Issues in pops final

Issues in Place of Provision of
Service Rules, 2012
Naresh Thacker, Partner
Jitendra Motwani, Associate Partner
ELP
April 16, 2014

Pre- 2012
 Service Tax was chargeable under Section 66 of the Finance Act, 1994.
‘There shall be levied a tax at the rate of 12% of the value of the taxable
services……’
 Taxable services being defined under Section 65
 Significantly, there was no reference in charging section w.r.t place
where service performed
 Place of provision of service was being determined as follows:
 In the case of Import- Section 66A read with Taxation of Services (Provided
from outside India and received in India) Rules, 2006
 In case of Export- Export of Service Rules, 2005.
 Under the Pre-2012 regime, import of service was chargeable to service
tax under “reverse charge mechanism”
 Export of service was exempted from service tax.

Change in Charging Section- Post 2012
NEW CHARGING SECTION 66B w.e.f. 01.07.2012
 “There shall be levied a tax (hereinafter referred to as the service tax)
at the rate of twelve per cent. on the value of all services, other than
those services specified in the negative list, provided or agreed to be
provided in the taxable territory by one person to another and
collected in such manner as may be prescribed.
 (Thus under new charging section, it is a must to determine place of
provision of service which was not relevant earlier)

POPS Rules, 2012- Introduction
 As part of changes to Service-tax Law, Place of Provision of Services Rules,
2012, (‘POPS’) have been made effective from 1.7.2012 to determine
whether service was provided within “taxable territory”
 New rules replace existing Export of Services Rules, 2005 and the Taxation
of Services (Provided from Outside India and Received in India) Rules, 2006.
 POPS Rules are primarily meant for persons who deal in cross border
services. They will also be equally applicable for those who have operations
with suppliers or customers in the state of Jammu and Kashmir.

POPS Rules, 2012- Introduction
 Additionally service providers operating within India from multiple locations,
without having centralized registration will find them 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.
 Education Guide issued by the CBEC assists to determine whether services
are provided in the taxable territory

POPS Rules, 2012- Philosophy
 Philosophy of the POPS, as set out in the Education Guide, is that a service
should be taxed in the jurisdiction of its consumption. Therefore, exports are
not charged to tax, as the consumption is elsewhere, and services pay tax on
their importation into the taxable territory.
 This philosophy reflected under Rule 3- which provides that a service shall
be deemed to be provided where the receiver is located.
 However, above principle subject to a number of exceptions. (Rules 4-6 and
9-12)
 A chart is provided in the next slide giving a snapshot of the Rules.

POPS Rules- At a Glance
Rule Particulars
3 Service shall be deemed to be provided where the service receiver is located
4 Performance based services
5 Services relating to immovable property
6 Services relating to events
7 Service provided at more than one location
8 Services where provider and receiver are located in taxable territory
9 Specified Services
10 Goods Transportation service (excluding by way of mail / courier)
11 Passenger Transportation Service
12 Services provided on board of a conveyance
Where provision of service is prima facie determinable in terms of more than one rule, it
shall be determined in terms of the rule which occurs later – Rule 14

POPS- Rule 3
The main rule 3 is applied when none of the other later rules apply. In
other words, if a service is not covered by an exception under one of
the later rules, and is consequently covered under this default rule,
then the receiver’s location will determine whether the service is
leviable to tax in the taxable territory. (Rule 14)
The principal effect of the Main Rule 3 is that:-
 A. Where the location of receiver of a service is in the taxable territory,
such service will be deemed to be provided in the taxable territory and
service tax will be payable.
 B. However if the receiver is located outside the taxable territory, no
service tax will be payable on the said service
(Example on next slide will clarify above rule)

Taxable Territory Non- Taxable Territory
ABC
SERVICE PROVIDER
DEF
RECEIVER
PQR
RECEIVER
XYZ
SERVICE PROVIDER
1. A company ABC provides a service to a receiver PQR, both located in the taxable
territory. Since the location of the receiver is in the taxable territory, the service is
taxable. Service tax liability will be discharged by ABC, being the service provider and
being located in taxable territory.
2. However, if ABC were to supply the same service to a recipient DEF located in non-
taxable territory, the provision of such service is not taxable, since the receiver is located
outside the taxable territory.
3. If the same service were to be provided to PQR (located in taxable territory) by an
overseas provider XYZ (located in non-taxable territory), the service would be taxable,
since the recipient is located in the taxable territory. However, since the service provider
is located in a non-taxable territory, the tax liability would be discharged by the receiver,
under the reverse charge principle (also referred to as “tax shift”).

