[Point 5.2.1 of the text of Education Guide issued by the CBEC]
As stated earlier, in terms of section 66B, a service is taxable only when, inter alia, it is "provided (or agreed to be provided) in the taxable territory". Thus, the taxability of a service will be determined based on the place of its provision. For determining the taxability of a service, therefore, one needs to ask the following questions sequentially:-
i. Which rule applies to the service provided specifically? In case more than one rules apply equally, which of these come later in the order given in the rules?
ii. What is the place of provision of the service in terms of the above rule?
iii. Is the place of provision in taxable territory? If yes, tax will be payable. If not, tax will not be payable.
iv. Is the provider 'located' in the taxable territory? If yes, he will pay the tax.
v. If not, is the service receiver located in taxable territory? If yes, he may be liable to pay tax on reverse charge basis.
vi. 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.
vii. If not, he is liable to pay tax.
[Point 5.2.2 of the text of Education Guide issued by the CBEC]
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 of section 65B accordingly as the territory other than the taxable territory.
'India' is defined in sub-section 27 of section 65 B, as follows:
(a) the territory of the Union of India as referred to in clauses (2) and (3) of article 1 of the Constitution;
(b) 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;
(c) the sea-bed and the subsoil underlying the territorial waters;
(d) the air space above its territory and territorial waters; and
(e) 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;
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.
[Point 5.2.4 of the text of Education Guide issued by the CBEC]
The location of a service provider or receiver (as the case may be) is to be determined by applying the following steps sequentially:
A. where the service provider or receiver has obtained only one registration, whether centralized or otherwise, the premises for which such registration has been obtained;
B. where the service provider or receiver is not covered by A above:
i. the location of his business establishment; or
ii. 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;
iii. 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
iv. in the absence of such places, the usual place of residence of the service provider or receiver.
It is important to note that in the case of a service receiver, the place relevant for determining location is the place where the service is 'used' or 'consumed'
4. What is the place of provision where the location of receiver is not ascertainable in the ordinary course of business?
[Point 5.3.5 of the text of Education Guide issued by the CBEC]
Generally, in case of a service provided to a person who is in business, the provider of the service will have the location of the recipient's registered location, or his business establishment, or his fixed establishment etc, as the case may be.
However, in case of certain services (which are not covered by the exceptions to the main rule), the service provider may not have the location of the service receiver, in the ordinary course of his business.
This will also be the case where a service is provided to an individual customer who comes to the premises of the service provider for availing the service and the provider has to, more often than not, rely on the declared location of the customer. In such cases the place of provision will be the location of the service provider.
It may be noted that the service provider is not required to make any extraordinary efforts to trace the address of the service receiver. The address should be available in the ordinary course of business.
In case of certain specified categories of services, the place of provision shall be the place where the services are actually performed. These are discussed in the following paragraphs.