1. By
CA. Dhruv Seth
ds@sethspro.com

4. COVERAGE OF THIS PRESENTATION
•Overview of Indian Tax structure
•Importance of Service Tax
•Definition of “Service”
•Definition of “Declared Service”
•Draft Place of provision of service rules

6. POWER TO LEVY
•Article 265 – No tax shall be levied or collected
except by the authority of law
•Article 246 – Distributes legislative powers
•Schedule VII - List I – Center List (97)
List II – State List (66)
List III – Concurrent List (47)

7. POWER TO LEVY
Union List State List Concurrent
Income Tax Taxes on Land, Building
Stamp duties other
than duties or fees
collected by means
of judicial stamps,
but not including
rates of stamp duty
(Entry No. 44)
Customs Entry Tax
Excise Excise on Liquor etc
Corporation Tax Tolls
CST VAT
Service Tax Luxury Tax
Stamp Duty on
BOE, Cheques etc.
Stamp Duty on documents
other than those in List I

8. DIRECT VIS-À-VIS INDIRECT TAX COLLECTION
Budgeted
2012-13
Revised
2011-12
Actual
2010-11
Actual
2009-10
Actual
2008-09

9. • Regressive
• Administrative Cost
• Inflationary
• Growth Oriented
DIRECT VIS-À-VIS INDIRECT

10. INDIRECT TAX
Excise /
Customs
VAT /
CST
Service
Tax

11. BREAKUP OF INDIRECT TAX COLLECTION

13. SERVICE TAX VIS-À-VIS GDP

14. SERVICE WISE CONTRIBUTION 2011-12

15. MOST TRENDING SERVICES
Service 2010-11 2011-12 % Growth
Construction Residential Complex 1,145.63 2,681.67 234.08%
Air passenger transport service 693.04 1,273.09 183.70%
Transport of goods through pipeline 394.34 718.95 182.32%
Broadcasting 1,084.14 1,785.83 164.72%
Credit Card, Debit Card 437.01 697.79 159.67%
Business Support Service 2,688.86 4,197.33 156.10%
Information technology 1,742.53 2,641.24 151.58%
Airport Services 608.44 902.12 148.27%
Advertising 794.29 1,163.11 146.43%
Renting of immovable property 2,829.24 4,119.92 145.62%

17. • From Positive Approach
• To Negative Approach
 Define “Service” – 65B (44)
Define “Declared Services” – 65B (22)
Define “Negative Service” – 66D
Notify “Exempt Service” – 12 / 2012
CHANGE

18. DETERMINATION
Service
Sec 65B (44) ?
Declared Service
Sec 66E ?
NO
NOYES
Negative List
Sec 66D ?
YES
Exemption
12/2012 ?
NO
YES
Not
Taxable
YES
TaxableNO

19. 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
66B – CHARGING SECTION

21. 65B(44) – FLOW CHART
Basic Provision
Includes
Exclusions
Further exclusions vide Explanation 1
Explanation 2
Explanation 3 - Deeming
Explanation 4

22. any activity carried out by a
person for another for
consideration and includes a
declared service but shall not
include….
65B (44) - SERVICE MEANS

23. 65B (44) - ESSENTIALS
Service
activity
a person for another
consideration
declared service

24. • Busy or vigorous action or movement
• The state or quality of being active
• Lively action or movement
ACTIVITY

25. Activity could be active or passive and
would also include forbearance to act.
Agreeing to the obligation to refrain from
an act or to tolerate an act or a situation
has also been specified as a declared
service under section 66E of the Act.
GUIDANCE NOTE 2 – WHAT IS ACTIVITY?

26. • Necessary to have two persons
• Has to be carried out for the other
person
• Caveat - Explanation 2(a) of 65B(44)
A PERSON FOR ANOTHER

27. (i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a society,
(v) a limited liability partnership,
(vi) a firm,
(vii) an AOP or BOI, whether incorporated or not,
(viii) Government,
(ix) a local authority, or
(x) every artificial juridical person, not falling within any of
the preceding sub-clauses;
SEC 65B(37) - PERSON

28. When, at the desire of the promisor, the promisee or
any other person has done or abstained from doing,
or does or abstains from doing, or promises to do or
to abstain from doing, something, such Act or
abstinence or promise is called a consideration for
the promise
CONSIDERATION - SEC 2(D)

29. • Gifts or Donation
• Research
• Charity
SPECIAL CONSIDERATION

30. 65B(44) – FLOW CHART
Basic Provision
Includes
Exclusions
Further exclusions vide Explanation 1
Explanation 2
Explanation 3 - Deeming
Explanation 4

31. ...but shall not include
a.) an activity which constitutes merely –
(i) a transfer of title in goods or
immovable property, by way of sale, gift
or in any other manner; OR
65B (44) - SERVICE CONTINUED

