COMMENTS
ON
“SERVICE TAX – RECENT AMENDMENTS MADE VIDE FINANCE
(NO.2) ACT, 2004”
Compiled and prepared by :
Shailesh P.Sheth
Advocate
Mumbai Office:
Rajkot Office:
Maskati Mahal, 3rd Floor,
Kantilal Sharma Marg,
(Lohar Chawl),
Mumbai – 400 002.
201, Trade Centre, 2nd Floor,
Sardarnagar Main Road,
Rajkot –360 002.
Telephone:22005096
Telefax: 22005087
e.mail: spsheth@vsnl.com
Tel: 2695280
The information contained in these documents is based on available
published material and is indicative of the changes in respective laws
only. Similarly, the comments offered on the various amendments are
the personal views of the author and same should not be construed as
legal or professional advice. Before acting on the issues involved in it, it is
suggested to seek professional advice.
1
INDEX
CHAPTER
1 -
INTRODUCTION
CHAPTER
2 -
LEVY OF SERVICE TAX ON NEW SERVICES
CHAPTER 3
-
AIRPORT SERVICES
CHAPTER 4
-
BUSINESS EXHIBITION SERVICES
CHAPTER
5 -
CONSTRUCTION SERVICES
CHAPTER 6
-
FORWARD CONTRACT SERVICES
CHAPTER 7
-
INTELLECTUAL PROPERTY SERVICES
(OTHERTHAN COPYRIGHT)
CHAPTER 8
-
OPINION POLL SERVICES
CHAPTER 9
-
OUTDOOR CATERER’S SERVICE
CHAPTER 10
-
PANDAL OR SHAMIANA SERVICES
CHAPTER 11
-
SURVEY AND EXPLORATION OF MINERAL, OIL AND
GAS SERVICES
CHAPTER 12
- TRAVEL AGENTS (OTHER THAN AIR/RAIL TRAVEL
AGENTS)
CHAPTER 13
- TRANSPORT OF GOODS BY AIR
CHAPTER 14 -
TV & RADIO PROGRAMME PRODUCTION
SERVICE
CHAPTER 15 -
TRANSPORT OF GOODS BY ROAD SERVICE
CHAPTER 16 -
EXPANSION OF SCOPE OF EXISTING TAXABLE
SERVICES
CHAPTER 17 -
BANKING AND FINANCIAL SERVICES
CHAPTER 18 -
BUSINESS AUXILIARY SERVICES
CHAPTER 19 -
CABLE SERVICES
CHAPTER 20 -
COMMISSION OR INSTALLATION SERVICE
CHAPTER 21 -
STOCK BROKERS
CHAPTER 22 -
TOUR OPERATORS
CHAPTER 23 -
SCHEME OF EXEMPTIONS & ABATEMENTS
CHAPTER 24 -
CONCLUSION
2
ABBREVIATIONS:
CEA
-
Central Excise Act, 1944
CER
-
Central Excise Rules, 2002
CCR
-
Cenvat Credit Rules, 2004
CG
-
“Capital Goods” as defined under Rule 2(a) of CCR
CETA
-
Central Excise Tariff Act, 1985
Act
-
Finance Act, 1994 [as amended last by the Finance (No.2) Act,
2004]
Input
-
“Input” as defined under Rule 2(k) of CCR
CBEC
-
Central Board of Excise & Customs
3
CHAPTER:1
INTRODUCTION
1.1
The levy of Service tax was introduced in the year 1994 vide Chapter V inserted in
the Finance Act, 1994 (“the Act”). The levy was initially restricted to only three
services viz. Telephone, General Insurance and Stock Broking. However, since then,
the coverage of the levy has been expanded year after year netting in more and more
services. Vide the Finance (No.2) Act, 2004 (“the Act of 2004”) the levy has been
extended to 13 new services as well as bringing into the net some more services by
amending the definition of certain existing taxable services w.e.f. 10.09.2004. With
this, total 76 services have been effectively covered under the levy as on 10.09.2004.
1.2
The ever-widening scope of the levy has not remained confined only to the number of
services. The Government has been steadily increasing the rate of Service tax also.
The introductory rate of 5% in 1994 was raised to 8% effective from 14.05.2003 and
has further been enhanced to 10% w.e.f. 10.09.2004. In addition to this, Education
Cess @ 2% on the amount of Service tax has also become effective from 10.09.2004.
Therefore, the total quantum of tax payable on the taxable services will be 10.2% on
and from 10.09.2004.
1.3
Besides expanding the scope of the levy to certain new services the Finance Minister,
vide his Budget Speech, had also announced the “Integration of Tax on Goods and
Services” by proposing the extension of credit of service tax and excise duty across
goods and services.
1.4
In pursuance of this announcement, Cenvat Credit Rules, 2004 (“the CCR”) have
been introduced w.e.f. 10.09.2004 in supersession of Cenvat Credit Rules, 2002 and
Service tax Credit Rules, 2002. CCR, in effect provides the facility, both to the
manufacturer and Service Provider, to avail cenvat credit of the excise duty paid on
inputs and capital goods and service tax paid on the specified Input Services.
Simultaneously, the concept of “Input Service Distributor” – somewhat similar to
“First Stage Dealer”/ “Second Stage Dealer” prevalent under the Cenvat Credit
Scheme – has also been introduced vide the CCR enabling the distribution of Service
tax credit amongst various locations where the payment against taxable services have
been made by the Head Office.
4
CHAPTER : 2
LEVY OF SERVICE TAX ON NEW SERVICES:
2.1
New Services:
Following new services have been brought under the levy vide Finance Act, 2004
w.e.f. 10.09.2004:
(i)
Business Exhibition Services
(ii)
Airport Services
(iii)
Transport of goods by air
(iv)
Survey and exploration of minerals
(v)
Opinion poll services
(vi)
Intellectual property services (other than copyrights)
(vii)
Forward contract services
(viii) Pandal or shamiana services
(ix)
Outdoor catering services
(x)
TV and radio programme production services
(xi)
Construction services (commercial and industrial building or civil
structures)
(xii)
Travel agents (other than air/rail travel agents)
(xiii) Transport of goods by road by Good Transport Agency.