Determination of Place of Service under Rule 3
 For example:
 Head office in the US- ‘HO’. Branch office is in India- ‘BO’
 Service provider in India and providing service to branch office.
 However contract for provision of service between US and Indian Service
Provider. Consideration also received from the US HO in convertible foreign
exchange.
 What is the place of service?
 Under Rule 3 place of provision of service is the location of service recipient
 Definition of location of service of recipient is (Section 2(i)),
Location of premises where it has obtained centralized registration. If not,
 location of business establishment or
If services used at a place other than business establishment, then fixed
establishment or
If service used at more than one establishment, establishment most directly
concerned with the use of service

 In above example, place of recipient cannot be either place of registration
since the HO is in US.
 Place of recipient also cannot be business establishment since service
utilized at place other than business establishment i.e. BO.
 Therefore, subject to the said service not falling under Rule 4 to 6 and Rule
9-12- service recipient is BO as it is a fixed establishment .
 It is however important to understand what is fixed establishment
 Fixed establishment, under the Education Guide is described as-
 A place other than business establishment
 Such place is characterized by a sufficient degree of permanence and
suitable structure in terms of human and technical resources to
provide/receive services.
 Temporary staff for a short visit cannot be fixed establishment.

 A branch office covered under fixed establishment
 Emphasis is on the presence of human and technical resources to receive/
provide services. Eg. Property / building on its own cannot be a fixed
establishment.
 However no clarity on “sufficient degree of permanence and suitable
structure”
 eg1. Would a branch office established by a business establishment outside
the taxable territory merely for filing returns become fixed establishment?
 eg2. Would a server farm utilized by the internet companies for hosting of
data be considered to be a fixed establishment?

 Example 2:
 The main business entity in Country A, establishes subsidiary company in
India.
 Service agreement with Indian subsidiary to provide promotional and
support activities to customers in India. Promotional and support activities
involve marketing, demonstration of various products of the Business
Establishment A to potential customers and dealers. Agreement states that
subisdiary is not an Agent of Business Establishment A. Also subsidiary has
no relationship with potential customers/dealers other than demonstrating
products.
 Place of provision in Country A or India?
 Service Recipient is the parent company located in Country A and therefore
amounts to export of service.
 Decision of Tandus Flooring India by the AAR (2013-TIOL-03- ARA-ST)- Held
service recipient is the parent company located in other Country and
amounts to export of Service.

Rule 4: Place of provision for services based on performance
 The place of provision of following services shall be the location where the
services are actually performed, namely:-
(a) services provided in respect of goods that are required to be made
physically available by the service receiver to the service provider, in order
to provide the service:
Provided that when such services are provided from a remote location by
way of electronic means the place of provision shall be the location where
goods are situated at the time of provision of service;
(b) services provided in conjunction with the supply of goods under
another contract by the service provider;
(c) services provided entirely or predominantly, in the ordinary course of
business, in the physical presence of an individual, represented either as
the service receiver or a person acting on behalf of the receiver.

Examples under Rule 4
 Repair, reconditioning, or any other work on goods (not amounting to
manufacture), storage and warehousing, courier service, cargo handling
service (loading, unloading, packing or unpacking of cargo), technical
testing/inspection/certification/ analysis of goods, dry cleaning etc.
 It will not cover services where the supply of goods by the receiver is not
material to the rendering of the service e.g. where a consultancy report
commissioned by a person is given on a pen drive belonging to the
customer.
 Certain services like cosmetic or plastic surgery, beauty treatment services,
personal security service, health and fitness services, photography service
(to individuals), internet café service, classroom teaching, are examples of
services that require the presence of the individual receiver for their
provision. As would be evident from these examples, the nature of services
covered here is such as are rendered in person and in the receiver’s physical
presence.

