By Ms. Drashty Joshi
& Ms. Devshree Chitalia
Topics Covered:
1. Valuation of Taxable Services
2. Place of Provision of Services
This topic gives information regarding
Provision & Mechanism for determining the
value on which service tax is payable.
Service Tax is charged at prescribed % on value
of taxable service provided.
Section 67 of The Finance Act,1994 provides
Provisions to determine taxable service.
How to Determine Value of Service?
Service tax
(Determinatio
n of Value)
Rules, 2006
Section 67
of The
Finance Act,
1994
Abatemen
t
Notificatio
ns.
VALUE OF SERVICES
Section 67 lays down that…
Provision of services is for consideration..
In Money
Value of
taxable
service
will be
Gross Amount
Charged.
Partly in Money
Value of
taxable
service
will be
Gross Amount Charged +
Equivalent value of Non
monetary Consideration
Which is not
ascertainable
Value of
taxable
service
will be
Will be determined as per the
Service Tax (Determination of
value) Rules, 2006
In case where GAC is inclusive of service tax ,Value of taxable service = GAC *
100/112.36.
What is Gross Amount Charged???
Any Amount charged by service provider or any amount received towards the
taxable service before, during or after the provision of Services.
What is Consideration???
It means everything received in return for provision of service which include
monetary & non monetary payment.
What are Works Contract?
 Contract involving transfer of goods in execution of such
contract
 Such transfer of goods is leviable to tax as sale of goods; and
 Such contract is for carrying out:
Construction
Erection
Commissioning
Installation
Completion
Fitting out
Repair
Maintenance
Alteration
Renovation
Other Similar Activity.
There are 2 Methods:
Method 1 :
Gross Amount Charged
for Works Contract
Value of any of goods /
services transferred by
Service Receiver
Value of Service portion
Gross Amount ….
INCLUDE
EXCLUDE
Labour Charges
Planning, Designing, Architect Fees
Cost of Water, fuel, Electricity
Hiring Charges of Machinery etc.
Profit earned by SP relatable to supply of
Labour & Services
VAT / Sales Tax paid on transfer of
property in goods involved in execution
of the said Works Contract
Method 2 : Value of Service portion
PARTICULARS
% of Total
Amount
Works Contract for Original Work
40
Maintenance or repairs or recondition or restoration or any
service of ANY GOODS
70
Other than above two
60
What is Original Works????
•
All new Constructions
•
All types of Additions and Alteration to abandoned or
damaged structure on land that are required to make them
workable
•
Erection, Commissioning or Installation of plant, machinery
or equipment or structure.
What is Total Amount???
Gross Amount
FMV of all Goods &
Services supplied
by Service Receiver
Amount Charged by
Service Receiver for
supply of
Services/Goods
Any VAT / Sales Tax
paid
Value of Taxable Service =
Selling or
Buying Rate
RBI
Reference
Rate
No. of Units
Converted
If Reference Rate is not available then.
Value = 1% of gross Amount of Indian Rupee provided or received by the
person changing the money.
Where Foreign currency is exchanged for
another foreign currency.
Value = 1% of lesser of the two amounts the person changing the money would
have received by converting one of the currencies into Indian Rupees.
Service provided By…
% of Total
Amount
Restaurants
40
Outdoor Catering
60
What is TOTAL AMOUNT?
When Service Provider cannot determine the value
by any of the above rule then he can determine the
value as follow:
Consideration
Amount Charged
Not Ascertainable
For non- monetary consideration
1. Amt should be taken of similar
service provided.
2. Such service is in ordinary course of
trade
3. GAC is sole consideration
Value of similar service = Not
ascertainable
SP shall determine the equivalent
money value of consideration. But value
should not be les than cost of provision
of services.
Central Excise Officer (CEO) has a power to check the accuracy of
value calculated by service provider as per rule 3. He can ask
furnishing the documents.
If he thinks that it is not in accordance with the provision & rules he
shall issue a notice to service provider to show cause the value of
such taxable service.
CEO after providing reasonable opportunity of being heard, determine
the value of such taxable service for charging service tax.
Some expenses and cost are included and excluded from value of
taxable service
INCLUDED – Any expense or cost incurred by the service provider for
providing taxable service
EXCLUDED - Any expense or cost incurred by the service provider as
a PURE AGENT to service Receiver while providing taxable
service
There are certain conditions for PURE AGENT.
