Taxable and non-taxable territory for service tax jurisdiction
The provisions of registration under Service Tax law have been provided by Section 69 of theFinance Act, 1994. Every service provider providing taxable service is required to obtain registration from the Department of Central Excise having jurisdiction over the assessee.
Jurisdiction of Service Tax (Prior to 1 July, 2012)
Following is the summary of jurisdiction of service tax under various situations -
|Outside India||Indian||Taxable (subject to Export Rules)|
*(If provided to person who has place of business/fixed establishment/permanent address/usual place of business in India)
|In J and K State||J and K provider||Not taxable|
|Outside J and K state||J and K provider||Taxable|
|In J and K State||Provider outside J and K State||Not taxable*|
*Clarified vide Trade Notice No. 13/2004, dated 28-4-2004 of Chennai III
Assessees residing in Jammu and Kashmir were not required to charge service tax for the services rendered by them. Services by and to people in the State of Jammu and Kashmir was, therefore, outside the scope of service tax (prior to 1-7-2012).
On a question of whether the service provided by a Delhi based company for conducting of topographical survey work of project area in Jammu and Kashmir will be chargeable to service tax, if the contract for the construction of project in JandK state was awarded to a Mumbai based company, the Department had clarified in consultation with Ministry of Law that even if the object of service is in the state of JandK but as the service provider and service receiver are outside the state of JandK, service tax shall be chargeable from the service provider (Source : http://servicetaxdelhi.gov. in dated 26.11.2007 reported in (2007) 8 STR-C 19)].
Amendment made by Finance Act, 2012
Finance Act, 2012 w.e.f. 1-7-2012 has inserted section 66C w.e.f. 1-7-2012 which provides for determination of place of provision of service having regard to the nature and description of various services. The Place of Provision of Services Rules, 2012 shall determine the place where such services are provided or deemed to have been provided or agreed to be provided or deemed to have been agreed to be provided. It may be noted that with the notification ofPlace of Provision of Services Rules, 2012, Export of Services Rules, 2005 and Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 stand rescinded.
The Finance Act, 2012 defines what is ‘taxable territory’ and ‘non-taxable territory’.
Relevance of Location
The location of a service provider or receiver (as the case may be) is to be determined by applying the following steps sequentially -
- where the service provider or receiver has obtained only one registration, whether centralized or otherwise, the premises for which such registration has been obtained;
- where the service provider or receiver is not covered by (a) above:
- the location of his business establishment; or
- where services are provided or received at a place other than the business establishment i.e. a fixed establishment elsewhere, the location of such establishment;
- where services are provided or received at more than one establishment, whether business or fixed, the establishment most directly concerned with the provision or use of the service; and
- in the absence of such places, the usual place of residence of the service provider or receiver.
According to CBEC Letter F. No. 334/1/2012-TRU dated 16.03.2012 explaining the Finance Bill, 2012 amendments, in order to determine whether the place of provision of service is in taxable territory, following questions/steps may be addressed by the assessee -
- Which rule applies to my service specifically? In case more than one rules apply equally, which of these come later in the order given in the rules?
- What is the place of provision in terms of the above rule?
- Is the place of provision in taxable territory? If yes, tax will be payable. If not, tax will not be payable.
- Are you ‘located’ in the taxable territory? If yes, you will pay the tax.
- If not, is the service receiver located in taxable territory? If yes, he may be liable to pay tax on reverse charge basis.
- Is the service receiver an individual or government receiving services for a non-business purpose, or a charity receiving services for a charitable activity? If yes, the same is exempted.
- If not, he is liable to pay tax.
- If both are out of India, no tax is payable.
Non-taxable Territory (Clause 35) and Taxable Territory (Clause 52)
According to clauses of section 65B of the Finance Act, 1994, following meanings have been given to non-taxable terrirtory and taxable territory:
A non-taxable territory means a territory which is outside the taxable territory and taxable territory means the territory to which provisions of Finance Act, 1994 apply.
Taxable territory has been defined in sub-section 52 of section 65B. It means the territory to which the provisions of Chapter V of the Finance Act, 1994 apply i.e. whole of India excluding the state of Jammu and Kashmir. “Non-taxable territory” is defined in sub-section 35 ibid accordingly as the territory other than the taxable territory.
“India” is defined in sub-section 27 of section 65B, as follows:
For this purpose, ‘India’ would mean the territory of India as referred to in article 1 of the Constitution; its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976; the sea-bed and the subsoil underlying the territorial waters; the air space above its territory and territorial waters; and the installations structures and the vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof.