Rule 5- Place of service relating to immovable property
 The place of provision of services provided directly in relation to an
immovable property, including services provided in this regard by experts
and estate agents, provision of hotel accommodation by a hotel, inn, guest
house, club or campsite, by whatever, name called, grant of rights to use
immovable property, services for carrying out or coordination of
construction work, including architects or interior decorators, shall be the
place where the immovable property is located or intended to be located.

i)The service consists of lease, or a right of use, occupation, enjoyment or exploitation
of an immovable property;
ii) the service is physically performed or agreed to be performed on an
immovable property (e.g. maintenance) or property to come into existence
(e.g. construction);
iii) the direct object of the service is the immovable property in the sense that
the services enhances the value of the property, affects the nature of the
property, relates to preparing the property for development or
redevelopment or the environment within the limits of the property (e.g.
engineering, architectural services, surveying and sub-dividing, management
services, security services etc);
iv) the purpose of the service is:
a) the transfer or conveyance of the property or the proposed transfer or
conveyance of the property (e.g., real estate services in relation to the
actual or proposed acquisition, lease or rental of property, legal services
rendered to the owner or beneficiary or potential owner or beneficiary of
property as a result of a will or testament);
b) the determination of the title to the property.

Examples of land-related services:
i) Services supplied in the course of construction, reconstruction, alteration,
demolition, repair or maintenance (including painting and decorating) of any
building or civil engineering work;
ii) Renting of immovable property;
iii) Services of real estate agents, auctioneers, architects, engineers and similar
experts or professional people, relating to land, buildings or civil engineering works.
This includes the management, survey or valuation of property by a solicitor,
surveyor or loss adjuster.
iv) Services connected with oil/gas/mineral exploration or exploitation relating to
specific sites of land or the seabed.
v) The surveying (such as seismic, geological or geomagnetic) of land or seabed.
vi) Legal services such as dealing with applications for planning permission.
vii) Packages of property management services which may include rent collection,
arranging repairs and the maintenance of financial accounts.
viii) The supply of hotel accommodation or warehouse space.

Rule 6- Place of provision relating to events
 The place of provision of services provided by way of admission to, or
organization of, a cultural, artistic, sporting, scientific, educational, or
entertainment event, or a celebration, conference, fair, exhibition, or similar
events, and of services ancillary to such admission, shall be the place where
the event is actually held

Illustration 1
 A management school located in USA intends to organize a road show in
Mumbai and New Delhi for prospective students. Any service provided
by an event manager, or the right to entry (participation fee for
prospective students, say) will be taxable in India.
Illustration 2
 An Indian fashion design firm hosts a show at Toronto, Canada. The firm
receives the services of a Canadian event organizer. The place of
provision of this service is the location of the event, which is outside the
taxable territory. Any service provided in relation to this event, including
the right to entry, will be non-taxable

Rule 7- Place of service when provided at more than one
location
 Where any service referred to in rules 4, 5, or 6 is provided at more than
one location, including a location in the taxable territory, its place of
provision shall be the location in the taxable territory where the greatest
proportion of the service is provided.
 Illustration
 An Indian firm provides a ‘technical inspection and certification service’
for a newly developed product of an overseas firm (say, for a newly
launched motorbike which has to meet emission standards in different
states or countries). Say, the testing is carried out in Maharashtra (20%),
Kerala (25%), and an international location (say, Colombo 55%).
 Notwithstanding the fact that the greatest proportion of service is
outside the taxable territory, the place of provision will be the place in
the taxable territory where the greatest proportion of service is
provided, in this case Kerala.

