Applicability of service tax under reverse charge

[SANJIV KOTHARI]

 

X an Indian Company availed services from non resident comapny at project outside india. Would X be liable for payment of service tax as recepient under reverse charge. Please advise.

 

Thanks,

Sanjiv

 

 

[dipsang vadhel]

Please refer to the 'Place of Provision of Services, 2012.

To my mind, in the present case Rule 3 of the 'Place of Provision of Services, 2012 will apply. According to Rule 3,  

The place of provision of a service shall be the location of the recipient of service.

here  "location of the service receiver" means:-

 (a)  where the recipient of service has obtained a single registration, whether centralized or otherwise, the premises for which such registration has been obtained;

 (b)  where the recipient of service is not covered under sub-clause (a):

 (i)  the location of his business establishment; or

 

(ii)  where services are used at a place other than the business establishment, that is to say, a fixed establishment elsewhere, the location of such establishment; or

 

(iii)  where services are used at more than one establishment, whether business or fixed, the establishment most directly concerned with the use of the service; and

 

(iv)  in the absence of such places, the usual place of residence of the recipient of service.

 

Explanation:-. For the purposes of clauses (h) and (i), "usual place of residence" in case of a body corporate means the place where it is incorporated or otherwise legally constituted.

 

Explanation 2:-. For the purpose of clause (i), in the case of telecommunication service, the usual place of residence shall be the billing address.

 

Since  X being an Indian company . Place of provisio of Service would be in India and X would be liable for payment of service Tax as receipent under reverse charge mechanism.

[SANJIV KOTHARI]

Dear Mr Vadhel

Here the services are in the nature of civil construction and erection & commissioning so rule 4 i.e performance based services would apply. According services are not taxable under reverse charges as performed out of India.

This my view if think otherwise please comment.

Regards

Sanjiv

[dipsang vadhel]

In case of performance based service,The essential characteristic of a service is that the goods temporarily come into the physical possession or control of the service provider, and without this happening, the service cannot be rendered. Hence, it is important to consider the service agreement entered into between parties. At times, Erection & commissioning at project site  amy not require temporarily the physical possession or control of good by the service provider, and without this happening, the service is being rendered, in that case Rule 3 will apply. My this I mean Services in nature of Basic or detailed engineering where consultants works mostly on Engineering ( may be mechanical, Civil or other discipline) description and provide Techanical details (basic or detailed engineering) and/or trouble shooting assistance without temporarily  physical possession or control of good by the service provider. On this premises and assumption , I was of the opinion that Rule3 will apply and ST liability of X under revese charge mechanism.

However, if after persuing service agreement entered into between parties, if it can be made out that the goods temporarily come into the physical possession or control of the service provider, and without this happening, the service cannot be rendered. , I agree that rule 4 i.e performance based services would apply. In that case, the place of provision of  services shall be the location where the services are actually performed and in present case, out of India and accordingly No ST.

Thus key of Rule 4 is physiacal need of making avilable the goods physiaclly for performance of service to happen.

with warm regards,

[SANJIV KOTHARI]

Dear Mr Vadhel

Thanks for providing valuable input on the issue.

Regards

Sanjiv

[sanjeev bajaj]

As stated earlier and facts disclosed, there are many points which needs to be considered :-

1. As the service is related to civil construction, erection & commissioning and suppose to be related to immovable property, it falls under Rule 5 of the 'Place of Provision of Services. The immovable property is situated outside the taxable territory. Further erection & commissioning seems to be directly related to immovable property.

2. With respect to Rule 3 read with clause (I) of Rule 8 of this rules, it is important to note and analyse  sub-clause  (a).

" Where the recipient of service has obtained a single registration, whether centralized or otherwise, the premises for which such registration has been obtained"

Here, I suppose , the premises has not been registered whether individually or centralized. Hence, not covered.

Further, if we read clause (I) and clause (ii) of the same, the project located outside India where services has been received  is being operated thru branch or agency or representational office as explained in Explanation 4 of clause (44) of Section 65B of the Finance Act, 1994, then the location of the service receiver is outside the taxable territory.

However, the later Rule 5 applies to the facts and non taxable.

This is my personal views and any thing contrary may be forwarded and discussed.

[Vijay kumar]

The period involved is crucial, which is not mentioned. After 1.7.2012, in terms of the definition of Service, if it is rendered outside taxable territory ie. outside India, it is not taxable except when both the service provider and service receiver are located in India. Since it is stated that the project is located outside India and service provider is also outside India, the question of taxability post0-1.7.2012 does not arise. However, prior to this period, if we look at the Import of service rules, 2006 which are effective 18.4.2006, property based services fall under Rule 3(i) by which also, I think there is no taxability since the project is executed outside India. Plz inform facts.

AI Summary

Place of Provision of Services determines reverse charge liability; physical possession and recipient location govern taxability for services rendered abroad. Determination of reverse-charge liability depends on the Place of Provision of Services. If the recipient-location rule applies, the recipient's registered premises, business or fixed establishment, or usual place of residence governs and may create reverse-charge liability. If the service is performance-based-i.e., it requires temporary physical possession or control of goods by the service provider-the place of provision is where the services are actually performed, and services performed outside the taxable territory are not taxable. Services tied to immovable property take the location of that property.