2.2
Expansion of scope of existing Taxable Services:
Besides the above, the definitions of certain existing Taxable Services have been
amended as explained herein-below so as to expand the scope and coverage thereof
vide the Act of 2004 w.e.f. 10.09.2004:
(i)
Commission and installation service to include erection service
(ii)
Stock brokers to include sub-brokers
(iii)
Cable operators to include multi-system operators
(iv)
Business auxiliary service to include activities relating to procurement of
inputs, production of goods (not amounting to manufacture) or provision of
services on behalf of a client.
5
2.3
(v)
Banking and Financial Services to include core banking activities like lending,
issue of pay order, demand draft, Cheque etc.
Commercial concerns
providing such services have also been included within the scope of “Service
providers” as defined vide Section 65 (12) of the Act.
(vi)
Tour operators to include such package tour operators who organize tours
involving different modes of transport.
Withdrawal of Exemptions:
The exemption hitherto available in respect of the following taxable services have
been withdrawn w.e.f. 09.07.2004:
2.4
(i)
Broadcasting services provided by Cable Television Operators (Notification
No.8/2001-ST dated 09.07.2001 rescinded by Notification No.7/2004-ST
dated 09.07.2004)
(ii)
Business Auxiliary Services provided by a Commission Agent except in
relation to sale or purchase of agricultural produce. [Notification No.13/2003ST dated 20.06.2003 amended by Notification No.8/2004-ST dated
09.07.2004]
(iii)
Maintenance or repair of Computers, Computer systems or Computer
peripherals [Notification No.20/2003-ST dated 20.08.2003 rescinded by
Notification No.7/2004-ST dated 09.07.2004]
(iv)
Mandap Keeper Services (including catering services) provided by Hotels
[Notification No.12/2001-ST dated 20.12.2001 as amended by Notification
No.8/2004-ST dated 09.07.2004
(v)
Services relating to safe deposit lockers or security or safe vaults provided by
Security Agencies [Notification No.56/98-ST dated 07.10.1998 rescinded by
Notification No.07/2004-ST dated 09.07.2004]
In the ensuing chapters, various aspects of the aforesaid changes have been discussed.
6
CHAPTER : 3
AIRPORT SERVICES
3.1
Statutory Provisions:
(a) Section 65 (3a) to 65 (3d) of the Finance Act, 1994 (“the Act”) define the terms
like “Aircraft”, “Aircraft Operator”, “Airport” and “Airports Authority”.
(b) Also, relevant are the provisions of the Airports Authority of India Act, 1994 and
Aircraft Act, 1934 providing the definitions of certain relevant terms like Airport,
Aerodrome, Civil Enclave and adopted for the purpose of levy of Service Tax on
Airport Services.
(c) Section 65 (105)(zzm) defines the term “Taxable Service” to mean any service
provided to any person by airports authority or any person authorized by it, in an
airport or civil enclave.
(d) Section 67 of the Act defines the term “Value of Taxable Services” as the gross
amount charged by the Service provider for the services rendered by him.
3.2
Scope of the Levy:
The various services provided in an airport or Civil Enclave are taxable under this
category. The liability to pay the Service tax is on the service provider, namely,
Airports Authority of India, or any person authorized by it providing such service to
any person. The value, for the purpose of taxable service is the gross amount charged
by the service provider for services rendered by him.
3.3
Inclusions:
Following services, amongst others, are covered under this category viz:
i)
Security, transit facilities, landing charges, terminal route navigational facility
charges in respect of services provided to the Airlines and cargo/passenger
handling.
ii)
As the tax would be on the gross amount charged, the charges like royalty,
licence fees etc. collected by AAI from other service providers at the Airport
like ground handling, security, common user terminal services etc would be
chargeable.
7
3.4
Exclusions:
(a) The rental/lease charges would not be subjected to service tax.
(b) Services provided to Armed Forces of Union would not be taxable.
3.5
Exemption/Abatement:
Refer Chapter 23
8
CHAPTER : 4
BUSINESS EXHIBITION SERVICES:
4.1
4.2
Statutory Provisions:
(a)
Section 65 (19a) of the Act defines the term ‘Business Exhibitions’
(b)
Section 65 (105)(zzo) defines the term Taxable Service to mean services
provided to an exhibitors, by the Organiser of a business exhibition in relation
to Business Exhibition.
(c)
Section 67 of the Act defines the term the “Value of Taxable Services” as the
gross amount charged by the Service provider for services rendered by him.
Scope of the levy:
The services provided in relation to “Business Exhibition” are covered under this
category. “Business Exhibition” has been defined as an “Exhibition” to market, to
promote or to advertise or to show cause any product or service intended for the
growth in business of the producer or provider of such product or service [S.65 (19a)]
The liability to pay Service tax under this category is on the organizer of business
exhibition [S.65 (105)(zzo)]. The Service tax will be payable on the gross amount
charged by the organizer to the exhibitor (S.67).
4.3
Inclusions:
Following services, amongst others, would be covered under this category:
4.4
i)
Events like Trade fairs, road shows, fashion shows etc. organized by the
organizers;
ii)
Display show-cases kept in Airports, Railway stations, Hotels, Theaters, etc.
Exclusions:
i)
Display of goods in shopping malls or shopping centers to enable the customers
to select and purchase if no separate charges are collected by the shop-keepers in
respect thereof;
ii)
Services rendered by an Event Manager to an Organizer in relation to planning,
promoting, organizing etc. of the events like Trade fairs etc. Such Services
would be taxable under “Event Management Services”.
iii) Services rendered in relation to a circular, label, documents, hoardings or any
other audio-visual representation of a product or service such services would be
covered under “Advertisement Services”.
iv) Art galleries renting out galleries for exhibition of art, paintings etc.
9
4.5
Exemption/Abatement:
Refer Chapter 23.
