principally, for residence of one family
Original work – new construction and all type of addition / alteration to
abandoned / damaged structures on land as are required to make them
workable / erection , commissioning, installation.
Sale of developed plots is a service (Narne Constructions Pvt. Ltd. v UOI
2013 (29)STR 3 (SC)
37
Declared Services
38. 38
Temporary transfer or permitting the use or enjoyment of any intellectual
property right [Section 66 E (c)]
Intellectual property right’ has not been defined but Intellectual property
right includes :
Copyright
Patents
Trademarks
Designs
Any other similar right to an intangible property
Declared Services
39. Intellectual Property Rights
Examples of IPRs
Patents - New technical, concepts,
inventions
Copyright - Text, graphics, software, data
compilations, art, music
Trademarks - Brands (Services/ Products)
image and reputation
Confidential Information - Ideas, information, know-how,
processes etc.
Design Rights -Form and appearance,
decoration, apparels
39
Declared Services
40. Intellectual Property Rights
What is taxed in IPR
all IPRs (whether recognized in law or not) excluding
copy rights
temporary transfer of IPRs
permitting the use of IPRs
enjoyment of IPRs
40
Declared Services
41. Intellectual Property Rights
Copyrights as IPRs are exempted which include :
literary work
dramatic work
musical work
artistic works
cinematograph films ( for exhibition in halls w.e.f 1.4.2013)
41
Declared Services
42. Information Technology Software related services [section 66E(d)]
It includes following in relation to Information Technology Software (ITS)
–
Development
Design
Programming
Customization
Adaptation
Upgradation
Enhancement
Implementation
42
Declared Services
43. Information Technology Software
ITS is defined in Section 65B(28)
Representation in ITS should be of any of the following –
• Instruction
• Data
• Sound
• Image
• Source code
• Object code
Such items represented should be recorded in a machine readable form,
Such items represented and recorded should be capable of being
manipulated.
They should provide interactivity by way of a –
• computer, or
• automatic data processing machine, or
• any other device or equipment
43
Declared Services
44. Information Technology Software
Scope of ITS Service
Design - plan, scheme
Programming - process of writing a computer programme
Customization - modifying to meet a specific requirement
Adaptation - change to suit, adopt
Up gradation - raising standard, improving quality / version /
features
Enhancement - in value, content, quality
Implementation - execution
44
Declared Services
45. Agreeing to an obligation to refrain from an Act / to tolerate Act or situation
/ to do an Act [section 66E(e)]
Following activities if carried out by a person for another for
consideration would be treated as provision of service -
Agreeing to an obligation to refrain from an act.
Agreeing to an obligation to tolerate an act or a situation.
Agreeing to an obligation to do an act.
45
Declared Services
46. Obligations / Actions
Examples of Taxable Obligations / Actions
Non-compete fees for agreeing not to compete
compensation on termination of business agreements
advance forfeited for cancellation of agreement to provide a
service.
forfeiture of security deposit for damages done by service receiver
in course of receiving of services.
cancellation charges being charged by airlines, hotels etc.
consideration for non-appearance in a court of law or withdrawal
of suit.
demurrage charges or detention charges
46
Declared Services
47. Transfer of goods by hiring, leasing, licensing [66E(f)]
There should be transfer of goods involved
Such transfer of goods should be by way of –
hiring
leasing
licensing, or
any such manner
Such transfer should be without transfer of right to use
such goods.
Excludes intangible goods
Only goods [section 65B(25)] covered
47
Declared Services
48. Transfer of Goods by Hiring etc.
Transfer of right to use
Taxable only when transfer of right to use goods is not there
Constitutional / legal concept
Can be determined when agreement is read in whole, not just
one clause
Transfer of right to use is deemed sale u/s 366(29A) of
Constitution
If owner retains effective control, no transfer of right can take
place
Service excludes deemed sale u/s 366(29A)
