PLACE OF PROVISION OF SERVICES – RECENT AMENDMENTS

[Dr. Sanjiv Agarwal]

Amendments w.e.f. 01.10.2014 (vide Notification No. 14/2014-ST dated 11.07.2014)

Following amendments have made in Place of Provision of Services Rules, 2012 which will take effect from 1st October, 2014 -

1. (Provision for prescribing conditions for determination of place of provision of repair service carried out on temporarily imported goods is being omitted. The second proviso to rule 4(a) is being amended to prescribe that it would suffice for the purpose of exclusion of repair service from applicability of rule 4(a) that the goods imported for repair are exported after repair without being put to any use other than that which is required for such repair. It may please be noted that this exclusion does not apply to goods that arrive in the taxable territory in the usual course of business and are subject to repair while such goods remain in the taxable territory, e.g., any repair provided in the taxable territory to containers arriving in India in the course of international trade in goods will be governed by rule 4.
2. The definition of intermediary is being amended to include the intermediary of goods in its scope. Accordingly, with effect from 1.10.2014, an intermediary of goods, such as a commission agent or consignment agent shall be covered under rule 9(c) of the Place of Supply of Services Rules.
3. Service consisting of hiring of Vessels (excluding yachts) and Aircraft is being excluded from rule 9(d). Accordingly, hiring of vessels, or aircraft, irrespective of whether short term or long term, will be covered by the general rule, that is, the place of location of the service receiver. Hiring of yachts would however continue to be covered by rule 9 (d).

Repairs of imported goods

The second proviso to Rule 4 of the Place of Provision of Services Rules, 2012 has been substituted vide Notification No. 14/2014-ST, dated 11.07.2014. These changes will be effective from 1.10.2014. Rule 4 of the Place of Provision of Services Rules, 2012 presently provides that the place of provision of the services provided in respect of goods that are required to be made physically available by the recipient of service to the provider of service, or to a person acting on behalf of the provider of service, in order to provide the service shall be the location where such service are actually performed but such rule shall not apply in the case of services provided in respect of goods that are temporarily imported into India for repairs, reconditioning or reengineering for re-export.

Now second proviso to Rule 4(a) has been substituted w.e.f. 1.10.2014 to prescribe that it would suffice for the purpose of exclusion of repair service from applicability of rule 4(a) if the goods imported for repair (not re-conditioning or re-engineering) and are exported after repair without being put to use other than that which is required for such repair. Services with respect to re-engineering and re-conditioning of imported goods will no longer be excluded from the proviso (ii) to clause (a) of Rule 4 of POP Rules. The additional condition which has been imposed is that such goods repaired should not be put to use. However, use of such goods for the purpose of repair itself is allowed.

It may be noted that this exclusion does not apply to goods that arrive in the taxable territory in the usual course of business and are subject to repair while such goods remain in the taxable territory, e.g., any repair provided in the taxable territory to containers arriving in India in the course of international trade in goods will continue to be governed by Rule 4 of the POP Rules.

Services based on location of service provider (Rule 9)

In the following specified services, place of provision shall be the location of the service provider-

1. Services provided by a banking company, or a financial company, or a non-banking financial company to account holders;
2. Telecommunication services provided to subscribers;
3. Online information and database access or retrieval services;
4. Intermediary services;
5. Service consisting of hiring of means of transport, up to a period of one month.

Intermediary Services

An 'intermediary' is a person who arranges or facilitates a provision of service between two persons. Thus, an intermediary is involved with two supplies at any one time:

1. the supply between the principal and the third party; and
2. the supply of his own service (agency service) to his principal, for which a fee or commission is usually charged.

Also excluded from this sub-rule is a person who arranges or facilitates a provision of a service (referred to in the rules as "the main service"), but provides the main service on his own account.

For the purpose of this rule, an intermediary in respect of goods (commission agent i.e, a buying or selling agent) is excluded by the definition itself.

The definition of intermediary as defined under Rule 2(f) of the Place of Provision of Services Rules, 2012 has been amended vide Notification No. 14/2014-ST, dated 11.07.2014. This notification shall come into force from 01.10.2014. By virtue of this amendment, the scope of rule 9 has been widened and will cover supply of goods also. While prior to such amendment, only agent or intermediary who is engaged for providing of services are covered under the definition, w.e.f. 01.10.2014 any broker, agent or any other person whatever name called arranges or facilitates supply of goods between two or more persons shall also be covered under the scope of 'intermediary'. The amended definition is as follows –

"(f) 'intermediary' means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the 'main' service) or a supply of goods, between two or more persons, but does not include a person who provides the main service or supplies the goods on his account"

Accordingly, w.e.f. 01.10.2014 any intermediary who is engaged in supply of goods, such as a commission agent or consignment agent shall also be covered under the scope of term 'intermediary'. In case of intermediary services for supply of goods, place of provision of service shall be the location of service provider, as stipulated in Rule 9(c) of the POP Rules, 2012 instead of Rule 3 thereof.

Hiring of means of transport

W.e.f. 01.10.2014, the clause (d) of Rule 9 shall read as follows –

“Services consisting of hiring of all means of transport other than (i) aircraft and (ii) vessels except yachts upto a period of one month.”

This entry has been amended vide Notification No. 14/2014-ST, dated 11.07.2014. Therefore, w.e.f. 01.10.2014, services of hiring by all means of transport other than aircrafts and vessels (except yachts) upto a period of one month will be covered under this rule. The taxability of hiring of yachts for transportation shall be governed by this rule of POP Rules whereas hiring of aircraft and vessels shall not be covered under rule 9. The condition is that the hiring must be for less than or upto a period of one month and not for a longer period. Vessels (excluding yachts) and aircraft shall therefore, be excluded from Rule 9(d). Hiring of vessels or aircrafts, irrespective of whether for short term or for long term, will be covered by the general rule (Rule 3) and the place of location shall be the location shall be service receiver.

Discussions to this article

[KOHINOOR MITRA]

Dear Sir,

If a distributor in India who works on commission for exploring/scouting orders , for foreign principals who do not have a permanent establishment in India , will the same be taxable under Service Tax. Kindly note the commission earned is in convertible foreign exchange.

Regards

Kohinoor Mitra

[Dr. Sanjiv Agarwal]

Yes, it will be taxable

[JUGAL PATEL]

Facts of the case

1. There is one wholly owned subsidiary company in India for e.g. B. B does trading of goods to 1 site other than A site's. B procure goods from A.
2. A is the Foreign(Switzerland) holding company of B i.e. it holds more than 51 % of the shares.
3. A is having 2 sites in India where A supply goods directly to customer from foreign country.
4. But B provides administrative, representation and marketing service to A as he pays EMD for the tender of A on behalf of A. Also B incurred travelling, boarding expense and other incidental expense on behalf of A and recover this expense through Debit Note quarterly from A. Also B’s General Manager visits sites of A and also attend meeting on A’s behalf.
5. B charges ₹ 120000 p.a. for the representation fee from A for this arrangement.
6. Now my question is that is this service taxable under service tax ?
7. Is this amendment make any effect on this case?

[Dr. Sanjiv Agarwal]

Dear Sir,

The place of provision of services will be the location of service provider as per Rule 9 of POP Rules, 2012 ( in case of intermediary services) which is in India in the instant case. The conditions of export of services as specified in Rule 6A of the Service Tax Rule, 1994 do not fulfill. The services therefore, will be taxable as provided in taxable territory.

Regards,

CA Archana Chitlangia