ONE of the
important amendment in the Place of Provision of Service Rules, 2012 (PPS) is
the change in the definition of the term "intermediary", with effect
from 01.10.2014.
Existing
Definition:
"intermediary"
means a broker, an agent or any other person, by whatever name called, who
arranges or facilitates a provision of a service (hereinafter called the ‘main'
service) between two or more persons, but does not include a person who
provides the main service on his account;
New
Definition :
"intermediary"
means a broker, an agent or any other person, by whatever name called, who
arranges or facilitates a provision of a service (hereinafter called the 'main'
service) or a supply
of goods, between two or more persons, but does not include a
person who provides the main service or
supplies the goods on his account;
The
effect of this amendment is that a commission agent for goods is also covered
in the definition of intermediary. So far, only commission agents for services
were covered in the definition.
For
services provided by "intermediary", the place of provision of
service shall be the location of the service provider, as per Rule 9 of the PPS
Rules.
Let us
see the practical implication of this amendment.
Situation
I.
An
Indian Company has appointed a commission agent abroad to promote its exports.
Until now, as per Rule 3 of the PPS Rules, the service recipient's location is
the PPS and service tax has to be paid under reverse charge as the service
recipient is in India.
After
01.10.2014, the PPS in such case will be the location of the service provider
and hence no service tax is payable under reverse charge.
Situation
II
An
Indian company is working as a commission agent for a foreign company. Until now,
as per Rule 3 of the PPS Rules, the service recipients' location is the PPS and
no service tax is being paid. Further, the transaction would also amount to
Export of Service as per Rule 6 A of the Service Tax Rules, 1994 and get all
benefits associated with it.
After
01.10.2014, the PPS in such case will be India (location of service provider)
and service tax shall be payable. Further, the said transaction cannot amount
to export of service also.
It is
not known whether the second impact discussed above is intentional or
incidental.
May be
because the commission agent working in India for a foreign principal, though
earns little foreign exchange in the form of commission, but causes more huge
outflow of foreign exchange in the form of imports and this could have been the
reason for this amendment!
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