2016 (5) TMI 750 - AAR - Service Tax

Nature of activity of Payment Gateway services provided to client in USA - Whether the place of provision of payment processing service by the applicant, is outside India in terms of Rule 3 of Place of Provision of Services Rules, 2012 - Held that - applicant is providing this service to WWD US on his own account for a fee equal to the operating costs incurred by the applicant plus mark-up of 13% on such costs. Therefore it cannot be inferred that the applicant would be providing payment processing service to the Indian Customer, for the service rendered by WWD US to them. If that was the case, applicant would not receive any fees from WWD US in respect of payments by the Indian Customer remitted directly through International Credit Card to their service provider i.e., WWD US. But that is not the case. Further, the definition of intermediary as envisaged under Rule 2 (f) of POPS does not include a person who provides the main service on his own account. In the present case, applicant is providing main service i.e. business support services to WWD US and on his own account. Therefore, applicant is not an intermediary and the service provided by him is not intermediary service. Thus, the place of provision of service would be location of recipient of service i.e. WWD US under Rule 3 of POPS. Therefore, the place of provision of payment processing service by the applicant, is outside India in terms of Rule 3 of Place of Provision of Services Rules, 2012. Whether the services to be provided by the Applicant to WWD US that fall to be classified under Rule 3 of the Place of Provision of Services Rules, 2012 qualify as export of taxable services in terms of Rule 6A of the Service Tax Rules, 1994 (inserted vide Notification No. 36/2012-S.T. dated 20.6.2012) and therefore remain non-taxable for purpose of payment of service tax under the Finance Act - Held that - the place of provision of service would be outside India. It is observed that in this case, provider of service i.e. the applicant, is located in India, which is the taxable territory; recipient i.e. WWD US is located in USA; the service to be provided by the applicant i.e. business support services, is not specified under Section 66D i.e. Negative List Services; applicant would receive payment for said services in convertible foreign exchange and applicant and WWD US are not merely establishments of a distinct person in accordance with item (b) of Explanation 3 of clause (44) of Section 65B of the Finance Act, 1994. As all the ingredients enlisted under Rule 6A ibid are satisfied, said service will qualify as export of taxable service. In facts and circumstances of the case, by providing the payment processing services to WWD US, the applicant is not providing any service to the customers of WWD US in India.

Issues Involved:
1. Place of provision of payment processing service by the applicant.
2. Classification of services under Rule 3 of the Place of Provision of Services Rules, 2012.
3. Whether the services qualify as export of taxable services under Rule 6A of the Service Tax Rules, 1994.
4. Whether the applicant is providing any service to the customers of WWD US in India.
5. Whether the service of collection of payments is a transaction in money and hence not subject to service tax.

Issue-wise Detailed Analysis:

1. Place of Provision of Payment Processing Service by the Applicant:

The applicant, Universal Services India Private Limited, proposes to provide payment processing services to Wild West Domains, LLC (WWD US). The applicant argued that the place of provision of service should be the location of the recipient of service (WWD US) in the USA, as per Rule 3 of the Place of Provision of Services Rules, 2012 (POPS). The Revenue, however, contended that the services fall under "Intermediary Services" as per Rule 9 of POPS, making the place of provision the location of the service provider (India). The judgment clarified that the applicant provides the main service of payment processing on its own account and is not an intermediary. Therefore, the place of provision of service is the location of the recipient, i.e., outside India.

2. Classification of Services under Rule 3 of the Place of Provision of Services Rules, 2012:

The applicant provides business support services to WWD US, including payment processing. The judgment recognized that the applicant is not involved in arranging or facilitating any services provided by WWD US to its customers in India. The service provided by the applicant is distinct and is conducted on a principal-to-principal basis. Consequently, under Rule 3 of POPS, the place of provision of service is the location of the recipient (WWD US in the USA).

3. Qualification as Export of Taxable Services under Rule 6A of the Service Tax Rules, 1994:

The applicant sought clarification on whether the services qualify as export of taxable services. The judgment confirmed that the applicant meets all the conditions under Rule 6A of the Service Tax Rules, 1994: the service provider is located in India, the recipient is outside India, the service is not specified in the Negative List under Section 66D, payment is received in convertible foreign exchange, and the provider and recipient are not merely establishments of a distinct person. Therefore, the services qualify as export of taxable services and remain non-taxable for service tax purposes.

4. Provision of Service to Customers of WWD US in India:

The applicant argued that it provides services only to WWD US and not to its customers in India. The judgment agreed, stating that the applicant is engaged in providing business support services to WWD US and not to the customers of WWD US in India. The applicant receives remuneration solely from WWD US and not from any Indian customers. Thus, the applicant is not providing any service to the customers of WWD US in India.

5. Service of Collection of Payments as a Transaction in Money:

This point was not pressed by the applicant and hence was not considered in the judgment.

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