4.6
COMMENTS:
4.6.1 The imposition of levy on “Business Exhibition Services” appears to be the fall-out of
the judgement of the Appellate Tribunal in the case of Indian Trade Promotion
Organization Vs C C E – 2004 (163) ELT 163. Drawing the distinction between
“Business activities” and “Business Function”, the Tribunal, in this case, held that the
renting out of premises by ITPO to participants of trade fairs as well as the Election
Commission for counting of votes do not come in the category of service provided by
“Mandap Keeper” and cannot be charged to Service tax thereunder. It was further
held that trade fairs are temporary markets and the use of the stalls of ITPO for trade
fairs was for business as such, and not for ceremony.
4.6.2 However, such activities as being undertaken by ITPO and other such persons would
now be covered under the taxable category of “Business Exhibition Services”.
But, renting out premises to the Election Commission for the official purposes like
voting, storing of ballot boxes, counting of ballots etc would still remain outside the
scope of the levy.
4.6.3 As the levy is in relation business exhibition ultimately intended for the growth in
business of the producer of the product or the provider of Services, the commercial
nature of the activity is inherent. Therefore, if any exhibitions are organized to create
social awareness, say, in respect of pollution, etc. and are not run on commercial
lines, the services in relation to the same would not be taxable under this category.
10
CHAPTER : 5
CONSTRUCTION SERVICES:
5.1
5.2
Statutory Provisions:
(a)
Section 65 (30a) of the Act defines the term ‘Construction Service’.
(b)
Section 65 (105)(zzq) defines term the “Taxable Service” to mean the services
provided to any person by a commercial concern, in relation to construction
service.
(c)
Section 67 of the Act defines the term “Value of Taxable Services” as the
gross amount charged by the Service provider for services rendered by him.
Scope of the levy:The services in relation to (i) the construction of a new building or civil structure or a
part thereof or (ii) repair, alteration or restoration of, or similar services in relation to,
building or civil structure are taxable under this category provided the same are
primarily used or occupied or engaged or intended to be used or occupied or engaged
in commerce or industry are covered under this levy. The liability to pay Service tax
is cast upon the “Commercial Concern” providing “Construction Services” to any
person [S.65 (105)(zzg)]. The Service tax will be payable on the gross amount
charged to the service-recipient by such Commercial concern.
5.3
Inclusions:
The following persons, amongst others, would be covered under this category:i)
Persons engaged in constructing shopping centres, multi-complex theaters,
commercial complexes etc.
ii)
Persons engaged in the construction of office or industrial premises;
iii)
Local Government bodies engaged in the construction for commercial
purposes i.e. letting out shops constructed;
iv)
Persons engaged in the repairs, restoration, renovation or alteration of any
commercial / industrial building or civil structure;
v)
Contractors engaged by the Estate builders for the purpose of construction of
Building/civil structure for the purposes of commerce or industry;
vi)
Persons engaged in the construction of multi-purpose buildings such as
residential-cum-commercial purposes provided such immovable property is
treated as “commercial property” under the local/Municipal law.
11
5.4
Exclusions:-
5.5
i)
Construction of roads, airports, railways, transport terminals, bridges, tunnels,
long-distance pipelines and dams. [S.65 (30a)] (However, pipelines running
within an Industrial or Commercial establishment would not be excluded);
ii)
Construction of buildings etc. purely for residential purposes;
iii)
Constructions for the use of non-profit organizations or institutions
established solely for educational, religious, charitable, health, sanitation or
philanthropic purposes;
iv)
Estate builders engaged in the construction of buildings/ Civil Structures for
themselves;
v)
Services provided by a laborer engaged directly by the property owner or
contractor having no business establishment.
Exemption/Abatement:
5.5.1 Vide Notification No.15/2004-ST dated 10.09.2004, the levy of Service-tax in respect
of construction services has been restricted only to 33% of the gross amount charged
by the service provider. However, this exemption is subject to the following
conditions viz.
(a) credit of duty paid on inputs or capital goods has not been taken under the
provisions of the CCR, 2004; or
(b) benefit of exemption on cost of materials is not availed by the Commercial
concern under Notification No.12/2003-ST dated 20.06.2003.
5.5.2 Also refer Chapter 23
5.6
COMMENTS:
5.6.1 Though the estate builders engaged in the construction of a building / civil structures
for themselves are excluded from the scope of levy, it has been clarified by the Board
that if such Estate Owners hire contractor. Then the payment made to them would be
subjected to service-tax. This clarification issued by the Board, however, appears to
be rather too generalized. It should be noted that the levy of Service tax under this
category would depend upon whether the building/ civil structure is primarily used or
intended to be used for commerce or industry. Therefore, if a contractor is hired by an
Estate Owner for the construction of a building to be used for any non-commercial/
non-industrial purpose, (say, residential), the payment made to such contractor cannot
be charged to service tax under this category.
12
5.6.2 The abatement (exemption) of 67% provided vide Notification No.15/2004-ST is in
respect of composite contract where the gross amount charged includes the value of
material also. However, the availment of benefit under this Notification is optional
and subject to the fulfillment of the above conditions. It is worth noting here that the
condition of non-availment of Cenvat credit relates to only inputs and capital goods
but not “Input Services”. In other words, the person chargeable to Service tax under
this category and claiming the benefit of the Notification No.15/2004-ST is entitled to
avail credit of service tax paid on “Input Services” in terms of CCR.
5.6.3 Alternatively, the said person can apt for the total exemption available under
Notification No.12/2003-ST dated 20.06.2003 as amended. Subject to the conditions
prescribed thereunder.
5.6.4 The scope of the levy is wide enough to cover services like renovation, Re-plastering,
Painting or any such job undertaken to increase the life of a building/ civil structure.
13
CHAPTER 6:
FORWARD CONTRACT SERVICES:
6.1
6.2
Statutory Provisions:
(a)
Section 65 (46a) of the Act defines the term ‘Forward Contract’. Section 2 (c)
and Section 2 (i) of the Forward Contracts (Regulation) Act, 1952 defines the
term ‘Forward Contract’ and ‘Ready Delivery Contract’ and the same are
adopted for the purpose of levy of Service Tax.
(b)
Section 65 (105)(zzy) defines the term ‘Taxable Service’ in respect of
Forward Contract Services to mean any service provided to any person, by a
member of a recognized association or a registered association, in relation to a
Forward Contract.
