Place of Provision of Services Rules - Significant amendments made
JULY 12, 2014
By TIOL News Services
Place of Provision of Service Rules, 2012 have been amended vide Notification No 14/2014 ST dated 11.7.2014. These amendments are going to bring a major shift on the liability of service tax in respect of some services.
Commission Agent service: Hitherto, the place of provision of service in respect of services provided by a commission agent is determined as per Rule 3 of the POP Rules, 2012, which means, the place of provision of service is the location of the service recipient. So, if an exporter engages the services of an overseas commission agent, the place of provision of service is the location of service recipient. Since the service provider is located in a non-taxable territory and the service recipient is located in taxable territory, the Indian exporter is liable to pay service tax under reverse charge.
With the amendment now made to the POP Rules, commission agent is covered under Rule 9(c) of the POP Rules, which means, the place of provision of service will be the location of service provider. So, if an overseas agent provides commission agent service to an Indian exporter, it will not attract reverse charge as the location of service provider is in non-taxable territory. Consequently, if any commission agent renders service in India for any foreign goods, the commission agent is liable to pay service tax, even though he may receive the commission in foreign exchange.
To put is simply, for export goods, service tax does not attract and for imported goods, the service tax will be applicable. Earlier, it was exactly opposite.
Hiring of Aircraft or Vessels: Rule 9(d) of the POP Rules 2012 has been amended to exclude Aircraft and Vessels from the scope of this rule. As per this Rule, the location of service provider is the place of provision of service. So, before this amendment, Aircraft or Vessels taken or hire from abroad up to a period of one month did not attract service tax under reverse charge. But, now that these two modes of transport are excluded from Rule 9(d), the place of provision is the location of service recipient as per Rule 3. Therefore, from 1st October 2014, if Aircraft or Vessels are taken on hire from a non-taxable territory for a period up to one month, it attracts service tax under reverse charge. So, effectively there is no difference in tax treatment for short term or long term hiring of Aircraft or Vessels.
Performance based services - Repairs to goods temporarily imported:
Second proviso to Rule 4(a) of the POP Rules, 2012 reads:
Provided further that this sub-rule shall not apply in the case of a service provided in respect of goods that are temporarily imported into India for repairs, reconditioning or reengineering for re-export, subject to conditions as may be specified in this regard.
Obviously, no conditions have been specified so far and this proviso is now substituted as under:
Provided further that this clause shall not apply in the case of a service provided in respect of goods that are temporarily imported into India for repairs and are exported after the repairs without being put to any use in the taxable territory, other than that which is required for such repair