Franchisee services at Jammu, Service Tax

[satbir singh wahi]

We are located in Delhi and Franchisee are appointed in Jammu and consideration is received from there.

1. Whether this is exempted service ?

2. If yes , Then we reverse input by 7% ?

3. Whether sbc is to be paid in cash?

4. Where to show this in ST 3.

Posts / Replies

[Ganeshan Kalyani]

Sir request you to kindly share more detail as to what is the nature of activity. whether it is service activity or trading activity. The tax applicability is depending upon such backgrounds. Thanks.

[satbir singh wahi]

Sir

We give franchisee licence of coaching to persons in Jammu and they pay us.

[KASTURI SETHI]

Sh.Wahi Ji,

As per Rule 3 of Place of Provision Services Rules, 2012 place of provision of service mentioned by you is location of service receiver i.e. Jammu Non-taxable territory. Hence this service is not subject to Service Tax.Any service which is not covered under Rule 4 to 12 of Place of Provision Services Rules, 2012, is covered under Rule 3.. When service is not taxable no SBC is leviable. Reversal 7%. Also go through Notification No.23/16-CE(NT) dated 16.4.2016.

[satbir singh wahi]

Thks Sethi ji

So we pay 7% on this service by utilising cenvat.

Where to reflect this in st 3

[Ganeshan Kalyani]

Sri Kasturi Sir, my views are as under:

The arrangement is of franchise service. Where the Mr Wahi paji would be charging some amount from the person in Jammu by way of franchise charges and this service is a taxable service in asmuch as the service is provided from taxable territory.

Secondly the coaching service provided by person in Jammu I.e. franchisee to the students in Jammu is exempt service in asmuch as the service provided and received is in non-taxable territory.

This is my views. Sri Kasturi Sir request you to share your views in this regard. Thanks.

[MARIAPPAN GOVINDARAJAN]

Please clear my doubt whether it would come under the purview of Reverse charge mechanism.

[KASTURI SETHI]

Sh.M.Govindarajan Ji,

This service is not specifically covered under RCM. However, Serial No.10 of Notification No.30/12-ST dated 20.6.2012 is to be examined.

(II) The extent of service tax payable thereon by the person who provides the service and the person who receives the service for the taxable services specified in (I) shall be as specified in the following Table, namely :-

TABLE

Sl. No.	Description of a service	Percentage of service tax payable by the person providing service	Percentage of service tax payable by the person receiving the service
1.	in respect of services provided or agreed to be provided by an insurance agent to any person carrying on insurance business	Nil	100%
2.	in respect of services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road	Nil	100%
3.	in respect of services provided or agreed to be provided by way of sponsorship	Nil	100%
4.	in respect of services provided or agreed to be provided by an arbitral tribunal	Nil	100%
5.	in respect of services provided or agreed to be provided by individual advocate or a firm of advocates by way of legal services	Nil	100%
6.	in respect of services provided or agreed to be provided by Government or local authority by way of support services excluding,- (1) renting of immovable property, and (2) services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act, 1994	Nil	100%
7.	(a) in respect of services provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers on abated value to any person who is not engaged in the similar line of business	Nil	100%
	(b) in respect of services provided or agreed to be provided by way of 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	60%	40%
8.	in respect of services provided or agreed to be provided by way of supply of manpower for any purpose	25%	75 %
9.	in respect of services provided or agreed to be provided in service portion in execution of works contract	50%	50%
10.	in respect of any taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory	Nil	100%

 

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Undoubtedly, this service is taxable and has been provided from taxable territory (Delhi) to a person in non-taxable territory i.e. Jammu. This service is not covered under RCM. Pl. see serial no.10 of Notification No.30/12-ST dated 20.6.12 as amended. (Effective from 1.7.12). This notification says that, "Any taxable service provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in taxable territory" is covered under RCM and receiver is to pay 100% ST. Here situation is reverse. SP is located in a taxable territory and SR is in a non-taxable territory. Nobody can deny this fact. Hence this situation is not covered under RCM.

Now we have to resort to Rule 3 of POPS, Rules,2012. According to this rule, "place of provision is location of the recipient of service." Hence ST is not leviable as location being a non-taxable territory.

To make the situation clearer, let us discuss through an example.

HYPOTHETICAL SITUATION

Had the SP been located in J & K (Non-taxable territory) and provided service to a person in taxable territory (Delhi), this service would have been covered under RCM and SR being located in taxable territory (Delhi) would have to pay ST as per Rule 3 of POPS Rules and RCM both.

INTENTION OF GOVT.

Sericve Tax is consumption based tax. Ultimately, ST is to be borne by the consumers directly or indirectly. Whether it is SP or SR, whosoever may be, would collect ST fromf J & K with the levy of ST.the consumers and Govt.'s intention is not to burden the residents of J & K with levy of ST.

Looking forward to your response.

 

[satbir singh wahi]

Thks Sethi Ji for this explanation .

But Sir where to show this 7% in st 3.

[KASTURI SETHI]

Sir,

In Column no. 12.2 and 12.3 of ST-3 return.

Sir, You are also highly qualified. If not convinced, let me know.

With regards,

K.L.SETHI

[Ganeshan Kalyani]

Sir, is the service actually provided from Delhi, or the service is provided by a person (franchisee) in Jammu has provided the service of coaching to the student. The person (franchisee) has paid the franchisee charges to querist in Delhi. Thus there are two transaction involved. One within Jammu and second from Delhi to Jammu. The one within Jammu is exempt from service tax and second is taxable. Looking ahead for your opinion. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Franchisor is in Delhi and franchisee is in Jammu. Franchisor has allowed the franchisee to use his name for training/teaching the students in Jammu. This is one service which is not taxable as discussed above. Franchisee pays to franchisor for using his brand/name/logo and not for teaching or proving training on his behalf.

Now the second service and that is teaching. Service provider and service receiver both are in non-taxable territory. Service provider in Jammu cannot be brought into network of Service Tax even on the ground of using brand name of another person.

Hence not taxable from all angles. Any other point that will also be thought provoking and leading to enrichment of my knowledge.

If any other expert has different view, he is welcome as it would also be learning curve for me, if I am in the wrong. After all nobody is perfect.

[surya narayana]

Dear Friends,

In my view, the first view expressed by Mr. Ganesh Kalyan Ji appears to be correct . to support this I would like to give the following points;

• Services provided from J&K are not liable to Service Tax since J&K not covered under the purview of Finance Act,1994 and J&J is treated as Non-taxable territory.
• In the present situation, the service has no doubt provided from J&K to the Franchiser
• But the Franchisee, paid the charges to the Franchiser in Delhi by the J&K Franchiser.
• Hence, the amount received for such franchisee services, the franchiser in Delhi required to pay the Service Tax unless it is exempted.
• It it is exempted, then the franchiser need pay/reverse 7% and the same should be shown in the relevant column in ST# including Cenvat abstract.

Best Regards

Suryanarayana

[KASTURI SETHI]

Sh.Surya Narayana Ji,

Sir, you have used the words, "It appears to be correct." Will you oblige me by your confirmed views after thorough search ?

Thanks and regards.

K.L.SETHI