(c)
Section 67 of the Act defines the ‘Value of Taxable Services’ as the gross
amount charged by the Service provider for services rendered by him.
Scope of the Levy:
Any services provided by a member of a recognized association or a registered
association in relation to a Forward Contract are covered within the scope of the levy.
The Service tax would be leviable on the gross amount charged by the service
provider to his client.
6.3
6.4
Inclusions:
(a)
Forward Contracts entered through members of association recognized under
the Forward Contract (Regulation) Act, 1952 in respect of the commodities
notified under the Act;
(b)
Future Trading Contracts entered into through the associations registered with
the Forward Market Commission in respect of the commodities not notified
under the FCRA;
Exclusions:
Services provided in respect of Ready Delivery Contracts as defined vide Section 2(i)
of FCRA;
6.5
Exemptions/Abatement:
Please refer Chapter 23
14
CHAPTER 7:
INTELLECTUAL PROPERTY SERVICES
(OTHERTHAN COPYRIGHT)
7.1
7.2
Statutory Provisions:
(a)
Section 65 (55a) of the Act defines the term ‘Intellectual Property Services’.
(b)
Other relevant terms like ‘Trade Mark’, ‘Design’, ‘Patent’ and ‘Copyright’
have been defined vide Section 2 (zb) of the Trade Marks Act, 1999, Section 2
(d) of the Designs Act, 2000, Section 2 (m) of the Patents Act, 1970 and
Section 14 of Chapter III of the Copyright Act, 1957 respectively.
(c)
Section 65 (105)(zzr) defines the term ‘Taxable Services’ to mean any
services provided by the holder of the Intellectual Property Right to any
person in relation to Intellectual Property Service.
(d)
The term ‘Intellectual Property Service’ has been defined vide Section 65
(55b) of the Act to mean transfer, whether permanently or otherwise; or
permitting the use or enjoyment of any Intellectual Property Right.
(e)
Section 67 of the Act defines the term ‘Value of Taxable Services’ as the
gross amount charged by the Service provider for services rendered by him.
Scope of the Levy:
The levy extends to the services provided by the holder of the Intellectual Property
Right like transferring or permitting the use or enjoyment of such right to any other
person. The Service tax would be payable on the gross amount received by the Right
holder for such use or transfer.
7.3
Inclusions:
(a)
Services provided in relation to Intellectual Property Right (whether registered
or not) in intangible property like Trade Marks, Designs, Patents or any other
similar intangible property prescribed under the law for the time being in
force.
(b)
Services provided in relation to various types of Intellectual Property like
Technical know-how, product process, invention etc. will also be covered
within the scope of the levy (whether registered or not).
15
(d)
Taxable services would include transfer or permitting the use or enjoyment of
the Intellectual Property Right.
7.4
7.5
Exclusions:
(a)
Copyright;
(b)
Permanent transfer of Intellectual Property Right;
(c)
Intellectual Property Rights like Integrated Circuits or undisclosed
information (not covered by Indian Law).
Exemptions/Abatements:
7.5.1 Vide Notification No. 17/04-ST dated 10.9.2004, the exemption from the payment of
Service Tax has been provided to the extent of amount of Cess paid towards the
import of technology under the provisions of Section 3 of the Research &
Development Cess Act,1986.
7.5.2 Also refer Chapter 23
7.6
COMMENTS:
7.6.1 The statutory definition of “Intellectual Property Services” given vide Section 65
(55b) of the Act, inter-alia, includes transferring, whether permanently or otherwise,
of any Intellectual Property Right.
7.6.2 However, the Board, vide its Circular dated 10.9.2004, has clarified that permanent
transfer of Intellectual Property Right would not amount to rendering of service since
on such transfer, the person selling the right would no longer remain a “holder of
Intellectual Property Right” so as to come within the purview of taxable service and
therefore, Service tax would not be payable on permanent transfer of IPRs.
7.6.3 It is evident that there is a clear conflict between the statutory definition and the
clarification issued by the Board. Though the Board’s clarification appears to be quite
logical and proper, the language of the statutory provision does not reflect this
meaning. Consequently, there are bound to be disputes between the department and
the concerned persons on this count in future. It will therefore be advisable if the
Board issues a categorical explanation in the matter and if necessary, an exemption
notification as well.
16
CHAPTER 8:
OPINION POLL SERVICES:
8.1
8.2
Statutory Provisions :
(a)
Section 65 (75a) & 65 (75b) of the Act define the terms ‘Opinion Poll’ and
‘Opinion Poll Agency’ respectively.
(b)
Section 65 (105)(zzs) defines the term ‘Taxable Services’ in respect of
Opinion Poll Services to mean any service to a person by an Opinion Poll
Agency in relation to opinion poll.
(c)
Section 67 of the Act defines the term ‘Value of Taxable Services’ as the
gross amount charged by the Service provider for services rendered by him.
Scope of the Levy:
The Opinion Poll Services designed to secure information on public opinion
regarding social, economic, political or other issues have been made taxable. The
Service tax would be payable on the gross amount charged by the Agency without
any deductions towards the cost of preparation and printing of questionnaire, salary to
the people employed for securing the information etc.
8.3
Inclusions:
(a)
Opinion Polls conducted to secure information on social, economic, political
or other issues.
(b)
All activities connected with conducting the Opinion Poll like preparation of
questionnaire, selecting the target group, gathering information from the target
group, collating their response, drawing conclusions, preparation of reports
etc.
(c)
Opinion Polls conducted on various issues like sports, fashion, cinema etc.
(d)
Private “Opinion Polls”, the results of which are not made public.
(e)
Opinion Polls conducted to ascertain the popularity of TV serials, Radio
programmes, TV Channels etc. (known as TRP Ratings).
(f)
Processing activity outsourced from a specialized data processing unit in
relation to In-house opinion polls.
17
8.4
8.5
Exclusions:
(a)
In-house opinion polls conducted by an organization itself.
(b)
Fixed (time bound) opinion polls conducted by any media like newspapers
aimed at public at large.
(c)
Conducting of market research i.e. securing information in relation to
products, services or utilities would remain excluded from the levy under this
category but would be covered under “Market Research Agency”.