Rule 8- When provider and receiver located in taxable
territory
 Place of provision of a service, where the location of the service provider as
well as that of the service receiver is in the taxable territory, shall be the
location of the service receiver.
 Illustration
 A helicopter of Pawan Hans Ltd (India based) develops a technical snag in
Nepal. Say, engineers are deputed by Hindustan Aeronautics Ltd, Bangalore, to
undertake repairs at the site in Nepal. But for this rule, Rule 4, sub-rule (1)
would apply in this case, and the place of provision would be Nepal i.e. outside
the taxable territory.
 However, by application of Rule 8, since the service provider, as well as the
receiver, are located in the taxable territory, the place of provision of this
service will be within the taxable territory.

Rule 9- Provision of specified services
 The place of provision of following services shall be the location of the
service provider:-
a) Services provided by a banking company, or a financial institution,
or a non-banking financial company, to account holders;
b) Telecommunication services provided to subscribers;
c) Online information and database access or retrieval services;
d) Intermediary services;
e) Service consisting of hiring of means of transport, upto a period of
one month.

 Examples of services by banking company or financial institution to an
“account holder”, in the ordinary course of business:- i) services linked to or
requiring opening and operation of bank accounts such as lending, deposits,
safe deposit locker etc; ii) transfer of money including telegraphic transfer,
mail transfer, electronic transfer etc.
 Examples of online information generated automatically by software from
specific data input by the customer, such as web-based services providing
trade statistics, legal and financial data, matrimonial services, social
networking sites; ii) digitized content of books and other electronic
publications, subscription of online newspapers and journals, online news,
flight information and weather reports; iii) Web-based services providing
access or download of digital content. Eg. Manupatra / Westlaw are
examples of provision of legal data.

Examples under Rule 9- Cont’d
Examples of ‘intermediary services’:-
i) Travel Agent (any mode of travel)
ii) Tour Operator
iii) Commission agent for a service [an agent for buying or selling of goods is
excluded]
iv) Recovery Agent
Examples of Hiring of Means of Transport
i) Land vehicles such as motorcars, buses, trucks;
ii) Vessels;
iii) Aircraft;
iv) Vehicles designed specifically for the transport of sick or injured persons;
v) Mechanically or electronically propelled invalid carriages;
vi) Trailers, semi-trailers and railway wagons.

Rule 9- Cont’d
 Web based services providing access or download of digital content.
 Following not included:
 Sale or purchase of goods, articles over the internet- eg. Flipkart
 Telecommunication services provided over the internet- eg. Skype
 Service rendered over the internet such as architectural drawing etc.
 Repair of software/hardware from remote location over internet
 Internet ‘backbone’ services. Eg. Services provided by ISPs.
 Illustration I-
 Service receiver located in India.
 Service provider located outside India. Servers also located outside India-
 Pre POPS- import of service.
 Post POPS- place of provision of service is location of service provider i.e.
outside India.

Rule 9- Cont’d
 Illustration II-
 Service receiver located abroad
 Service provider located India.
 Servers located in India
 Pre POPS- service consumed and benefit of same outside India (Category III
of the Export of Service Rules) . If consideration in foreign exchange- then
export of service
 Post POPS- Based on Rule 9- place of provision of service India.

Intermediary Services
 Intermediary-
 someone who arranges or facilitates provision of service between 2
persons.
 Provision of main service on his own account is excluded
 Intermediary wrt to goods and wrt service
 Commission charged by intermediary wrt to goods excluded.
 Characteristics of intermediary-
 Cannot alter the nature or value of service
 Value of intermediary service is distinguishable from value of main service
 Service provided by intermediary is distinguishable from the main service.
 egs.: Travel agent; tour operator; commission agent; recovery agent.

Examples of Intermediary Services
 Illustration I-
 Online Market Based Company ‘X’ situated in UK.
 Establishes a subsidiary company ‘Y’ in India.
 Enters into a service agreement with Y for marketing and promotion of X.
 Consideration paid in foreign exchange.
 Whether Y is intermediary ?
 Depends on the facts and circumstances and Service Agreement.
If the service agreement is specifically restricted to only providing marketing
and promotion and the subsidiary does not have any relationship with the
clients of X in India, then Y would not be an intermediary for the following
reasons,
 It is not acting as an agent of X. Its role is limited only to provide marketing
service to X.
 Intermediary envisages two works being done simultaneously by an
intermediary- facilitation of service between principal and client and
simultaneously, providing service to principal. In present case, there is no
facilitation of service to client.