48
Declared Services
49. Transfer of Goods by Hiring etc.
Tests laid down by Supreme Court in BSNL v UOI [(2006)2 STR 161 (SC)]
There must be goods available for delivery ;
There must be consensus ad idem as to the identity of the goods;
The transferee should have legal right to use the goods – consequently all
legal consequences of such use including any permissions or licenses
required therefore should be available to the transferee;
For the period during which the transferee has such legal right, it has to
be the exclusion to the transferor – this is the necessary concomitant of
the plain language of the statute, viz., a ‘transfer of the right to use’ and
not merely a license to use the goods;
Having transferred, the owner cannot again transfer the same right to
others
49
Declared Services
50. Transfer of Goods by Hiring etc
Examples of transfer without right to use
Car on hire with driver – right to use not transferred
Conditional supply of equipment – not free to use goods
Bank lockers – possession not transferred to hirer
Scaffolding structure for temporary purpose – no transfer of right /
effective control and possession
Hiring of Pandal / Shamiyana – No effective control
Hiring of audio visual equipment with attendant – no transfer of right /
possession
Declared Services
50
51. 51
Delivery of goods on hire purchase / installments [Section 66E(g)]
Includes delivery of goods on -
hire purchase
any system of payment by installment
Payment in parts / installments
Lease payment is calculated so as to cover full cost of asset together with interest
charges
Transfer of substantially all risks and rewards in relation to goods so transferred
Not taxable as covered under deemed sale of goods
But services in relation to such sale taxable
52. 52
Delivery of goods on hire purchase / installments [section 66E(g)]
Delivery of goods on hire purchase
Transfer of possession (and not just of custody)
The hirer has the option or obligation to purchase the goods in
accordance with the terms of the agreement.
In hiring, hirer has no such option and risks remain with owner / not
transferred to hirer
In hire purchase, hirer has option / obligation to purchase goods
Operating lease not covered
Involves two transactions – financial transaction and hire purchase.
Financial transaction is chargeable to Service Tax [Association of Leasing
& Financial Services v. Union of India (2010) 20 STR 417 (SC)].
Service Tax levied only on 10 percent value representing interest in
financial lease and not full value (Notification No. 26/2012-ST)
Declared Services
53. 53
Works Contract [65B(54)]
“Works Contract” means a contract wherein transfer of
property in goods involved in the execution of such contract is
leviable to tax as sale of goods and such contract is for the
purpose of carrying out
construction, erection, commissioning, installation, completio
n, fitting out, repair, maintenance, renovation, alteration of any
movable or immovable property or for carrying out any other
similar activity or a part thereof in relation to such property.
54. 54
Works Contract covers
Construction
Erection
Commissioning
Completion
Fitting out
Repair
Maintenance
Renovation
Alteration, or
Any other similar activity or part there of
55. 55
Some issues in works contracts
Labour contracts Excluded
Repair & Maintenance of motor vehicles yes if property in goods
transferred in execution of WC
Construction of pipeline / conduit yes, structures on land
Painting / repair / renovation of building
, wall tiling, flooring etc.
yes if involves provision of
material also
Erection/commissioning installation of
plant/ machine etc
yes if transfer of property in
goods is involved and machinery
etc
56. 56
Value of service portion in execution of work contract = gross amount charged for works
contact less value of transfer of property in goods involved in execution of works contract
Gross amount includes Gross amount does not include
Labour charges for execution of
the works
Amount paid to a sub-contractor
for labour and services
Charges for planning, designing
and architect’s fees
Value of transfer of property in goods involved in the
execution of the said works contract.
where value added tax or sales tax has been paid or payable
on the actual value of property in goods transferred in the
execution of the works contract, then such value adopted for
the purposes of payment of value added tax or sales tax,
shall be taken as the value of property in goods transferred
in the execution of the said works contract. (Rule 2A
explanation)
Cost of establishment of the
contractor relatable to supply of
labour and services and other
similar expenses relatable to
supply of labour and services
Value Added Tax (VAT) or sales tax, as the case may be, paid,
if any, on transfer of property in goods involved in the
execution of the said works contract
Profit earned by the service
provider relatable to supply of
labour and services
57. 57
Alternative valuation model (Rule 2A of Valuation Rules)
Where works contract is for… Value of the service portion shall be…
(A) execution of original works forty percent of the total amount charged
for the works contract
(B) maintenance or repair or
reconditioning or restoration or servicing
of any goods
seventy per cent of the total amount
charged including such gross amount
(C) in case of other works contracts, not
included in serial nos. (A) and (B) above,
including contracts for maintenance,
repair, completion and finishing services
such as glazing, plastering, floor and wall
tiling, installation of electrical fittings.
sixty percent of the total amount charged
for the works contract
58. 58
Valuation of service portion in Works Contract
Total Value = Sum total of
+ gross amount charged
+ value of goods and services supplied free of
cost for use in or in relation to execution of WC
whether us same contract /any other contract
+ value of land charged as part of total
consideration
- amount charged for such goods / services, if
any
- VAT levied, if any
If value of FOC goods / services is not ascertainable, it will be determined
on basis of fair market value having close resemblance
FMV based on generally accepted accounting principles
No Cenvat available on goods / inputs used in works contract
59. 59
Service portion in supply of food and drinks [section 66E(i)]
Supply of food and drinks is deemed sale and hence not taxable
However, only service portion in deemed sale is sought to be taxed
Service portion in activity wherein goods, being food or any other article of
human consumption or any drink (whether or not intoxicating) is supplied
in any manner as a part of the activity is a declared service.