Exemption/Abatement:
Please refer Chapter 23
18
CHAPTER 9:
OUTDOOR CATERER’S SERVICE:
9.1
9.2
Statutory Provisions:
(a)
Section 65 (76a) defines the term ‘Outdoor Caterer’ and Section 65 (24)
defines the term “Caterer”.
(b)
Section 65 (105)(zzt) defines the taxable services in respect of Outdoor
Caterer’s Services to mean a service provided to a client by an outdoor
caterer.
(c)
Section 67 of the Act defines the term “Value of Taxable Services” as the
gross amount charged by the Service provider for services rendered by him.
Scope of the Levy:
Any catering services provided by a person i.e. caterer at a place other than his own
place will be chargeable to Service tax under this category. The Service tax would be
payable on the gross amount charged by the caterer including the food charges.
9.3
9.4
Inclusions:
(a)
In-flight caterers
(b)
Mobile caterers i.e. the caterers preparing the food at their own place and then
supplying the same to the customer at his place say, for some domestic
function or to the office-goers at their office as packed lunch etc.
(c)
Restaurants, hotels etc. providing home delivery service if charge other than
for the cost of the food is also recovered.
Exclusions:
(a)
Canteen Contractors situated within the academic institution like schools,
colleges etc. or medical establishments like hospitals and providing catering
services within the premises.
(b)
Mobile Food Vans preparing and supplying the food to the customers at
particular location.
(c)
Restaurants etc. providing free home delivery service.
19
9.5
Exemptions/Abatements:
9.5.1 Catering service provider by an outdoor caterer on a Railway Train has been wholly
exempted from payment of Service tax vide Notification No. 19/04-ST dated
10.9.2004.
9.5.2 Catering services provided by an outside caterer is wholly exempt vide Notification
No. 21/04-ST dated 10.9.2004 provided such caterer is located within the premises of
any academic institution or medical establishment and such services provided only
within the said premises.
9.5.3 Vide notification No. 20/04-ST dated 10.9.2004, an abatement of 50% from the gross
amount charged by the outdoor caterer has been provided subject to the following
conditions viz:
(i)
The catering services provided also includes food and the invoice etc.
indicates that it is inclusive of charge of supply of food;
(ii)
No credit of duty paid on inputs/capital goods has been availed under CCR;
(iii)
The outdoor caterer has also not availed the benefit of the exemption under
Notification No. 12/2003-ST dated 20.6.2003 regarding exclusion of cost of
materials from the value of taxable service.
9.5.4 Please also refer Chapter 23
9.6.
9.6.1a.
COMMENTS:
The benefit of abatement provided vide Notification No. 20/04-ST is subject to the
fulfillment of the aforesaid three conditions which are required to be satisfied
simultaneously in view of the use of the conjunction “and” in between them vide
proviso to the Notification.
9.6.1b. However, it is pertinent to note that the outdoor caterer availing the benefit of the
above Notification is not prohibited from availing the Cenvat Credit of Service tax
paid by him on various input services in terms of CCR.
9.6.1c.
The benefit of abatement under the Notification is also subject to the condition
that the outdoor caterer provides “food”. The expression ‘food’ has been defined to
mean “substantial and satisfying meal”.
However, what is “substantial” and
“satisfying” has not been explained anywhere and has been left to be decided
presumably by the field officers. The expression “meal” used in the explanation to
the notification would suggest that the food supplied should be more in the nature
of lunch or dinner as against mere snacks.
20
9.6.2 The exemption in respect of catering provided within academic/medical
institution/establishment is also intended for those caterers who prepare the food at
their place and subsequently, provide the same through the canteen situated within
such premises. Therefore, the canteens situated within such premises where food is
prepared and supplied over the counter would not come within the purview of the
definition of “Outside caterer” at all and the question of granting them exemption
would not arise.
21
CHAPTER 10
PANDAL OR SHAMIANA SERVICES:
10.1
10.2
Statutory provisions:
(a)
Section 65 (77a) and 65 (77b) of the Act defines the term “Pandal or
Shamiana’ and ‘Pandal or Shamiana Contactor’.
(b)
Section 65 (105)(zzw) defines the ‘taxable services’ in respect of Pandal or
Shamiana Services means any service provided to a client by a Pandal or
Shamiana Contractor in relation to a Pandal or Shamiana in any manner and
also includes services, if any rendered as caterer.
(c)
Section 67 of the Act defines the ‘Value of Taxable Services’ as the gross
amount charged by the Service provider for services rendered by him.
Scope of the levy:
Any person providing services, directly or indirectly, in connection with preparation,
arrangement, erection or decoration of a pandal or shamiana i.e. a place specially
prepared for organizing official, social or business functions will be covered under
this taxable category as “Pandal or Shamiana Contractor.” The Service Tax will be
payable on the gross amount charged by such person and will include the charges
collected for supply of furniture, fixture, light fittings, floor coverings and any other
articles for use as well as charges for catering if the same is provided.
10.3
Exclusions:
Pandal/Shamiana services provided for pure religious ceremonies or congregation
like worship of Gods/Goddesses will not be liable for Service-Tax under this
category.
10.4
Exemption/Abatement :-
10.4.1 An abatement of 30% of the gross amount has been provided vide Notification
No.22/2004-ST dated 10.09.2004. In other words, the Service tax will be leviable on
70% of the value of the gross amount charged by the pandal or shamiana Contractor.
This abatement (exemption) is subject to the following conditions viz.
22
(a)
such pandal or shamiana contractor also provides catering services, that is,
supply of food and the invoice, bill or Challan issued for this purpose
indicates that it is inclusive of charges for catering service; and
(c)
no credit of duty paid on inputs or capital goods has been taken under the
provisions of the Cenvat Credit Rules, 2004; and;
(c)
such pandal or shamiana contractor has not availed the benefit of exemption
on cost of materials under Notification No.12/2003-ST, dated 20.06.2003. For
the purposes of this exemption, the expression “food” means a substantial and
satisfying meal.
[Notification No.22/2004-ST dated 10.09.2004].