PURE AGENT MEANS…
 A person who enters into a Contractual Agreement with Service
Recipient to Act as his Pure Agent to incur cost in course of
providing Taxable service
 Neither intends to hold nor hold any title to goods or services
so provided as Pure Agent
 Does not use any such goods / service provided
 Receives only actual amount incurred to provide such goods or
services.
Conditions for PURE AGENT..
SP = Pure Agent (PA)
of SR when making
payment to TP
Ultimate use of
service procured as PA
by SR
SR liable to pay TP
SR authorised SP to
pay on his behalf
SR should know that
services provided by
TP
Amount recovered as
PA separately shown
in invoice
SP recovers exact
amount spent as a PA
from SR
Services procured as
PA is in addition to
services provided on
own account
SP = Service Provider SR = Service Receiver
TP =Third Party PA = Pure Agent
CASE LAW: Intercontinental Consultants and Technocrats
Pvt. Ltd. Vs. Union of India & ANR
This case is about Reimbursement expenses to be included in
gross Amount or not.
Charge of service tax again on this expense amount to double
taxation.
Therefore, Hon’ble Delhi High Court, while allowing the petition,
observed, said that Rule 5 (1) which provides for inclusion and
exclusion of expenditure but it ultra vires sec 67.
Hence as per the judgment of Honorable Delhi High Court, The
reimbursed expense incurred by SP will not be included in the
value of taxable services.
Cases in which the commission , costs etc will be
included or excluded from value of taxable service.
INCLUDE--• Commission / Brokerage charged on sale or purchase of
securities.
• Adjustment made by telegraph authority from the deposits
collected at the time of connection.
• Commission received by air travel agent, rail travel agent
from airlines, railways or customers resp.
• Commission received by insurance agent from the insurer
or insurance company.
• The amount of premium charged by the insurer from the policy
holder
• The reimbursement received by the authorized service station,
from manufacturer for carrying out any service of any motor car,
light motor vehicle or two wheeled motor vehicle manufactured
by such manufacturer;
• The remuneration or commission, by whatever name called, paid
to such agent by the client engaging such agent for the services
provided by a clearing and forwarding agent to a client rendering
services of clearing and forwarding operations in any manner
• The amount realized as demurrage or by any other name whatever
called provision of a service beyond the period originally contracted or
in any other manner relatable to the provision of service.
EXCLUDED----Initial Deposit made by the customer at the time of connection
Air Fare , Rail Fare collected by respected agents.
Interest on delayed payment of any consideration for any service.
Accidental damages due to unforeseen action not relatable to
provision of service.
The taxes levied by any Government on any passenger travelling
by air, if shown separately on the ticket, or the invoice for
such ticket, issued to the passenger.
Place of Provision Rules, 2012 determines the place where
the service are provided which may be a taxable or a
non-taxable territory
Section 66C Of the Finance Act,1994 determines Place of
Provision of Service
The said rules shall be in operation w.e.f 1/7/2012
Taxable and Non-taxable Territory
India
Taxable territory
Non-taxable territory
Outside
India
FRAMEWORK
Statutory
Provisions
Replacing Rules
under erstwhile
regime
Relevance of
the Rules
Section 66C read with section 94(2)(hhh) of Finance
Act, 1994
•Export of Service Rules,2005
•Taxation of Services(Provided from outside India
and
received in India)
•To determine the place where the service shall be
deemed to be provided so as to ascertain the taxing
jurisdiction for a service
•If a service does not fall in the taxing jurisdiction,
service tax is free
•A step towards GST
RULE 3- GENERAL/DEFAULT RULE
Related to
Place of provision as per rule
All services
•Place of location of service receiver
•Where location of service receiver is not
available, location of service provider
Location of Service Provider/Service Receiver:
- Place of Registration(single/centralized)
- No Registration(his location/location of fixed establishment)
An establishment of a person outside the taxable territory is a
person distinct from an establishment in a taxable territory. Thus,
services provided from overseas are to be carefully judged
whether they are being rendered by the establishment outside the
taxable territory or within.
Business Establishment:
The place where the essential decisions concerning the general
management of the business are adopted, and where the functions
of its central administration are carried out. This could be the
Head office, factory, workshop etc. Most significantly, there is only
one business establishment that a service provider or receiver can
have.
Fixed Establishment:
It is a place ( other than the business establishment) which has the
permanent presence of human and technical resources to provide
or receive a service.