However, if service agreement states that Y is responsible for collection of fees,
and that it is paid a commission, Y would qualify as an intermediary.
 Illustration II-
 Bank A in India part of large multi national Bank established all over the
world
 Bank A performs various services to its Foreign Branch (eg. ‘Originating
service’ whereby facilitates the provision of service by offshore branch to
Indian Client)
 Whether such service qualifies as intermediary service.
 Question of whether the Bank A is an intermediary depends on the type of
service provided to Foreign branch.
 For instance, if Bank is providing an ‘originating service’ i.e. a service
involving identification, evaluation and recommendation of a target to
Foreign branch for financial services- Bank A facilitates the service, gets
commission and therefore satisfies condition of intermediary. Rule 9 (c)
squarely applicable (Note that Rule 9 (a) is not applicable since there is no
service being provided to account holders’)

 However, if Bank A is providing some service to Foreign Branch which does
not involve third parties and the service is being provided on its own
account, then Rule 9 is inapplicable.

Rule 10- Place of provision of goods transportation
services.
 The place of provision of services of transportation of goods, other than by
way of mail or courier, shall be the place of destination of the goods:
Provided that the place of provision of services of goods transportation
agency shall be the location of the person liable to pay tax.
Illustration
 A consignment of cut flowers is consigned from Chennai to Amsterdam.
The place of provision of goods transportation service will be
Amsterdam (outside India, hence not liable to service tax).
 Conversely, if a consignment of crystal ware is consigned from Paris to
New Delhi, the place of provision will be New Delhi.

Rule 11- Passenger Transportation Service
The place of provision in respect of a passenger transportation service
shall be the place where the passenger embarks on the conveyance for a
continuous journey.
33
1 Delhi-London-New
York- London – New
York
Delhi Yes, New Delhi, being the
place of provision for
continuous journey with
single return ticket.
2 New York-London-
Delhi
New York No, New York is place of
provision for
continuous journey with
single return
ticket

Rule 12- service provided on board conveyance
 Place of provision of services provided on board a conveyance during the
course of a passenger transport operation, including services intended to be
wholly or substantially consumed while on board, shall be the first
scheduled point of departure of that conveyance for the journey.
Illustration
 A video game or a movie-on-demand is provided as on-board
entertainment during the Kolkata-Delhi leg of a Bangkok-Kolkata-Delhi
flight. The place of provision of this service will be Bangkok (outside
taxable territory, hence not liable to tax).
 If the above service is provided on a Delhi-Kolkata-Bangkok-Jakarta flight
during the Bangkok-Jakarta leg, then the place of provision will be Delhi
(in the taxable territory, hence liable to tax).

Rule 13- Power to Notify Description of certain Services
 Rule 13 gives Power to the Central Government to notify any description of
service or circumstances in which the place of provision of service shall be
the place of effective use and enjoyment of service.
 The Education Guide states that the rule an enabling power meant to
correct any injustice being met due to the applicability of rules in foreign
territory in a manner which is inconsistent with the POPS leading to double
taxation.
 Due to cross border nature of many services, it is also possible in certain
situations to set up businesses in non taxable territory while the effective
enjoyment, or in other words, consumption, may be in taxable territory.
 Rule also mean as an anti-avoidance measure where the intent of law is
sought to be defeated through ingenious practices unknown to ordinary
ways of conducting business.

Rule 14- Order of Application of Rules
 Notwithstanding anything stated in any rule, where the provision of a
service is, prima facie, determinable in terms of more than one rule, it shall
be determined in accordance with the rule that occurs later among the rules
that merit equal consideration.
Illustration I
 An architect based in Mumbai provides his service to an Indian Hotel
Chain (which has business establishment in New Delhi) for its newly
acquired property in Dubai. If Rule 5 (Property rule) were to be applied,
the place of provision would be the location of the property i.e. Dubai
(outside the taxable territory). With this result, the service would not be
taxable in India. Whereas, by application of Rule 8, since both the
provider and the receiver are located in taxable territory, the place of
provision would be the location of the service receiver i.e. New Delhi.
Place of provision being in the taxable territory, the service would be
taxable in India. By application of Rule 14, the later of the Rules i.e. Rule
8 would be applied to determine the place of provision.