10.4.2 Also refer Chapter 23
10.5
COMMENTS:
10.5.1 Refer the “Comments” under Chapter 9.
23
CHAPTER 11:
SURVEY AND EXPLORATION OF MINERAL,
OIL AND GAS SERVICES:
11.1
11.2
Statutory Provisions:
(a)
Section 65 (104a) defines the term ‘Survey and Exploration of Mineral’.
(b)
Section 65 (105)(zzv) defines the term ‘Taxable services’ to mean services
provided to a customer by any person in relation to Survey and Exploration of
Mineral.
(c)
Section 67 of the Act defines the term ‘Value of Taxable Services’ at the gross
amount charged by the Service provider for services rendered by him.
Scope of the Levy:
The services provided by any person in relation to Survey and Exploration of the
Minerals will be covered under this category. The Service tax would be payable on
the gross amount charged by the Service provider.
11.3
11.4
11.5
Inclusions:
(a)
Survey and Exploration Services viz. Geological, Geophysical or other
prospecting, surface or sub-surface surveying or map making service in
relation to location or exploration of deposits of Mineral, Oil or Gas.
(b)
Activities such as seismic survey, collection/processing/interpretation of data
and drilling or testing in relation to survey or exploration.
Exclusions:
(a)
Actual extractions of the Minerals etc. after completion of survey and
exploration.
(b)
Transport, refining, processing or production of the extracted products.
Exemption/Abatement:
Refer Chapter 23
24
CHAPTER : 12
TRAVEL AGENTS (OTHER THAN AIR/RAIL
TRAVEL AGENTS):
12.1
12.2
Statutory Provisions:
(a)
Section 65 (115a) defines the word ‘Travel Agents’ to mean any person
engaged in providing any service connected with booking of passage for
travel, but excluding Air Travel Agent and Rail Travel Agent.
(b)
Section 65 (105)(zzx) defines the term ‘Taxable Service’ to mean any
service provided to a customer by a Travel Agent, in relation to booking of
passage for travel.
(c)
Section 67 of the Act defines the term ‘Value of Taxable Services’ as the
gross amount charged by the Service Provider for services rendered by him.
Scope of the levy:
Air travel agents and Rail travel agents are already covered under the levy at present.
Now, the levy has been extended to include Travel Agents of other modes of
transport i.e. road, water etc. The service of booking of passage for travel by modes
other than road and air would be covered under this category. The service tax would
be payable on the commission/fee charged by the travel agent from the customer.
12.3
Inclusion:
Travel Agents booking passage for their customers by water (Boat, Ship etc.) or road
(car, Bus etc.)
12.4
Exclusions:
Air Travel Agents and Rail Travel Agents.
12.5
Exemption/Abatement:
Refer Chapter 23
25
CHAPTER : 13
TRANSPORT OF GOODS BY AIR
13.1
13.2
Statutory Provisions:
(a)
Section 65 (3a) & 65 (3b) defines the term ‘Aircraft’ and ‘Aircraft Operator’
respectively.
(b)
Section 65 (105)(zzm) defines the term ‘Taxable service’ to mean any
service provided to any person, by an Aircraft Operator, in relation to
transport of goods by Aircraft.
(c)
Section 67 of the Act defines the term ‘Value of Taxable Services’ as the
gross amount charged by the Service provider for services rendered by him.
Scope of the levy:
Services provided by an aircraft operator (i.e. Commercial concern like airlines) in
relation to transport of goods by air are subjected to Service Tax under this category.
The Service Tax would be payable on the gross amount charged by the aircraft
operator.
13.3
Inclusions:
a) Transport of goods from one place to another place through an aircraft by
Airlines;
b) Transport of goods by Helicopters;
c) In addition to actual air-freight charges, other charges collected towards storing,
handling, loading/unloading done in relation to air transportation of cargo and
collected by the airline would be includible in the value of taxable services.
13.4
Exclusions:
a) Helicopter used for transportation of persons;
b) Transportation of goods through cable car run on Electricity;
c) Amount collected by the Airlines from the passangers towards excess personal
baggage.
13.5
Exemptions/Abatement:
Refer Chapter 23
26
CHAPTER : 14
TV AND RADIO PROGRAMME PRODUCTION SERVICE:
14.1
14.2
Statutory Provisions:
(a)
Section 65 (86a) defines the term ‘Programme’.
(b)
Section 65 (105)(zzu) defines the term ‘Taxable service’ to mean any service
provided to any person, by a Programme Producer, in relation to a
Programme.
(c)
Section 67 of the Act defines the term ‘Value of Taxable Services’ as the
gross amount charged by the Service provider for services rendered by him.
Scope of the levy:
Services provided by a Commercial Programme Producer for production of a
Programme (audio or video) on behalf of another person, for telecasting/ radio
transmission by a broadcaster would be covered under this category. The Service Tax
would be payable on the gross amount charged by the Programme producer.
14.3
Inclusion:
a) Services in relation to Audio and Video Programme production;
b) Live or recorded audio visual matter;
c) Production of TV Serials, news programmes etc.;
d) Production of telefilms specifically to be aired on TV channels;
e) Live telecast of award functions etc.
14.4
Exclusions:
a) Employees of the service receiver i.e. Broadcasters;
b) Production of programme by the Broadcasters for their own use e.g. TV channels
producing their own programmes;
c) Films
14.5
Exemptions/Abatement:
Refer Chapter 23
27
14.6
COMMENTS:
The Board, vide its Circular dated 10.09.2004, has, inter-alia, clarified that the sale of
programme to the Broadcaster would also be subjected to levy of Service-Tax under
this category.
However, this view of the Board is highly debatable. Section 65 (86b) of the Act
defines the term “Programme Producer” means any commercial concern which
produces a programme on behalf of another person.
Therefore, if a commercial concern produces a programme on its own and then sells it
to any Broadcaster as it deems fit then it cannot be said that the programme was
produced on behalf of another person. Such sale of programme, consequently, cannot
be subjected to levy of Service Tax under this category.