Thus, “India” means -
- the territory of India as referred to in article 1 of the Constitution;
- its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976;
- the sea-bed and the subsoil underlying the territorial waters;
- the air space above its territory and territorial waters; and
- the installations structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof;
‘Territorial waters’ means that portion of sea which is adjacent to the shores of a country. Section 3 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zone Act, 1976, specifies that territorial waters extend up to 12 nautical miles from the base line on the coast of India and include any bay, gulf, harbour, creek or tidal river (1.853 Kms = 1 nautical mile = 1.1515 miles). Control of India extends to territorial waters and sea-bed and sub-soil underlying and air space over the waters.
“Exclusive Economic Zone” extends to 200 nautical miles from the base line. In this zone, the coastal State has exclusive rights to exploit it for economic purposes like constructing artificial-island, fishing, mineral resources and scientific research. However, other countries have right of navigation and over-flights. Other countries can lay sub-marine cables and pipelines with consent of Indian Government and such consent may be declined for protecting the interest of India.
‘High seas’ is an area beyond 200 nautical miles, where all countries have equal rights. These high seas are reserved for peaceful purposes. Any country can use it for navigation, over-flight, laying sub-marine cables and pipes, fishing, construction of artificial islands permitted under international Law and for scientific research.
The new charging section, section 66B, enables taxation of only such services as are provided in taxable territory. Thus services that are provided in a non-taxable territory are not chargeable to service tax. Only services provided in taxable territory will be liable to tax. Thus any service provided in state of J and K will not be liable to tax.
Service tax is required to be paid by the provider of a service, except where he is located outside the taxable territory and the place of provision of service is in the taxable territory. Where the provider of a service is located outside the taxable territory, the person liable to pay service tax is the receiver of the service in the taxable territory, unless of course, the service is otherwise exempted.
The territory to which provisions of this Chapter (Chapter V of Finance Act, 1994, as amended) apply has been stipulated in section 64 of the Finance Act, 1994 where in it has been provided that “this Chapter extends to whole of India except the state of Jammu and Kashmir”.
- Taxable territory would means whole of India excluding the state of Jammu and Kashmir, and
- Non taxable territory would mean territory other than the taxable territory, i.e, State of Jammu and Kashmir and other than India.
Only services provided in taxable territory will be liable to tax. Thus any service provided in the State of JandK will not be liable to tax. The Place of Provisions of Services Rules, 2012 will determine whether a service is being provided in JandK. Moreover, wherever the service provider is located in JandK but the service is being provided in taxable territory, in terms of the stated rules, the tax will be collected from the service receiver.
Taxability of services based on territorial jurisdiction can be summarised as follows:
|Sr. No.||Conditions||Tax Liability|
|Both service provider and service receiver are in taxable territory||
|Service provided from taxable territory in non taxable territory (except J and K as it is not export)||
No tax (Export)
|Service provided from non-taxable territory
(including J and K) in taxable territory
Service receiver (Import)
|Both service provider and service receiver are in non-taxable territory||
No service / No tax
Relevant Judicial Pronouncements
In Western Geco International Ltd. v. CST, New Delhi 2013 (11) TMI 1301 – CESTAT NEW DELHI, assessee was an American company, operating in the specialised area of mineral exploration and prospecting and had developed advanced technology for the purpose and entered into an agreement with ONGC and RIL for exploration and prospecting, for identification of oil and gas reserves in the sea bed within the territory authorised for exploration by India. Assessee claimed immunity to tax on ground of absence of territorial jurisdiction, and said that the divisibility of composite contract and chargeability to tax can be only of component of service provided within territorial is purview of Finance Act, 1994. It was held that services provided outside Indian taxable territory are immune to tax.
In Kpit Cummins Infosystems Ltd. v Commissioner of Central Excise, Pune-I 2013 (12) TMI 792 – CESTAT MUMBAI, the overseas branches of the assessee provided services abroad and remitted the consideration for the bills raised by them to its Indian head office after deducting the expenditure incurred and further, the assessee also had permanent establishments abroad by way of personnel located in the offices of their various clients and also remitted certain amount for the expenditure incurred by them for providing various services. The assessee’s view was that the branches and the Indian head office were not independent entities and hence it was a case of self service and assuming that they were independent entities, since the services were rendered abroad and consideration received in foreign exchange, it amounted to export of service. It was held that Service Tax is a destination based consumption tax, therefore, services received outside India are not liable for service taxu/s 66A of the Finance Act, 1994. Thus, if the services rendered abroad have been subjected to local taxes, there will not be levy of Service Tax in India on the same transaction. There cannot be two taxing jurisdictions for same transaction.
In CCE and C. v. Bayer’s Diagnostics (I) Ltd. 2012 (9) TMI 633 – Gujarat High Court, it was held that Service Tax liability on any taxable service provided by a non-resident or a person located outside India to a recipient in India would arise w.e.f. 18-4-2006,i.e. the date of enactment of Section 66A of the Finance Act, 1994.