Case Studies under POPS – Case Study 1
 ABC Pvt. Ltd. is providing depository service to various clients. ABC is not a
Banking Company, Financial Institution or NBFC. ABC has certain NRI clients
who are situated outside India and do purchase and sell shares in India and
their demat account is maintained by the ABC in India. ABC recovers Demat
charges and other depository charges (e.g. annual account maintenance
charges) from the NRI clients.
 Question: In terms of the POPS rules whether service tax is payable on the
services provided to NRI Clients?
 The above situation will be covered under Rule of 3 of POPS. Under Rule 3,
the place of provision of service would be place of the service recipient.
Since the NRI viz. the service recipient is situated outside India, the place of
provision of service is outside India.

Case Study 1- Cont’d
 However, in the aforesaid scenario the Department may demand service tax
on the ground that the service falls under Rule 9 on the ground that service
provided by ABC are in the nature of intermediary services.
 Rule 9 of POPS will not be applicable in this case since the Education Guide
issued by CBEC has categorically clarified that stock brokers are not covered
under said Rule 9 . The relevant portion of the Education Guide is
reproduced below,
“5.9.6 For the purpose of this rule, an intermediary in respect of goods
(such as a commission agent i.e. a buying or selling agent, or a
stockbroker) is excluded by definition
Hence such services appear to be covered under Rule 3.

Case Study 2
ABC Pvt. Ltd. is conducting Insurance broking business in India jointly
with a foreign company XYZ Inc. For this purpose ABC and XYZ has
formed a company PQR Ltd. in India. After a period of 5 years, ABC
decides to quit the insurance broking business and gives ‘No
Objection Certificate’ to XYZ to continue business with other Indian
company and further ABC agrees for not to carry insurance broking
business in India for next three years. For this purpose the XYZ Inc.
has paid a sum of US $ 5 mn to ABC for issue of NOC as well as for
non compete fees.
Question: Whether service tax is payable on the non compete fees
paid by XYZ Inc to ABC Pvt., under POPS rules?

 The payments made by XYZ to ABC would be consideration for a service, as
the act of agreeing to refrain from competing for 3 years is a declared
service falling under clause (e) of section 66E. The relevant provision reads
as follows,
“66E: Declared Services: (e) agreeing to the obligation to refrain from an
act, or to tolerate an act or a situation, or to do an act;”
 In the present case, since the aforesaid service does not fall under any of
the categories listed under Rules 4-6 and 9-12 of the POPS, Rule 3 of the
POPS would be applicable and the place of the provision of service would be
location of service recipient. Since the non compete fees are being paid by
XYZ, located outside taxable territory and the consideration is in convertible
foreign exchange, the non-compete services will tantamount to export of
services covered under Rule 6A of Service-tax Rules.

 However, situation will be different if the amount is sourced through the
company formed between XYZ inc and new Indian Partner.
 If the amount is being sourced through the Newly formed Indian
company between XYZ with its new Indian partner, then the service
receiver would be the Indian Company (the fixed establishment) which
will be using/consuming the said service. Therefore, if the payment is
received through the newly formed Indian company, the location of
recipient of service would be within taxable territory and service tax
would be leviable.

Case Study 3
 ABC Pvt. Ltd. (an Indian Co.) has an office premises at Nariman Point which is
the only asset in its Balance Sheet. Similarly ABC has only rental income in its
Statement of Profit & Loss. XYZ Inc. (a foreign company) wants to buy the
office premises and has appointed a Real Estate Broker Mr. Y (an Indian
party) to assist him in purchase of office premises. The shareholders of the
ABC Pvt. Ltd. wants to sell its office premises by way of sale of shares which
is purchased by XYZ Inc. Mr. Y has assisted in this deal to XYZ Inc. and hence
charged his fees to XYZ Inc.
 Question: Decide applicability of POPS rules to payments made by XYZ to
Real Estate Broker – Mr. Y as brokerage for assisting in the
abovementioned transaction.