Levy of Service Tax on services provided by only such restaurants where
service portion in total supply is substantial and discernible
60. Service portion in supply of food and drinks [section 66E(i)]
Restaurants provided conditional exemption
Services provided in relation to serving of food or beverages by a
restaurant, eating joint or a mess, other then those having the facility
of air-conditioning or central air-heating in any part of the
establishment, at any time during the year, and which has a license
to serve alcoholic beverage.
W.e.f. 1.04.2013, and has been deleted and thus, all AC restaurants
will be taxable
Threshold exemption
What activities are covered –
• Supply of food or drinks in a restaurant;
• Supply of food and drinks by an outdoor caterer.
Declared Services
60
61. 61
Service portion in supply of food and drinks [section 66E(i)]
in a restaurant -40% of total value charged
by outdoor catering - 60% of total value charged
Exemption under Notification No. 25/2012-ST to mid day meal scheme and
restaurants without bar license / air conditioning / central heating facility
Abatement @ 30% under Notification No. 26/2012-ST provided Cenvat credit
is not taken on goods
62. 62
Principles of Interpretation of specific description of services [section 66F]
Section 65A dealing with classification of taxable services omitted w.e.f.
1.7.2012
useful in deciding whether a service falls in negative list / exemptions /
declared services
composite v bundled service
bundled service –
collection of services / tied up services
more than one service
element of one service combined with element of provision of other
service (s).
Examples - Mailing done by RTI, Air traveling and catering therein
Earlier issue – which taxable service
Now – whether any activity is a ‘service’ or not a ‘service’.
63. 63
Rule 1
Reference to main service can not be used for services used for providing
the main service
If some service is provided with reference to provision of main service,
it does not be come main service,
Related services do not take the colour of main service.
Examples
Provision of access to any road or bridge on payment of toll
Security services
IT related services
Contract commission
Transportation of passengers by rail
Air travel agency
Tour operators
64. 64
Rule 2
Most specific description to be preferred over more general
description for services capable of differential treatment for
any purpose based on its description
Examples
Real estate agent for immovable property
• If taxed as intermediary, his location is important
• If taxed as immovable property, location of property is important
Outdoor catering by pandal & shamiana / convention to be taxed as
specific combined entry exist for abatement and not as individual
services
65. 65
Rule 3
Taxability of naturally bundled services in ordinary course
of business
If various elements of a bundled service are naturally bundled
in the ordinary course of business, it shall be treated as
provision of a single service which gives such bundle its
essential character
Perception of service provider / service receiver
Trade practice
Example
• Packaged hotel accommodation for convention delegates
may include
Hotel room accommodation
Breakfast
Tea / coffee during conference
to be contd…
66. Access to gym / health club / pool
Internet
Business centre
Sight seeing
Could be considered as naturally bundled convention services as each
activity is taxable but does not provide essential character and taxed
accordingly
Indicators of naturally bundled services
There is a single price or the customer pays the same amount, no matter how
much of the package they actually receive or use
The elements are normally advertised as a package.
The different elements are not available separately.
The different elements are integral to one overall supply – if one or more is
removed, the nature of the supply would be affected.
Each case to be individually examined
Bundled Services
66
67. Rule 4
Taxability of services not naturally bundled in ordinary course
of business
If various elements of a bundled service are not naturally
bundled in the ordinary course of business, it shall be
treated as provision of a service which attracts the highest
amount of service tax.
Examples
Renting of two floors or two portions of building by a common
agreement (treated as commercial use)
Management of event covering advertisement, promotion, space
booking, photography, videography, public relation etc.
67
68. Peculiar 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 (ideally
taxed at point of consumption)
Imports – taxed at the destination
Incentivizing exports of goods and services
Special incentives – rebates, SEZ etc.
68
69. The 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 / refunds
69
70. Up to 30.6.2012
Export of
Services
Rules, 2005
W.e.f. 1.7.2012
Rule 6A of
Services Tax
Rules, 1994
Place of
Provision
of Services
Rules,2012
+
70
Taxation of Cross Border Services –
Exports
71. Rule 6A has been inserted in Service Tax Rules 1994 vide Notification
No. 36/2012-ST, dated 20.6.2012
Rule 6A comprises what is export of services
Service will be treated as export if all following conditions are satisfied -
(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 service in
convertible foreign exchange, and
(f) the provider of service and recipient of service are not merely establishments of a
distinct person.