28
CHAPTER : 15
TRANSPORT OF GOODS BY ROAD SERVICE:
15.1
Statutory Provisions:
(a)
Section 65 (50b) defines the term ‘Goods Transport Agency’ to mean any
commercial concern which provides service in relation to transport of goods
by Road and issues consignment note, by whatever name called.
Also relevant is the definition of the term “Goods Carriage” given vide
Section 65 (50a) of the Act and of the same term as well as the term “Motor
Vehicle” given vide Section 2 (14) and 2 (28) respectively of the Motor
Vehicle Act, 1988.
15.2
(b)
Section 65 (115)(zzp) defines the term ‘Taxable services’ to mean any service
provided to a customer, by a Goods Transport Agency, in relation to transport
of goods by Road in a Goods Carriage.
(c)
Section 67 of the Act defines the term ‘Value of Taxable Services’ as the
gross amount charged by the Service provider for services rendered by him.
Scope of the Levy:
Any Commercial concern providing service in relation to transport of goods by road
and issuing consignment note, by whatever name called, are covered under this
category. The Service-tax would be payable on the gross amount charged by such
goods transport agency.
15.3
Inclusions:
a) Transport companies carrying goods by road on behalf of another person and
issuing a consignment note;
b) Road transport Corporations of the various States.
15.4
Exclusions:
a) Goods Transport agency / operators not issuing any consignment notes or such
like document while undertaking the transportation of goods by road on behalf of
the customer;
29
b) Transportation of goods by road through the vehicles other than goods carriage;
c) Transportation of goods by the Factory Owner employing its own vehicle like
truck, tempo etc.
15.5
Exemptions/Abatements:
Refer Chapter 23
15.6
COMMENTS:
15.6.1 The Board, vide its Circular dated 10.09.2004, has clarified as under:
“In pursuance to an agreement between the Government and representatives of the
transport industry, a Committee has been set up to look into appropriate
mechanism/modalities for collection and payment of service tax by commercial
concerns and the rules/notifications will be finalized in consultation with the
Committee. The Committee would give its report within two months. In terms of the
agreement, the tax would be levied and collected in a manner to be notified. No tax
would, therefore, be payable by the goods transport agency till such time Government
comes out with the relevant rules/notifications prescribing the modalities for levy and
collection.”
15.6.2 Though, the announcement has been greeted with a sigh of relief by the trade and
Industry, the legality of the same remains a question mark. The Board is not
empowered under the Act to freeze the levy of Service-tax on any taxable service in
such a manner and by issuing such executive instructions. As the levy has already
become effective from 10.09.2004, it would have been advisable to issue an
exemption Notification granting total exemption to the Goods Transport Agencies till
the issue is finally resolved. Such notification can be rescinded at any time.
15.6.3 However, by suspending the levy in such a manner, the Board has, unfortunately, not
only, acted in excess of powers vested in it under the law but has also set a bad
precedent by acting in such a casual, arbitrary and ad hoc manner.
30
CHAPTER : 16
EXPANSION OF SCOPE OF EXISTING TAXABLE SERVICES:
16.1
Besides extending the scope of the levy of Service Tax to various new services, the
scope of certain existing taxable services (mentioned herein-below) was also widened
by amending the statutory definitions thereof vide the Finance (No.2) Act, 2004:
(i) Banking and Financial Service;
(ii) Business Auxiliary Services;
(iii) Cable Services;
(iv) Commission or Installation Services;
(v) Stock Brokers Services;
(vi) Tour Operators Services;
(vii) Life Insurance Services.
16.2
The amendments so made have become effective from 10.9.2004 and all the taxable
services covered within the scope of the amended provisions would attract Service
Tax @ 10% plus 2% Education Cess thereon w.e.f. 10.9.2004.
16.3
The scope and implications of the said amendments are discussed in the following
Chapters.
31
CHAPTER 17:
BANKING AND FINANCIAL SERVICES:
17.1. Statutory Provisions:
(a)
Section 65 (12) of the Act, prior to its amendment w.e.f. 10.9.2004, included
the following entities as “service providers” in relation to Banking and other
Financial services viz.
(i) Banking Company;
(ii) Financial Institution including Non-banking Financial Company;
(iii) Any other Body Corporate;
(iv) Foreign Exchange Broker other than those covered under (i) to (iii) above;
17.2
(b)
After its substitution vide Finance (No.2) Act, 2004 w.e.f. 10.9.2004, the
“Commercial Concern” have also been included within the scope of the
“Service providers” under Section 65 (12) of the Act.
(c)
The scope of taxable services mentioned in Section 65 (12) has also been
further expanded w.e.f. 10.9.2004 by including therein the services viz. Other
Financial Services viz. Lending; Issue of Pay Order, Demand Draft, Cheque,
Letter of Credit and Bill of Exchange; providing Bank Guarantee, Overdraft
facility, Bill discounting facility, Safe Deposit Locker, Safe Vaults; Operation
of Bank Accounts.
(d)
Section 65 (105) (zm) of the Act defines the term “taxable services” to mean
any service provided to a customer, by a Banking Company or a Financial
Institution including a Non-banking Financial Company, or any other Body
Corporate or Commercial Concern in relation to Banking and other Financial
services.
(e)
Section 67 of the Act defines the term “value of taxable service” as gross
amount charged by the service provider for the services rendered by him.
However, vide Explanation 2 to Section 67, the “interest on loans” have been
excluded from the value of taxable service.
(f)
Sub-sections (10), (11), (45), (74), (14) and (46) of Section 65 of the Act
defines the terms ‘Banking’, ‘Banking Company’, ‘Financial Institution’,
‘Non-banking Financial
Company’ & ‘Foreign Exchange Broker’
respectively.
Scope of the Levy:
A major consequence of the expansion of category of “service providers” by
inclusion of the term “commercial concern” in the substituted Section 65 (12) is that
the Co-operative Banks hitherto not covered under the levy have also become liable
to pay Service Tax w.e.f. 10.9.2004.
32
Similarly, the scope of taxable service has also been significantly widened by tapping
the core banking activities like lending, issue of cheque/demand drafts etc, providing
bank guarantee/overdraft facility/safe deposit lockers etc. and even operation of Bank
accounts.