 Normally, if the sale of the office premises was through a simple money
transaction, then the place of provision of service would be determined
under Rule 5 i.e. location of the immovable property as the said service is
provided by broker Y directly in relation to immovable property by an estate
agent and therefore Service tax will be payable on the same
 However, the sale of office premises presently is through a transfer of
shares, i.e. the shareholders of the ABC would sell the office premises to the
XYZ, who in turn would buy certain shares in ABC. Significantly the term
goods is defined underS.65B(25) to mean,
“every kind of movable property other than actionable claim and money; and
includes securities……”
 A probable point of view that arises in the above case is that Y essentially
would be facilitating the sale of goods i.e. movable property thereby taking
the service outside the purview of Rule 5.

 However, the stand would be difficult to sustain given that Rule 5 brings
under it any service provided “directly in relation to an immovable
property” . The phrase “in relation to an immovable property” is to be
construed widely and would bring the above service of facilitating the sale
transaction under Rule 5. Therefore irrespective of whether the transaction
is a simple money transaction or facilitated by way of sale of shares , the
applicable Rule for determining the taxability is Rule 5 which is the place
where the immovable property is located. In view thereof service tax will be
payable on the brokerage received by Y.

Case Study 4
 ABC Co. is an Indian company and provides recruitment services to clients
located in India and outside India. Some of the overseas clients have their
fixed establishments within India like a branch or a subsidiary or associate
company. The recruited person may be placed by the client at their fixed
establishment outside India or in India. The contract of services is executed
between ABC Co. and the overseas client, invoice for provision of service is
issued by ABC to the client and the payment is also received directly from the
client. The location where the candidate (recruitee) is to be placed is known
to the company right at the time of entering into the contract.
 Question: Whether the Company is liable to charge service tax for
providing recruitment services to the foreign clients situated outside India-
 If the recruited person is placed outside India.
 If the recruited person is placed in India.

 The place of provision of service for the above scenario is to be determined
under Rule 3 i.e. location of service recipient.
 Therefore, question is who is the service recipient in the present case,
whether it is foreign client or the branch of foreign client in India.
 When the recruited person is placed outside India.
 The service receiver, when the person is placed outside India is the place
outside India since the service provided by ABC is being consumed/used
by the place located outside India. Therefore, the service recipient is
outside the taxable territory.
 When the recruited person is placed within India.
 Normally, it should not have mattered where the recruited person is
placed since the agreement is between the foreign company and ABC.
Further consideration also is received from the foreign company.
 However, the overseas client i.e. company receiving the recruitment
services also have places in India.

 Therefore one has to look into the definition of “location of service
receiver” as given under Rule 2(i)(b) which provides that – “where
services are used at more than one establishment, whether business or
fixed, the establishment most directly concerned with the use of the
service”;
 Further, the Education Guide has clarified that in case of multiple
establishments of a person, the establishment that actually provides, or
receives (i. e. uses or consumes), a service, that establishment would be
treated as ‘directly concerned’ with the provision of service,
notwithstanding the contractual position, or invoicing or payment.
 In the present case, it is the Indian Place that uses or consumes the
service since the employee is going to be placed there. Therefore, the
location of service recipient would be the Indian place i.e. within taxable
territory and service tax is required to be paid.

Case Study 5
 Sargam Ltd. (S) is in the business of supplying contents such as songs, wall
papers, etc. to telecom operators. Such songs are downloaded by the
customer of telecom operator through WAP connections on mobile phone. In
few cases, telecom operators are located in J&K.
Which POP rule will be applicable in such cases?
 The service that is provided by S is essentially access to online information
and database to telecom operators. Such service is directly covered under
Rule 9 (b) of POPS.
 The Education Guide also clarifies that Rule 9(b) covers web-based services
providing digital contents. The relevant portion is reproduced below,
“5.9.5 What are ‘Online information and database access or retrieval
service”
Examples of such service are: (iii) web based services providing access or
download of digital content”

 In terms of Rule 9, service is deemed to be provided where Service provider
is located.
 In this case, the location of Sargam Ltd. will be relevant from taxability point
of view. If Sargam Ltd. is situated in any part of India, other than J&K,
service-tax will be deemed to be provided at such place and will be taxable.
Since the criteria for determining place of provision of service is the location
of service provider, the location of customers/telecom operators is
irrelevant.