Illustration:
Taxable Territory
ABC
Service Provider
PQR
Receiver
Non-Taxable Territory
DEF
Receiver
XYZ
Service Provider
RULE 4
Related to
Place of provision of services as per
Rule
Performance based services
Location where service are actually
performed
Framework
Proviso to
Rule
Following cases covered:
-Services performed on goods made physically available
by the recipient to the service provider/person acting on
his behalf-repair, reconditioning, maintenance, cargo
handling , courier service etc
-Services performed in physical presence of the service
recipient / person acting on his behalf-beauty treatment
services, personal security services, health and fitness
services, internet café services, photography services,
classroom teaching etc
Where services are provided from a remote location by
way of electronic means, the place of provision shall be
the location where the goods are situated at the time of
provision of service
Eg:
An airline company in India gets its aircraft
repaired at a hanger in Mumbai airport, by
engineers deputed by an overseas firm (say,
Airbus France) who travel from Toulose, France
to Mumbai for the purpose.
The POP of this service is in the taxable
territory, and more specifically, Mumbai.
Note:
The Rule shall not apply in the case the service
provided in respect of goods that are
temporarily imported into India for repairs,
reconditioning or re-engineering for re-export.
RULE 5
Related to
Place of Provision of services as per the
Rules
Immovable Property
Place where immovable property is
located or intended to be located
The POP Rules shall apply only to services which
relate directly to Immovable Property.
RULE 6
Related to
Place of Provision as per Rule
Event
Place where event is actually is held
Eg:
An Indian fashion design firm hosts a show at
Toronto, Canada. The firm receives the services
of a Canadian event organizer.
The POP 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 nontaxable.
RULE 7
Related to
Place of provision of services as per
Rule
Services provided at
more than one
location (overrides
Rules 4,5 & 6)
Location in the taxable territory where
the greatest
proportion of the service is provided
Proportion of services provided at various locations by a
person located in India to a person located outside India
25%
55%
Outside India
Karnataka
Maharashtra
20%
RULE 8
Related to
Place of provision of
services as per the Rule
Situations where place of provision of
service outside
the taxable territory, however service
provider and
recipient located in taxable territory
Place of service receiver
RULE 9
Related to
Place of provision of
services as per the Rule
Specified services such as:
• Intermediary services
• Online information & database access
or retrieval
services
• Banking
• Hiring of means of transport (up to 1
month)
Location of Service Provider
Intermediary Services
An intermediary is a person who arranges or facilitates a supply of
goods, or a provision of service, or both, between two persons,
without material alteration or further processing.
An intermediary is involved with two supplies at any one time:
-supply between the principal and the third party
-the supply of his own service(agency service) to his principal
For the purpose of this rule, an intermediary in respect of goods is
excluded by the definition.
Scenario
Whether an intermediary
A commission agent (buying or selling) in respect
of services
Yes
A commission agent (buying or selling) in respect
of goods
No
RULE 10
Related to
Place of provision of
services as per the Rule
Transportation of goods
- By road i.e. GTA
- By other modes except mail or courier
Location of person liable to
pay tax
Destination of goods
A consignment of cut flowers is consigned from
Chennai to Amsterdam. The POP of goods
transportation service will be
Amsterdam(outside India, thus not liable to
service tax)
XYZ-Dealer(Gurgoan)
ABC-GTA (Delhi)
Dealer(Jammu)
OTHER RULES
Rule
Related to
Place of provision of
services as per the Rule
Rule 11
Passenger
transportation
Services
Place where the
passenger embarks on
the conveyance
for a continuous journey
Rule 12
Services provided on
board a conveyance
First scheduled point of
departure of that
conveyance of
a journey
Rule 14
Where a service falls under more than one rule then the rule which
appears
later shall be applicable
A video or a movie-on-demand is provided as
on-board entertainment during the KolkataDelhi leg of a Bangkok-Kolkata-Delhi flight.
The POP as per Rule 12 will be Bangkok being
the first scheduled point of departure. Since it
is outside the taxable territory, it will not be
liable to tax.
Though a specific rule would prevail over a
general rule, if two or more rules merit equally,
the place of provision of service shall be
determined in accordance with that rule which
occurs later among such rules.
To determine whether the place of provision of service is in the
taxable territory?????
1.
Which rule applies to my service specifically? In case more than
one rule apply equally, which of these come later in the order
given in the rules?
2.
What is the place of provision in terms of the above rule?
3.
Is the place of provision in the taxable territory? If yes, tax is
payable. If not, tax is not payable
For Rule 4-7, additional checks required:
1.
Are ‘you’ located in the taxable territory? If yes, you will pay tax
2.
If not, is the service receiver in the taxable territory? If yes, he
may be liable to pay tax on reverse charge basis