(v) A “branch” or an “agency” is treated as a “business establishment”.
(vi) The “usual place of residence” of a company is the place of incorporation or constitution.
The Taxation of Services (provided from outside India and received in India) Rules, 2006 (“Import Rules”) effective from 19.4.2006[3]
When is a service “provided from outside India and received in India” ?
1.4 Taking into account international practices the Central Government has notified the Taxation of Services (provided from outside India and received in India) Rules, 2006 [“Import Rules”]. The Import Rules inter alia set out the criteria to decide when a taxable service is to be treated as “provided from outside India and received in India” and accordingly liable for service tax in India.
Broadly, the Import Rules have categorized the services in three categories and then have defined when a service can be treated as “provided from outside India and received in India”. The categories are:
www.CAnaresh.com - Chartered Accountants,
Mumbai. 022-23878321
contact@canaresh.com
Service Tax
WITH FORMS
Law Governing Service Tax
Chapter V of the Finance Act,
1994 (Sections 64 to 96) and Chapter VA of the Finance Act, 1994 (Sections 96A
to 96I) both the Chapters together are hereinafter referred to as the “Act”, as
amended from time to time, provide for the levy of service tax and constitute
the law governing service tax. The Government has also notified the following
rules:-
Taxation of
Services (provided from outside India and received in India) Rules, 2006
Service Tax
(Determination of Value) Rules, 2006
Works Contract
(Composition Scheme for Payment of Service Tax) Rules, 2007
Service Tax
(Publication of Names) Rules, 2008
Service Tax
(Provisional Attachment Property) Rules, 2008
Service Tax
Return Preparer Scheme 2009
The Act is administered by the
Excise department. The effective rate of service tax is 10% w.e.f. 24.2.2009
[earlier 12%]. Further, the Finance (No.2) Act, 2004 has also levied an
education cess @ 2% on the amount of the service tax w.e.f. 10.9.2004 and
Finance Act, 2007 has levied an additional “secondary and higher education cess”
@ 1% on the amount of service tax w.e.f 11.5.2007. Thus, the effective rate of
Service Tax (including Cess) is 10.30%.
By section 64(1), the Act
extends to the whole of India except the state of Jammu and Kashmir, and by
section 64(3), the levy applies to “taxable services provided”. Hence on a
reading of section 64, the situs of taxation falls on taxable services
provided in India. In this context, “India” includes all the installations,
structures and vessels in the entire Continental Shelf (“CSI”) and Exclusive
Economic Zone (“EEZ”) of India [notification no. 1/2002 dated 1.3.2002 and
21/2009 dated 7.7.2009]. Hence services provided to / from CSI and EEZ of India
would be covered under service tax w.e.f. 7.7.2009.
Levy and Collection of
Service Tax
It is to be noted that in
accordance with section 66 service tax is levied on the value of taxable
services and taxable service is defined in section 65(105) of the Act. Section
65(105) defines “taxable service” as “any service provided or to be provided”
to a client, customer, etc. Thus, services “provided” and “to be provided” would
be covered within the ambit of service tax. The intention is to collect tax when
advance payments are received for services to be provided. Thus, service tax
would be payable even on advances received.
As already stated above, the
situs of taxation falls on
“taxable services”
provided or to be provided in India. As regards cross-border transactions to
determine the place of provision of services the law has introduced the concept
of “import of services” and “export of services” alongwith relevant rules to
determine where a service is supplied popularly known as the Place of Supply
Rules which are explained hereinafter.
IMPORT AND EXPORT OF
SERVICES
Import of
services – Reverse charge mechanism codified - section 66A and Place of Supply
Rules for “reverse charge” introduced.
Preamble
1.1 The Finance Act, 2006 introduced section 66A to
bring certain cross-border transactions involving overseas service providers
within the ambit of service tax. In effect it brought certain services provided
by overseas service providers within the purview of service tax. In such cases
the recipient of the services in India would be liable to register and pay
service tax. This is known as the “reverse charge mechanism”. Taking into
account international practices the Taxation of Services (provided from outside
India and received in India) Rules, 2006 (“Import Rules”) has been notified
w.e.f. 19.4.2006. These Rules inter alia specify when a taxable service
is to be treated as supplied in India and accordingly coming within the Indian
service tax net. This is more popularly known as the “Place of Supply Rules”.
1.2
Section 66A – Reverse charge
Section 66A provides for the
reverse charge mechanism as follows :
“66A. Charge of service
tax on services received from outside India. –
(1)
Where any service specified in clause (105) of section 65 is –
provided or
to be provided by a person, who has established a business or has a fixed
establishment from which the service is provided or to be provided, or has his
permanent address or usual place of residence, in a country other than India,
and
received by
a person (hereinafter referred to as the recipient) who has his place of
business, fixed establishment, permanent address or, as the case may be, usual
place of residence, in India
such service shall for the
purposes of this section, be taxable service and such taxable service shall
be treated as if the recipient had himself provided the service in India and
accordingly the provisions of this Chapter shall apply :
Provided
that where the recipient of the service is an individual and such service
received by him is otherwise than for the purpose of use in any business or
commerce, the provisions of this sub-section shall not apply:
Provided further
that where the provider of the service has his business establishment both in
that country and elsewhere, the country, where the establishment of the provider
of service directly concerned with the provision of service is located, shall be
treated as the country from which the service is provided or to be provided.
(2) Where a person is
carrying on a business through a permanent establishment in India and through
another permanent establishment in a country other than India, such permanent
establishments shall be treated as separate persons for the purposes of this
section.
Explanation 1.— A person
carrying on a business through a branch or agency in any country shall be
treated as having a business establishment in that country.
Explanation 2.—Usual place
of residence, in relation to a body corporate, means the place where it is
incorporated or otherwise legally constituted.”
1.3
The scope of the section is explained below :
(i)
The effect of
the provision is that if a person who is based outside India[1]
provides services to a person based in India[2]
the recipient is treated as a “provider of service” and accordingly all the
provisions of the Act as they apply in relation to a provider of taxable service
would apply to him. Thus, he would have to register, make payment, and file
returns as a service provider would do.
(ii) Where the
recipient is an individual and such service is received by him otherwise than
for the purpose of use in any business or commerce (say, for personal use), the
provisions of the reverse charge mechanism shall not apply i.e. the individual
would not be treated as a provider of service.
(iii) Where the
provider of the service has his business establishment in several countries, the
country where the establishment of the service provider directly concerned with
the provision of service is located, shall be treated as the country from which
the service is provided. Thus, where a provider who has his headquarters in the
US and a branch in India provides services directly from his headquarters
(without intervention of the branch in India) to an Indian company, the provider
shall be treated as providing services from US although he has an establishment
in India. In such cases, the reverse charge mechanism would be triggered.
However, where the Indian branch provided services to the Indian company, the
reverse charge mechanism would not be triggered.
(iv) Where a person
is carrying on a business through a permanent establishment in India and through
another permanent establishment in a country other than India, such permanent
establishments shall be treated as separate persons for the purposes of this
section. In this context
INTRODUCTION
Service Tax Rules, 1994
Cenvat Credit Rules, 2004
Service Tax (Advance Ruling) Rules, 2003
Export of Services Rules, 2005
Service tax (Registration of Special Category of Persons) Rules,
2005
PRELIMINARY LEGAL PROVISIONS
Situs of
Taxation
PLACE OF PROVISION OF SERVICE