Case Study 6
 Company ABC Pvt. Ltd. is incorporated in Bhutan. ABC is developing a
township project (the project) in the Bhutan. ABC has appointed consultant
from India say XYZ Ltd., to provide various consultancy services in relation to
the project to ABC Ltd. The consultant XYZ raises invoice in INR to the ABC
and ABC makes payment to the XYZ in INR only.
 Question: Whether XYZ is required to charge any service tax on the
services provided to ABC?
 XYZ will not be required to charge any service tax on the services provided
to ABC if the service is not within the taxable territory.
 The relevant provision for determining the place of provision of service for
the above scenario is Rule 5 of POPS since the service provided by
consultants is in relation to an immovable property

 If service of the consultant is directly in relation to the project, then under
Rule 5, the place of provision of service is the location of immovable
property.
 The Education Guide specifically includes within the purview of Rule 5, the
service of architects, engineers and similar experts or professional people,
relating to land, buildings or civil engineering works.
 Therefore, in the given facts, the consultancy services, which are directly in
connection to the immovable property would be deemed to be at the
location of the immovable property i.e. Bhutan, outside the taxable
territory. Hence service is not taxable.

 Question: If XYZ decides to pay and amount of 6% on the value of exemted
services under Rule 6 of the Cenvat Credit Rules 2004, Whether XYZ can
recover 6% from ABC?
 Yes, the 6% amount on account of reversal of credit under rule 6 can be
recovered by XYZ from their clients in view of circular No. 870/08/2008-CX
dt. 16.5.2008 issued by CBEC wherein it has been clarified that such
recovery will not amount to recovery of taxes. However, client cannot take
any cenvat in respect of such reimbursement as same amount is not
considered duty for cenvat purposes.

Case Study 7
 ABC India has obtained services of GTA located in India for transporting
certain goods to XYZ ( an entity in Nepal). The freight is to be paid by XYZ.
 Question: Discuss the applicability of POPS Rules in respect of freight paid
by XYZ.
 Rule 10 of the POPS provides that the place of provision of services of
transportation of goods, shall be the place of destination of the goods.
Proviso to Rule 10 states that place of provision of services of goods
transportation agency shall be the location of the person liable to pay tax.
 In the present case no tax will be payable as the destination of goods is
Nepal and the same is outside the taxable territory. Further even in terms of
the proviso, liability to pay tax has been shifted on the person who is liable
to pay the freight i.e. XYZ, which is located in Nepal. Therefore, in the
present scenario the services are deemed to be rendered in Nepal which is
outside taxable territory and hence no service-tax will be payable in this
case.

Case Study 8
 Courier Company ‘C’ collect the parcel from their Mumbai customer
(consignor) & deliver the same to Company ‘D’ (another courier company) in
UK. In UK ‘D’ received the parcel & door step the same to Consignee in UK. In
above process Company ‘C’ raises the sales bill (including Service Tax) to
their local customer in Mumbai & collects the amount in INR from their
Mumbai Customer. At the same time, ‘D’ raises the invoice to ‘C’ (Charges
which ‘D’ paid for clearance at UK airport & door step the same parcel to
consignee in UK). In the said transaction, payment made by Local Company
‘C’ to ‘D’ is liable to Service Tax?
 The place of provision of service, in the present case would be Rule 3. This is
because Rule 10, relating to transportation of goods, categorically excludes
“courier companies.”

Case Study 8
 Since the service provider i.e. D, is outside India and the service recipient, C,
is in India, the place of provision of service under Rule 3 is India i.e. taxable
territory.
 In the give circumstances, C will be required to pay service-tax under
reverse charge mechanism.

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