71
72. Rule 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 /
Exempt
72
73. Taxable 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 local
taxes on reverse charge mechanism
73
74. How to Determine Taxability –
i) Which rule applies to the service provided specifically? In case more
than one rules apply equally, which of these come later in the order
given in the rules?
ii) What is the place of provision of the service in terms of the above rule?
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 the
tax.
v) If not, is the service receiver located in taxable territory? If yes, he may
be liable to pay tax on reverse charge basis.
vi) 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.
vii) If not, he is liable to pay tax.
74
75. Place 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 exports and
imports only.
Present rules replace Export and Import Rules and define local
jurisdiction
Meant for cross border services, services to J & K, service providers
operating from multiple locations, determining services wholly
consumed in SEZ and a precursor to GST.
75
76. Important Terms of POPS Rules, 2012
Taxable Territory [Section 65B(52)] –Taxable territory means
the territory to which the provisions of this chapter apply.
(Taxable territory = India – J & K State)
Non-taxable Territory [Section 65B(35)] – Non-taxable territory
means the territory which is outside the taxable territory.
Taxation of Cross Border Services
76
78. Location of service provider -
Business establishment – Place where essential decisions concerning the general
management 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 has permanent
presence of human and technical resources to provide or receive service
Usual place of residence –
Body Corporate : place where incorporated
Individual : place where he spends most of his time for the period in question or where
he lives with his family and is in full time employment. An individual cannot have more
than one place of usual residence.
78
79. Location of the service provider
(a) where the service provider has obtained a single registration, whether centralized or
otherwise, 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 business
establishment or a fixed establishment elsewhere, the location of such
establishment; or
(iii) where services are provided from more than one establishment, whether
business or fixed, the establishment most directly concerned with the provision of
the service; and
(iv) in the absence of such places, the usual place of residence of the service
provider. 79
80. Location of the service receiver
(a) where the recipient of service has obtained a single registration, whether centralized
or 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, a fixed
establishment elsewhere, the location of such establishment; or
(iii) where services are used at more than one establishment, whether business or
fixed, 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 the
recipient of service.
80
81. India [U/s 65B(27)]
(a) the territory of the Union according to Article 1 clauses (2) and (3) of the
Constitution;
(b) its territorial waters, continental shelf, exclusive economic zone or any other
maritime 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 India
and the exclusive economic zone of India, for the purposes of prospecting or
extraction or production of mineral oil and natural gas and supply thereof;
81
82. S. No. Conditions Tax Liability
1 Both service provider and service receiver are
in taxable territory
Service provider
2 Service provided from taxable territory in
non taxable territory (except J & K)
No tax (Export)
3 Service provided from non-taxable territory
(including J & K) in taxable territory
Service receiver (Import)
4 Both service provider and service receiver are
in non-taxable territory
No service / No tax
82
83. Rule Governing Situation Place of Provision of Service
3 General Rule
If recipient's location not available in the ordinary course of
business
Location of Service Receiver
Location of Service Provider
4 Service provided in respect of goods that are required to be
made physically available by the service receiver to the service
provider t o provide the service
When such services are provided from a remote location by
way of electronic means
This rule shall not apply in case of service provided in respect of
goods temporarily imported into India for repair or re-export.
Service provided entirely or predominantly in the physical
presence of an individual.
Location where service is performed.
Location where the goods are
situated at the time of provision of
service
Location where service is performed.
5 Immovable property based services provided directly in relation
to an immovable property (includes grants of right to use
immovable property, services for carrying out or coordination of
civil work)
Location or proposed location of
immovable property
83
84. 84
Rule Governing Situation Place of Provision of Service
6 Services in relation to an event Location of event
7
If services referred to in Rules 4, 5 & 6
provided in many locations, including
location in taxable territory.
Taxable territory in which greatest
proportion is provided
8
Where service provider and service
receiver located in taxable territory
Location of service receiver
9
Specified services of banking, online
data base, intermediary services and
hiring means of transport up to one
month.
Location of service provider
10 Goods transport service
Goods transportation agency
services
Destination of goods
Location of person liable to pay tax
85. Rule Governing Situation Place of Provision of Service
11
Passenger transport services Where the passenger embarks on the
conveyance for continuous journey
12
Services provided on board a
conveyance
First scheduled point of departure.
14
Order of application of rules Later rule to supersede.
85
86. Rule 3- Default Rule
The main rule or default rule provides that a service shall
be deemed to be provided , where the receiver is located
In case, when location of the service receiver is not
ascertainable, location of the service provider is the place
of provision of service
This rule is applied when none of the other later rules apply
86
87. Rule 14- Order of Application of Rules
Where more than one rule applies, rule that occurs
later is relevant rule
87