Presentation on “Understanding New Regime of Service Taxation in India” held on 1st February, 2013 at Mumbai

1. Presents
A Knowledge master class
On
“Understanding New Regime of Service Taxation in India”
Conducted by
Dr. Sanjiv Agarwal
FCA, FCS
Friday,
1st February, 2013
Mumbai © Dr. Sanjiv Agarwal

2. SESSION – IV
Place of Provision of Services
and Other Amendments
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3. This Presentation Covers –
• Reverse Charge Provisions – Concept, Conditions
, Full / Partial Reverse Charge
• Abatements – Conditions, Services, Rates , Specific
Issues
• Place of Provision of Services
• Recent Developments in Service Tax
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4.  Authority for reverse charge u/s 68(2) of Finance Act, 2012
 Person liable to pay tax – Rule 2(1)(d) of Service Tax Rules,
1994
 W.e.f. 1.7.2012, a new scheme of taxation is applicable
whereby the liability of payment of service tax shall be both
on the service provider and the service recipient (Notification
No. 30/2012-ST, dated 20.6.2012 )
 The extent to which tax liability has to be discharged by the
service receiver specified in the notification.
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5.  Creditof tax paid can be availed by service
recipient if it is input service
 The credit of tax paid by the service
recipient under partial reverse charge
would be available on the basis on the tax
payment challan (but invoice required)
 Service provider under RCM may claim
refund of tax paid under rule 5(b) of CCR,
2004
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6. Under Partial Reverse Charge (Proportional)
 Renting of motor vehicles
 Manpower supply & security services
 Works contracts
Under Full Reverse Charge (100%)
• Insurance related services by agents
• goods transportation by road
• sponsorship
• arbitral tribunals
• legal services
• company director's services
• services provided by Government / local authority excluding
specified services
• services provided by persons located in non-taxable territory
to persons located in taxable territory.
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7.  Governed by Notification No. 30/2012-ST dated
20.06.2012 w.e.f. 1.7.2012
 Liabilities of both the service provider and service
receiver are independent of each other
 Reverse charge will not apply where the service
receiver is located in non-taxable territory
 For three specified services provided by business
entities being company, society, cooperative
society, trust etc, reverse charge will not apply.
 Reverse charge will also not apply where the service
recipient is any person or business entity not being a
body corporate in case of three specified services
 Small scale benefit is available only to service
provider (not to service receiver), if entitled
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8.  Service receiver under reverse charge cannot avail
exemption of Rs. 10 lakh under Notification No.
33/2012-ST dated 20.06.2012
 Valuation of services by services provider and
service receiver can be on different principles, if
permitted by law (e.g. works contract - Refer
Notification No. 30/2012-ST, explanation II)
 Liability to pay Service Tax for ongoing contracts will
be as per Point of Taxation Rules, 2011
 Reverse charge shall not be applicable if provider of
service was liable before 1.7.2012
 Service Tax will not be payable by service receiver
under reverse charge, if service was provided prior
to 1.7.2012, even if payment is made after 30.06.2012
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9.  In case of proportional reverse charge (manpower supply &
security, works contract and motor vehicle hire to carry
passengers), it is advisable that service provider should
charge Service Tax only on his portion of Service Tax in the
invoice and mention that Service Tax on balance amount is
payable by service receiver.
 It is the statutory obligation on the service recipient to pay
Service Tax, whether under full or proportional reverse
charge
 Service Tax under reverse charge has to be paid by cash
vide GAR Challan No. 7 and it cannot be paid by way of
utilization of Cenvat Credit.
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10.  In case of renting of motor vehicles to carry passengers
where abatement is also available, reverse charge basis is
proportional depending upon the abatement on the
condition that no Cenvat Credit has been availed. The
service provider should provide a certificate, either in the
invoice itself or separately.
 In case of renting of motor vehicle to carry
passengers, reverse charge applies only where the motor
vehicle is provided with driver and service receiver is not
engaged in same business.
 In case of director's services, the service provider should
not be employed (whole time) director. Employees are not
covered under the scope of Service Tax.
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11.  In respect of manpower supply and security services, works contract
services and renting of motor vehicles to carry passenger, reverse charge
shall be applicable only when following two conditions are satisfied –
• service receiver is a business entity registered as a body corporate, and
• service provider is any one of the following entities –
 Individual
 Hindu undivided family (HUF)
 Firm (including limited liability partnerships)
 Association of persons
If both the above conditions are not satisfied in respect of these three
services, Service Tax shall be payable by the service provider in ordinary
course.
