TAXABILITY OF INTERMEDIARY

SERVICES
With a recent amendment being brought into the definition of intermediary , a
conflict between the Section 66B Finance Act,2012 and the Rule 9 of Place of
Provision of Service Rules,2012(hereinafter referred to as PPS Rules)has arisen.
The intermediary services has been defined in rule 2(f) of PPS Rules .With effect
from 1.10.2014, the following definition of intermediary has come into force :
intermediary means a broker, an agent or any other person , by whatever name
called, who arranges or facilitates a provision of 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 on his own account.
Prior to 1.10.2014 the service of intermediary arranging or facilitating the supply
of goods was not considered as intermediary service.
Moreover, with effect from 1.10.2014 the place of provision of an intermediary
service will be determined as per Rule 9 of PPS,2012 i.e. the location of service
provider ( the place where he is registered) will be the place where the service will
be deemed to be provided . Earlier, the place of provision of such service was
determined as per Rule 3 of PPS,2012 ,i.e., the location of the service receiver was
the place where service was considered to have been provided.
The issue that has arisen relates to the taxability of service provided by an agent in
India to his foreign principal and also the vice versa.
Now let us talk about the charging section, i.e., Section 66B of the Finance Act,2012.
Section 66B reads as follows :
There shall be levied a tax(hereinafter referred to as the service tax) at the rate
twelve percent on the value of all services, other than those services specified in
the negative list, provided or agreed to be provided in the taxable territory
by one person to another and collected in such manner as may be prescribed.
Now, if an Indian agent provides agency service to his foreign principal, then
according to Section 66B service tax should not be charged on it as the service has
not been provided in the taxable territory. But, Rule 9 has brought in another
concept and has made such agency service taxable because as per this Rule, the
place of provision of service will be India(the location of the service provider); i.e. to
say the service will be considered to be provided in the taxable territory and so
service tax will be chargeable on such services.

This conflict between the Section and the Rule needs to be clarified by the
Government to avoid confusion and discrepancies which may arise in the future.