32. ii.) such transfer, delivery or supply of any
goods which is deemed to be a sale
within the meaning of clause (29A) of
article 366 of the Constitution; OR
iii.) a transaction in money or actionable
claim
65B (44) - SERVICE CONTINUED

33. b.) a provision of service by an employee to
the employer in the course of or in
relation to his employment ;
c.) fees taken in any court or tribunal
established under any law for the time
being in force.
65B (44) - SERVICE CONTINUED

34. 65B(44) – FLOW CHART
Basic Provision
Includes
Exclusions
Further exclusions vide Explanation 1
Explanation 2
Explanation 3 - Deeming
Explanation 4

35. Nothing in this clause shall apply to
a.) M.P. / M.L.A. / Local authorities
b.) Person holding post pursuance to the
provisions of the Constitution
c.) Chairperson / Member / Director of a
body established by the CG / SG
65B (44) – EXPLANATION 1

36. Transaction in money shall not include any
activity relating to the use of money for
conversion by cash or by any other mode,
from one form, currency or denomination, to
other form, currency or denomination for
which a separate consideration is charged.
65B (44) – EXPLANATION 2

37. a.) an unincorporated association or a body
of persons, as the case may be, and a
member thereof shall be treated as
distinct persons.
b.) an establishment of a person in the taxable
territory and any of his other establishment
in a non taxable territory shall be treated as
establishment of distinct persons.
65B (44) – EXPLANATION 3

39. Sec 65B (22) of the Finance Act, 1994
“Means any activity carried out by a
person for another person for
consideration and declared as such in
Section 66E”
DECLARED SERVICE

40. a. Renting of Immovable Property
b. Construction of a complex, building
c. Temporary transfer of IPR
d. Development, design etc. IT Software
e. Agreeing to refrain or tolerate
SECTION 66E

41. f. Transfer of goods without transfer of
right of such goods
g. Activities in relation to hire purchase
h. Service portion in execution of
Works Contract
i. Service portion of food being served
SECTION 66E

42. Renting of Immovable Property
- Sec 66D(M) – Negative List –
Renting of residential dwelling
for use of residence
SECTION 66E (a)

43. Agreeing to the obligation
 to refrain from an act OR
 to tolerate an act or a situation OR
 to do an act.
SECTION 66E (e)

44. Transfer of goods by way of hiring,
leasing, licensing, or in any manner
such manner without transfer of
right to use such goods.
SECTION 66E (f)

45. BSNL Vs. UOI (2006) 145 STC 91 (SC)
a) There must be goods available for delivery
b) The identity of the goods must be certain
c) All permissions and license required should be
available to the transferee
d) It must be a transfer of right to use and not
merely a license to use the goods
e) The owner cannot transfer the right to anyone
else till it is with the original transferee
TRANSFER OF RIGHT - TESTS

46. Activities in relation to delivery of
goods on hire purchase or any
system of payment by installments.
SECTION 66E (g)

47. Service portion in the execution of a
works contract
- Works contract definition 65B(54)
- Notification 24/2012 dated 06-06-
2012 superseding 11/2012
SECTION 66E (h)

48. a.) Pay on service portion of contract
OR
SECTION 66E (h)
Works Contract Value of Service portion
Original Works contract 40% of the total amount
Maintenance or repair or
servicing of any goods
70% of the total amount
All other works contract 60% of the total amount

50. 66F. (1) Unless otherwise specified, reference
to a service (herein referred to as main
service) shall not include reference to a service
which is used for providing main service.
(2) Where a service is capable of differential
treatment for any purpose based on its
description, the most specific description shall
be preferred over a more general description.
SEC 66F – BUNDLED SERVICE

51. Explanation.— For the purposes of sub-
section (3), the expression "bundled service"
means a bundle of provision of various
services wherein an element of provision of
one service is combined with an element or
elements of provision of any other service or
services.’;
SEC 66F – BUNDLED SERVICE

52. a. if various elements of such service are naturally
bundled in the ordinary course of business, it shall
be treated as provision of the single service which
gives such bundle its essential character;
b. if various elements of such service are not
naturally bundled in the ordinary course of
business, it shall be treated as provision of the
single service which results in highest liability of
service tax.
SEC 66F – BUNDLED SERVICE

54. Term “Sale” as in 4(3) of the Sale of
Goods Act, 1930
• “where under a contract of sale the
property in the goods is transferred
from the seller to the buyer, the
contract is called a sale.”
SERVICE VIS-À-VIS SALE

55. In 'State of Punjab and Haryana V. Associated Hotels
of India Limited' - AIR 1972 SC 1131 the Supreme
Court held that a contract for sale is one whose
main object is the transfer of property in, and the
delivery of the possession of a chattel as a chattel to
the buyer. Where the principal object of the work
undertaken by the payee of the price is not the
transfer of a chattel, the contract is one of work and
labor.
SERVICE VIS-À-VIS SALE