 Security services means services relating to the security of any property,
whether movable or immovable, or of any person, in any manner and
includes the services of investigation, detection or verification, of any fact or
activity
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12. Service Provider Service Receiver
Individual Advocate / Firm / LLP Business entity with turnover > Rs 10
lakhs in preceding financial year
Arbitral Tribunal Business entity with turnover > Rs 10
lakh in previous financial year
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13. Sr. No Description of Service Service provider Service receiver
1. Services provided by an insurance Nil 100%
agent to any person carrying on
insurance business
2. Services provided by a goods Nil 100%
transport agency in respect
of transportation of goods by road
3. Services provided by way of Nil 100%
sponsorship
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14. Sr.No Description of Service Service provider Service receiver
4. Services provided by an arbitral tribunal Nil 100%
5. Services provided by individual advocate or Nil 100%
a firm of advocates by way of legal services
5A. in respect of services provided or agreed Nil 100%
to be provided by a director of a company
to the said company ( w.e.f 7.08.2012)
6. Services provided by Government or local Nil 100%
authority by way of support services
excluding,-
(1) renting of immovable property,
(2) postal services
(3) transport of goods / passengers
(4) air craft or vessel
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15. Sr.No Description of Service Service provider Service receiver
7. Hiring of Motor Vehicle Nil 100 %
(a) renting of a motor vehicle
designed to carry passengers on
abated value to any person not
engaged in the similar line of
business 60% 40%
(b) renting of a motor vehicle
designed to carry passengers on non
abated value to any person who is
not engaged in the similar line of
business
8. Services provided by way of supply 25% 75 %
of manpower for any purpose or
security services ( w.e.f 07.08.2012)
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16. Sr.No Description of Service Service provider Service receiver
9. Services provided in service portion
in execution of works contract 50% 50%
10. Services provided by any person who
is located in a non-taxable territory Nil 100%
and received by any person located in
the taxable territory
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17. Service Provider Service Receiver Service Tax Payable
by
Individual /HUF/ Business entity – Joint
Partnership firm body corporate
/AOP
Individual /HUF/ Individual /HUF/ 100 % by service
Partnership firm partnership firm provider
/AOP /AOP
Business entity – Individual /HUF/ 100 % by service
Body Corporate Partnership firm provider
/ Company /AOP
Business entity – Business entity – 100 % by service
Body Corporate Body Corporate provider
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18. • Besides full exemption to 39 categories of services vide
Notification No. 25/2012-ST dated 20.06.2012
• Earlier there were a number of exemption notifications that
prescribed the abatements for various categories of services
(including 1/2006)
• Abatements merged into a single Notification No 26/2012 - ST
dated 20/6/12
• Valuation rules contain abatement for Works Contract and
Supply of Food Services
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19. Sl. No. Description of taxable service Taxable Conditions
value(%)
1 Financial leasing services including 10 Nil
equipment leasing and hire purchase
2 Transport of goods by rail (exempted upto 30 Nil
30.9.2012)
3 Transport of passengers, with or without 30 Nil
accompanied belongings by rail ( exempted
upto 30.9.2012)
4 Supply of food or any other article of 70 CENVAT credit on any
human consumption or any drink, in a goods classifiable under
premises, including hotel, convention chapter 1 to 22 of the
center, club, pandal, shamiana or any place Central Excise Tariff Act,
specially arranged for organizing a function 1985 has not been taken
under the provisions of the
CENVAT Credit Rules, 2004.
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20. Sl. Description of taxable service Taxable Conditions
No value(%)
5 Transport of passengers by air, with 40 CENVAT credit on inputs or capital goods,
or without accompanied belongings used for providing the taxable service, has
not been taken under the provisions of the
CENVAT Credit Rules, 2004.
6 Renting of hotels, inns, guest 60 Same as above.
houses, clubs, campsites or other
commercial places meant for
residential or lodging purposes
7 Transport of goods by road by 25 CENVAT credit on inputs, capital goods
Goods Transport Agency and input services, used for providing the
taxable service, has not been taken under
the provisions of the CENVAT Credit
Rules, 2004.
8 Services provided in relation to chit 70 Same as above.
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21. Sl. Description of taxable service Taxable Conditions
No value(%)
9 Renting of any motor vehicle 40 Same as above.
designed to carry passengers
10 Transport of goods in a vessel from 50 Same as above.
one port to another
11 Tour operator services 25 (i) CENVAT credit on inputs, capital
(i) provided by a tour operator in relation goods and input services, used for
to a package tour providing the taxable service, has not
been taken under the provisions of the
CENVAT Credit Rules, 2004.
(ii) The bill issued for this purpose
indicates that it is inclusive of charges
for such a tour.
