All India Chartered Accountants’ Society
Workshop on Service Tax
2nd July, 2011
P. K. Sahu, Advocate
PRESENTATION
BY
P. K. SAHU, Advocate
D-247 (SF), Defence Colony
New Delhi - 110024
pksahu@msn.com
Cell: 9810008892
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Contents
• Sale vs. Service
• Classification of Service
• Composite and Bundled Services
• Interpretation of Service Tax Law
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SALE VS. SERVICE
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Sale vs. Service
Sale
• Independent existence of the thing, ownership of
which is to be transferred for a consideration
– Hindustan Shipyard Ltd. vs. State of A.P. (2000) 6 SCC 579 (SC)
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Sale vs. Service
Service
• Economist’s Concept vs. Legal Concept
• Characteristics of Service
• Work and Labour
• Intangible
• Variability of Services - Significant Human
Component
• Perishable
• No Transfer of Ownership
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Sale or Service
• Handing Over of Portrait
• Printing and Supply of University Question
Papers or Currency Notes
• Lease of Immoveable Property
• Sale of Flat by Builder Against Instalment
Payments
• Sale of Recharge Coupons
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Sale vs. Service
• Notification 12/2003-ST, Dated 20.06.2003- Exemption to
value of goods sold
• “sale” or “purchase” with their grammatical variations
and cognate expressions, means any transfer of
possession of goods by one person to another in the
ordinary course of business for cash or deferred payment
or other valuable consideration – Section 2(h) of C.E. Act.
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CLASSIFICATION OF SERVICE
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Section 65A
• Rule of Classification – Section 65A(1)
– Classification shall be determined according to the terms
of the sub-clauses of Section 65(105)
• Rule of classification – Section 65A(2)
– Clause which provides the most specific description
– In case of composite service, which gives essential
characteristics
– Clause which occurs first
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How to Classify
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

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Services by director of company
Joint Venture: Ports Railways, Franchise, Joint
Development of Real Estate
Section 65(19)(vi) - Provision of service on behalf
of the client
Broker vs. commission agent
Services of club/association
Fabrication of structure

Subsequent entry
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Commercial Parlance Test
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Bus ferrying
operator?

Celebrity in advertisement clip - Advertising
agency?

Air hostess training - Commercial training or
coaching?

Deputation of employees - Manpower supply ?
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employees/students
-
Tour
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COMPOSITE AND BUNDLED
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Composite or Multiple
Composite Contract
• Customer is interested in the final outcome
• Constituent elements are integrally connected and interdependent
• Constituent service forms part of main supply and is not an aim in
itself
Bundled Service
•
•
•
•
Customer is expecting several independent outcomes
Lump sum payment for multiple services
Constituent elements are economically dissociable
Breach of conditions for one segment does not lead to breach of
contract for the entire bundle of services
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Composite Contract...
 State of Madras v. Gannon Dunkerley & Co. (Madras)
Ltd., (1958)9 STC 353 (SC) – No sale of building
materials in construction contract
 Sultan Brothers (P) Ltd. v. C.I.T, 1964(51)-ITR 353
(SC) – Two leases for building and furnitures & fixtures
treated as one
 Sentinel Rolling Shutters and Engg. Co. (P) Ltd. v.
CST, (1978) 4 SCC 260 - Progressive release of
payment not decisive
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Composite Contract...
• BSNL vs. UOI (2006) 3 STT 245 (SC) – Nature of
composite contract should be decided on the basis of
dominant nature test
• BSES Ltd. vs. Fenner India Ltd., (2006) 2 SCC 728 –
Four contracts with bank guarantees and one wrap up
agreement to perform contractual obligations on a turnkey
basis-composite contract executable on a turnkey basis
• Customs and Excise Commissioners v British
Telecommunications plc [1999] STC 758 – Purchase of
car and transportation from manufacturer's factory treated
as sale of delivered car
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Composite or Bundled ?
• CCE vs. BSBK Pvt. Ltd., 2010(18) STR 555 (Tri.-LB)
• Alstom Projects India Limited vs. CST, [2011] 31 STT
270
• Saya Ji Hotels Ltd vs. CCE, Indore, [2010] 29 STT 195
• Multimodal Transport
• Grant of Representational Right Along With Business
Know-How
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Interpretation of Service Tax Law
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Interpretation of Service Tax Law
• Peculiar Nature of Service Tax
• Not a Full-fledged Statute - Application of Central
Excise Provisions
• Scattered Provisions of Law
• Unstable Law
• Credit Mechanism - Value Added Tax – Input and
Input Services
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Interpretation of Service Tax Law
• Interpretation of Definition Clause
• Section 73 and 78 - Tax Paid and Informed to
Department Before SCN
• Rule 6(3) of CCR
• Export of Service –Microsoft Case
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Interpretation of Service Tax Law
• Territorial Jurisdiction
• Reimbursement of Expenses
• Reimbursement of Service Tax Paid, But Not
Contracted
• Excise Mindset - Principle of Equivalence
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P. K. Sahu, Advocate
Thank You !
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