56. Important traits
1.) Transfer of property as a chattel
2.) When the property in the transaction passes
3.) Identifiable existence prior to delivery
4.) Proportion of value of material and service
5.) Substance and not the form
SERVICE VIS-À-VIS SALE

57. Sec 66D(f) – Negative List - Any process amounting to
manufacture or production of goods
Sec 65B(40) of the Finance Act
“Process amounting to manufacture or production of
goods” means a process on which duties of excise are
leviable under Sec 3 of the Central Excise Act, 1944 or
any process amounting to manufacture of narcotics on
which duties are leviable under the state act”
SERVICE VIS-À-VIS MANUFACTURE

58. • Sec 3 of the Central Excise Act, 1944
(a) a duty of excise to be called the Central
Value Added Tax (CENVAT)] on all excisable
goods (excluding goods produced or
manufactured in special economic zones)
which are produced or manufactured in
India
SERVICE VIS-À-VIS MANUFACTURE

59. • Manufacture Sec 2f of Central Excise
• UOI vs. DCM AIR 1963 SC 791 SC
“manufacture implies a change but every
change is not manufacture. A new and
different article must emerge having a
distinctive name, character or use”
SERVICE VIS-À-VIS MANUFACTURE

60. • Deemed manufacture is not covered by the
above
• Over 35 processes have been specified or (b)
Repacking, relabeling, putting or altering MRP
in case of articles covered under MRP
valuation provisions [clauses (ii) and (iii) of
section 2(f) of Central Excise Act]
SERVICE VIS-À-VIS MANUFACTURE

62. • Levy tax based on jurisdiction of consumption
• Do not charge tax on Export of services
• Levy tax on Import of services
• Avoid taxation in multiple jurisdictions
• Avoid non-taxation in all jurisdictions
• Tax B2B - based on location of customers
• Tax B2C - based on location of service providers
BASIC TAXING PHILOSOPHY – POP 2012

63. Location of Service Receiver and Provider
- Registered - its location is the registered premises
- Not registered - its location could be:
a) Business establishment; OR
b) Fixed establishment; OR
c) Business / Fixed Establishment most directly
concerned with use / provision of service; OR
d) Usual place of residence / place of incorporation
BASIC TAXING PHILOSOPHY – POP 2012

64. LOCATION – POP 2012
Registered
in India
Location is India
Yes
Business
Establishment ?
No
No
Fixed
Establishment ?
No
Usual Place of
Residence - India ?
No
Location not India
Fixed Establishment
abroad ?
Yes
Establishment more
directly concernedYes
Location would be
business establishmentNo
Another Fixed
Establishment ?
Yes
Establishment more
directly concerned
Yes
Fixed Establishment
No
Location is India
Yes

65. Rule 3 - Place of provision generally
The place of provision of a service shall be the
location of the service receiver;
Provided that in case the location of the service
receiver is not available in the ordinary course of
business, the place of provision shall be the
location of the service provider.
BASIC RULES – POP 2012

66. Rule 8 - Place of provision of services where provider
and receiver are 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.
BASIC RULES– POP 2012

67. 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.
BASIC RULES – POP 2012

68. STRUCTURE – POP 2012
Particulars Description Rule
Location of
Service Receiver
General Rules 3, 8 & 14
Location of
Service Provider
Where location not
available
Specific Rule for five
specified
Proviso – 3
9
Various Other Specific Rules for seven
specified services
4 to 6, 7,
10 to 12

69. The place of provision of following services shall
be the location where the services are actually
performed, namely -
1.) Goods Physically made available by receiver
EXCEPT – E-SERVICES where goods located
2.) Supply of goods along with service
3.) Service in physical presence of individual
RULE 4 – POP 2012

70. The place of provision of services provided directly in
relation to an immovable property, including services –
• Experts and estate agents
• Provision of hotel accommodation
• grant of rights to use immovable property,
• services for carrying out or coordination of
construction work, including architects / int. decorators
shall be the place where the immovable property is
located or intended to be located.
RULE 5 – POP 2012

71. 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.
RULE 6 – POP 2012

72. 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.
RULE 7– POP 2012

73. The place of provision of following services shall be the
location of the service provider:-
• Services provided by a banking company to account
holders;
• Telecommunication services provided to subscribers;
• Online information and database access or retrieval
services;
• Intermediary services;
• Service consisting of hiring of means of transport, upto
a period of one month.
RULE 9 (SPECIFIED SERVICES) – POP 2012

74. Rule 10. 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.
Rule 11. 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.
RULE 10 & 11– POP 2012

75. Place of provision of services provided on board a
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.
RULE 12– POP 2012

76. Powers to notify description of services or
circumstances for certain purposes.
In order to prevent double taxation or non-taxation of
the provision of a service, or for the uniform
application of rules, the Central Government shall
have the power to notify any description of service or
circumstances in which the place of provision shall be
the place of effective use and enjoyment of a service.
RULE 13– POP 2012

77. THANK YOU