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(1) Service Provider has either of (a) place of business (b) fixed establishment (c) usual place of residence (d) permanent address, in a country other than India.

(2) Recipient of Service has either of (a) place of business (b) fixed establishment (c) usual place of residence (d) permanent address, in India.

(3) The Service provided is construed as import under Import Rules [Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. ]

If the above criteria is satisfied then the recipient of the Service is liable for payment of Service Tax as if he himself had provided the Service in India. This is called ‘Reverse Charge’ mechanism; the recipient of Service is treated as deemed Service provider.

[ Please Refer : Section 66A(1), Finance Act, 1994. ]

What will be ‘Usual Place of Residence’ of a body corporate?

Usual place of residence, in relation to a body corporate, means the place where it is incorporated or legally constituted. [ Please Refer : Explanation 2 to Section 66A, Finance Act,1994. ]

Exemption to individual receiving the Service :

When taxable Service is received by an individual and the purpose of receiving such Service is otherwise than for use in business or commerce, then Section 66A is not made applicable, so recipient is not liable to pay Service Tax. [ Please Refer : 1st Proviso to Section 66A(1), Finance Act, 1994. ]

Location from where Services is Provided :

When provider of Service has his business establishment in country from where Services is provided and elsewhere, then the country having the establishment from where the provision of Service is directly concerned shall be treated as the country from Service is provided.

Illustration: ABC is having 3 establishments, in India, China and Australia. Service is provided from Australia to XYZ in India. In this case, Australia shall be treated as country of provision of Service even if ABC has one establishment in India as it is directly concerned with the provision of Service.

[ Please Refer : 2nd Proviso to Section 66A(1), Finance Act, 1994. ]

Single Person having Separate Permanent Establishment :

Where a person is carrying on a business through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons.

Illustration: XYZ Ltd. is having one permanent establishment in INDIA which receives Service from another permanent establishment of XYZ Ltd. in CANADA. In this case, both the permanent establishments shall be treated as separate entity even though they belong to XYZ Ltd. Permanent establishment in INDIA is liable to pay Service Tax as a recipient of Service.

[ Please Refer : Section 66A(2), Finance Act, 1994. ]

Branch or Agency is considered as Business Establishment :

A person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country. [ Please Refer : Explanation 1 to Section 66A, Finance Act, 1994. ]

CLASSIFICATION OF SERVICES AS PER "IMPORT RULES":

The Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 also known as ‘Import Rules’ specifies 3 categories of cross border transaction of Services and conditions that will be construed as import of Services, namely, -

(1) Specified Services which are provided in relation to immovable properties situated in India – [ Please Refer : Rule 3(i), Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. ] LIST : 1 - Specified Services.

(2) Specified Services which are partly performed in India shall be treated as performed in India – [ Please Refer : Rule 3(ii), Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. ] LIST : 2 - Specified Services.

(3) The remaining taxable Services, barring a few exceptions, when provided in relation to business or commerce, to a recipient located in India. [Please Refer: Rule 3(iii), Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. ] LIST : 3 - Specified Services.

Thus, to determine whether the transaction is import of Service or not, each transaction has to be seen individually to ascertain if it constitutes import of Services fulfilling the necessary conditions.

PROVISIONS APPLICABLE TO RECIPIENT OF SERVICE :

Registration :

The recipient of Taxable Services, who receives Services in a manner u/s 66A, shall make an application for registration of Service Tax. The provisions of Section 69 of the act and Rules made there under shall apply for registration. [ Please Refer : Rule 4, Taxation of Services (Provided from Outside India and Received in India) Rules, 2006; Section 69, Finance Act, 1994. ]

Liability to Pay Service Tax :

In relation to any Taxable Service provided or to be provided by any person from a country other than India and received by any person in India u/s 66A of the Act, the person receiving such Services in India will be liable to pay Service Tax. [ Please Refer : Rule 2(1)(d)(iv), Service Tax Rules, 1994. ]

CENVAT Credit can be availed on Import of Services as Input Credit :

The person receiving the Service is liable to pay Service Tax, it may happen such Service is used as an input for providing any Taxable output Service, in such a case the Service Tax paid on such Service can be taken as input credit. [ Please Refer : Circular No. B1/4/2006-TRU, dated 19-4-2006. ]

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