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22. Sl. No Description of taxable Taxable Conditions
service value(%)
(ii) provided by a tour operator in 10 (i) CENVAT credit on inputs, capital goods
relation to a tour, solely arranging and input services, used for providing the
or booking accommodation taxable service, has not been taken under
the provisions of the CENVAT Credit Rules,
2004.
(ii) The invoice, bill or challan issued
indicates that it is towards the charges for
such accommodation.
(iii) This exemption shall not apply in such
cases where the invoice, bill or challan
issued by the tour operator, in relation to a
tour, only includes the service charges for
arranging or booking accommodation for
any person and does not include the cost
of such accommodation.
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23. Sl. No Description of taxable service Taxable Conditions
value(%)
(iii) Services, other than 40 (i) CENVAT credit on inputs, capital
services specified above in (i) goods and input services, used for
or (ii) providing the taxable service, has not
been taken under the provisions of the
CENVAT Credit Rules, 2004.
(ii) The bill issued indicates that the
amount charged in the bill is the gross
amount charged for such a tour.
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24. Sl. No Description of taxable service Taxable Conditions
value(%)
12. Construction of a complex, 25 (i) CENVAT credit on inputs used
building, civil structure or a for providing the taxable service
part thereof, intended for a has not been taken under the
sale to a buyer, wholly or provisions of the CENVAT Credit
partly except where entire Rules, 2004.
consideration is received after
issuance of completion (ii) The value of land is included
certificate by the competent in the amount charged from the
authority service recipient.
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25. Draft Circular F. No.354 /146/2012 – TRU dated 27.09.2012
(Air Travel)
Charges which are directly related to journey such as re-confirmation
fee, date change fee, seat upgrade fee, preferred seat charges etc. will
be covered by abatement
Charges which are not related to journey such as meal charges, escort
charges etc. will not be covered by abatement.
Excess baggage charge may be leviable to service tax without
abatement
Pet charges may be leviable to service tax without abatement
For cancellation charges billed separately as administrative charge,
abatement will not be applicable
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26.  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.
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27. Location of Service Provider or Receiver
 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.
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28. What is the place of provision of services
• Performance based services – Location of
performance
• Immovable property related services – Location of
immovable property
• Services relating to events – Location of event held
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29.  Services provided at more than one location – Location in the taxable territory
where the greatest proportion of service is provided.
 Services where both service provider and receiver are located in the taxable
territory – Location of service receiver
 Specified services – Location of service provider.
 Goods transportation services – Place of destination of goods. (In GTA Service –
Location of the person liable to pay tax
 Passenger Transportation service – Place were the passenger embarks.
 Services provided on board a conveyance – Location of first scheduled point of
departure.
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30.  Placeof provision is the location of the
service receiver
 Incase, when location of the service
receiver is not ascertainable, location of
the service provider is the place of
provision of service
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31. Taxable Territory Non- Taxable Territory
‘A’ Not Taxable ‘Y’
Service Provider Service Receiver
A
Taxable for
‘B’ Taxable for B ‘X’
Service Receiver Service Provider
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32. Place of provision is the location where services are
actually performed
Examples:
 Services in respect of goods to be physically made
available by receiver (repair, storage / warehousing,
technical testing, dry-cleaning, cargo handling etc).
Market research reports, CA reports do not fall here.
 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 – taxable where goods located at that time.
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33. Place of provision is where immovable property is located
 Applicable for services directly connected with
immovable property.
Examples:
 Services in course of construction, alteration, repair,
maintenance etc;
 Renting of immovable property;
 Services of real estate agents, architects, engineers etc
relating to land, building or civil engineering works;
 Services connected with oil / gas / mineral exploration;
 surveying; property management services, hotel
accommodation
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34. Place of provision is the place where event is actually
held.
Covers admission to events , organizing events and
ancillary services
Examples
 Conventions
 Conferences
 Exhibitions
 Fairs
 Seminar
 Workshops , wedding , sports etc.
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35. Place of provision - Part performance of service at
different locations then the location where greatest
portion of service is provided
Where any service stated in 4, 5, 6 is provided at more
than one location including a location in taxable territory
and one or more location is outside taxable territory -
The place of provision shall be the location in taxable
territory where greatest proportion of service is
provided.
Example:
• Technical inspection and certification of a product by
carrying out testing at two locations in India and one
outside India. Taxable in the Indian state where a higher
stake is involved.
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36. Place of provision – where provider and recipient is
in taxable territory then the location of service
receiver will be the place of provision
Where provider and recipient are both in taxable
territory even when the actual provision takes place
outside taxable territory the taxation shall arise in
India.
