Introduction on Place of Provision of Service :
Service tax is a consumption based tax. A service should be taxed in the jurisdiction of its consumption. However, it is not easy to determine the jurisdiction of consumption of services. There could be a case where services are provided by a person located at one location, actually performed at another while being delivered to a person located at a third location, and occasionally actually consumed at a another location or over a larger geographical territory, falling in more than one taxable jurisdiction.
Further, as per the charging section-section 66B, service tax is levied on the services, provided or agreed to be provided in the taxable territory. Hence, only those services which are provided in the taxable territory would be liable to service tax and the services provided in the non-taxable territory would not be taxed.
In the given scenario, it is of paramount importance to determine the place of provision of a service as the taxability of the service would be determined based on the place of its provision.
(a) Place of Provision of Service Rules, 2012 to determine the place where a service is deemed to be provided: Place of Provision of Service Rules specifies the manner to determine the taxing jurisdiction for a service. These rules would determine the place where a service shall be deemed to be provided, in terms of section 66C read with section 94(hhh) of Chapter V of the Finance Act, 1994. Thus, if a service is provided in the taxable territory as per the said rules, it shall be chargeable to service tax, otherwise not. These rules have been notified vide Notification No. 28/2012-S.T. dated 20.06.2012.
(b) Persons for whom the rules are relevant: Place of Provision of Service Rules are primarily meant for the persons who deal in cross border services. These rules are also applicable for those who have operations with suppliers or customers in the State of Jammu and Kashmir. Moreover, service providers operating within India from multiple locations, without having centralized registration would find these rules useful in determining the precise taxable jurisdiction applicable to their operations. The rules will be equally relevant for determining services that are wholly consumed within a SEZ, to avail the outright exemption.
(c) Import and export of services
Upto June 30, 2012: Upto June 30, 2012, the provisions relating to import and export of services were contained in the ‘Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 and the Export of Services, Rules, 2005 respectively. These erstwhile rules used to handle the subject of place of provision of services indirectly, confining to define the circumstances in which a provision of service would constitute import or export.
With effect from July 1, 2012: With the advent of the Place of Provision of Service Rules, import of services is when any taxable service is provided or agreed to be provided by any person who is located in the non-taxable territory and received by any person located in the taxable territory. Further, a service would be considered as export of service in case the conditions specified by rule 6A of the Service Tax Rules, 1994 are fulfilled.