Example
• Indian plane needs repair while in US. Indian
maintenance agency sends its engineers to US for
repairs or hires engineers in US to repair the plane.
• This transaction will be taxable in India superseding
earlier clauses.
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37. Place of provision in case of specified services –
location of service provider
Examples
 Banking service (to account holders)
 Online information and database access or retrieval;
 Intermediary Services
 Hiring of means of transport up to a month
Rule 10- Transportation of goods –place of
destination of goods - except in GTA by road where
place of provision is location of person liable to pay
tax.
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38.  Rule 11 – Passenger transportation services – place
where passenger embarks on conveyance for
continuous journey.
Rule 12- services provided onboard conveyances –
First scheduled point of departure of conveyance for
journey
E.g. – on board service of provision of movies, music,
games, beauty treatment etc.
Rule 14- Order of application of Rules- where more
than one rule applies, rule that occurs later is
relevant rule.
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39.  Gross amount charged by the service provider for such
services provided or to be provided (Section 67)
 Service Tax (Determination of Value) Rules, 2006, Rule 5 –
Inclusions in or exclusion from value of expenditure / costs
• Expenditure / costs incurred in course of providing services – treated
as consideration
• Expenditure / costs incurred as pure agent of recipient of service –
excluded conditionally
 RE arises where person paying is under no obligation to pay
and pays on behalf of other
 Only when service recipient is having obligation, (legal or
contractual) to pay certain amount to any third party and
such amount is paid by service provider on behalf of
service recipient, question of RE arises [ Sri Bhagavathy
Traders v. CCE (2011) 24 STR 290 Cestat-LB]
39

40. Intercontinental Consultants and Technorats Pvt.
Ltd. v U.O.I. 2012 (12)TMI 150 (Delhi HC- DB)
• Earlier stayed (2008)12 STR 689 (Delhi)
• Petitioner providing consulting engineering services
in respect of highway projects to NHAI
• Receives payment not only for its service but also
reimbursed (out of pocket) expenses incurred on
hotel, travel etc.
• Held not to pay service tax on reimbursed expenses
• Rule 5 is ultra-vires of the provisions of section 66
and 67 of the Act.
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41. • Charge of service tax cannot exceed ‘gross amount
charged’
• The word ‘for such service’ are important in Section 66/67
• Rule 5 exceeds rule making authority u/s 67 /94
• Expenditure or costs incurred by service provider can
never be included in gross amount charged
• Rule 5(i) and its illustration may lead to double taxation
• Definition of gross amount charged not wide enough to
include RE
• Charge of service tax u/s 66 also excludes RE
• Requirement to lay Rules before Parliament doesn’t save
invalid Rules.
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42.  CBEC Circular No. 967/1/2013 dated 1.1.2013 [based
on Collector of Customs, Bombay v Krishna Sales Pvt. Ltd.
(1993) 9 TMI 124(SC)]
 Recovery proceedings to be initiated against a
confirmed demand if–
Appeal to Commissioner (Appeal)
• No appeal is filed against OIO - after expiry of 60
days for filling appeal
• Appeal filed without stay application – after such an
appeal has been filed
• Appeal filed with stay application– within 30 days
from the day of appeal filed or if heard and no stay is
granted , whichever is earlier
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43. Appeal to Tribunal
• No appeal is filed against OIO - after expiry of 90
days from OIO
• Appeal filed without stay application– after appeal
has been filed
• Appeal filed with stay application– within 30 days
from the date of appeal filed or if heard and no stay
is granted , whichever is earlier
• No appeal is filed against OIA confirming demand
for first time - after expiry of 90 days from OIA
• Appeal filed against OIA confirming demand for first
time without stay application to CESTAT –
immediately after appeal has been filed
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44. • Appeal filed against OIA conforming demand
for first time with stay application to CESTAT –
with in 30 days from the day of appeal filed or if
heard and no stay is granted , whichever is
earlier
• All cases where Commissioner (Appeals)
confirms demand in OIO – Immediately on the
issue of OIA
• Tribunal or high court confirms the demand –
immediately , if no stay is in operation
44

45.  In Ultratech Cement Ltd. v UOI, by Andhra
Pradesh High Court
 In Exide Industries Limited v UOI by
Bombay High Court
 Interim stay against recovery of the
amount involved, till the appellate
authority disposes of the application for
stay
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46. THANK YOU
FOR
YOUR
PRECIOUS TIME
AND
ATTENTION
Dr. Sanjiv Agarwal
FCA, FCS, Jaipur
asandco@gmail.com
sanjivservicetax@gmail.com
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