17.3
17.4
Inclusions:
(a)
All nationalized banks, private banks, co-operative banks and scheduled
banks
(b)
All types of non-banking financial companies providing the specified
services;
(c)
Financial institutions providing the specified services;
(d)
Other body corporates like private limited, public limited company or a
Government company provided the same are either a Banking Company or
Non-banking Financial Company or a Financial Institution.
(e)
Commercial concerns;
(f)
Foreign Exchange Broker.
Exemption/Abatement:
17.4.1 In terms of Explanation 2 to Section 67, the amount of interest on loans will not be
includible for the purpose of determination of value of taxable services provided
under this category, amongst others.
17.4.2 Vide Notification No. 29/2004-ST dated 22.9.2004, the amount of interest charged in
respect of overdraft facility, cash credit facility or discounting of bills, bills of
exchange or cheques have been exempted from the payment of Service Tax subject to
the condition that the said interest amount is shown separately in an invoice, bill or
challan issued for this purpose.
However, a question may arise here as to whether the Notification will be effective
from 10.9.2004 or from 22.9.2004 in the absence of any retrospective effect given
thereto ?
17.4.3 Vide Notification No. 13/2004-ST dated 10.9.2004, the services provided to
Central/State Government in relation to collection of any duties/taxes levied by the
Central/State Government have been wholly exempted from payment of Service Tax.
17.4.4 Also refer Chapter 23.
33
CHAPTER : 18
BUSINESS AUXILIARY SERVICES
18.1
Statutory Provisions:
(a)
Section 65 (19) of the Act as substituted by the Finance (No.2) Act, 2004
w.e.f. 10.9.2004 defines the term “Business Auxiliary Service” so as to mean
any service in relation to, (i)
Promotion or marketing or sale of goods produced or provided by or
belonging to the client; or
(ii)
Promotion or marketing of services provided by the client; or
(iii)
Any customer care service provided on behalf of the client; or
(iv)
Procurement of goods or services, which are inputs for the client; or
(v)
Production of goods on behalf of the client; or
(vi)
Provision of service on behalf of the client; or
(vii)
A service incidental or auxiliary to any activity specified in sub-clauses (i)
to (vi), such as billing, issue or collection or recovery of cheques,
payments, maintenance of accounts and remittance, inventory
management, evaluation or development of prospective customer or
vendor, public relation services, management or supervision
- and includes services as a commission agent but does not include any
information technology service and any activity that amounts to
‘manufacture’ within the meaning of clause (f) of Section 2 of the CEA.
18.2
(b)
Section 65 (105) (zzb) defines the term “taxable service” as “any service
provided to a client, by a commercial concern in relation to business auxiliary
service’.
(c)
Section 67 of the Act defines the term ‘value of taxable service’ so as to mean
the gross amount charged by the service provider for the services rendered by
him.
Scope of the Levy:
18.2.1 The scope of the levy of Service Tax under this category has been significantly
widened by budgetary amendments made through Budget, 2004. This has been done
either by withdrawing the exemption hitherto available to the persons providing
specified taxable services under this category or by amending the statutory definition
of the term ‘Business auxiliary service’.
34
18.2.2 The exemption available to commission agents vide Notification No. 13/2003-ST
dated 20.6.2003 has been restricted to the commission agents providing services in
relation to sale or purchase of agricultural produce w.e.f. 9.7.2004 consequent to
amendment made to the said Notification vide Notification No. 8/2004-ST dated
9.7.2004.
18.2.3 The following three services have been included under this category w.e.f. 10.9.2004
vide The Finance (No.2) Act, 2004 viz.
(i) Procurement of goods or services, which are inputs for the client;
(ii) Production of goods on behalf of the client (unless the activity amounts to
‘manufacture’ within the meaning of Section 2 (f) of the Act).
(iii) Provision of service on behalf of the client.
18.3
Inclusions:
In addition to services covered under this category till the announcement of Budget,
2004, the following new services and/or service providers have also been subjected to
levy of Service-tax on or after 9.7.2004 or 10.9.2004, as the case may be:
18.4
(a)
Persons providing services in relation to procurements of goods or services,
which are inputs for the client. Thus, the indenting agents and the persons
providing such services would be liable to pay Service Tax after 10.9.2004.
(b)
Persons who are engaged in production of goods on behalf of the client not
amounting to ‘manufacture’ within the meaning of Section 2 (f) of the Central
Excise Act, 1944.
(c)
Persons engaged in making provision of service on behalf of the client.
(d)
Other Auxiliary services relating to procurement, inventory, production of
goods or provision of service rendered on behalf of the client.
(e)
Commission agent providing services in relation to sale or
services.
purchase of
Exclusions:
(a)
Production of goods on behalf of the client if the process involved amounts to
‘manufacture’ within the meaning of Section 2 (f) of CEA.
(b)
Information technology service i.e. service in relation to designing,
developing, or maintaining of computer software, or computerized data
processing or system networking or any other service primarily in relation to
operation of computer systems (Explanation to Section 65 (19) of the Act
refers).
35
18.5
Exemptions/Abatements:
18.5.1 Vide Notification No. 13/2003-ST as amended by Notification No. 8/2004 ST,
services provided by a commission agent in relation to sale or purchase of agricultural
produce have been wholly exempted from the payment of Service Tax.
18.5.2 Vide Notification No. 8/2003-ST dated 20.6.2003 as amended by Notification
No.12/2004-ST dated 10.9.2004, taxable services provided by a call center or a
medical transcription center to a client have been wholly exempt from the payment of
Service Tax.
18.5.3 Vide Notification No. 14/2004-ST dated 10.9.2004, specific exemptions have been
provided as under:
(a) Taxable services viz.
(i)
Procurement of goods or services which are inputs for the client; or
(ii)
Production of goods on behalf of the client or
(iii)
Provision of services on behalf of the client; or
(iv)
A service incidental or auxiliary to any activity in (i) to (iii) above.
provided by a commercial concern other than –
(1) A factory registered under or governed by the Factories Act, 1948;
(2) A Company established by or under the Companies Act, 1956;
(3) A Partnership firm (registered or unregistered)
(4) A Society registered under the Societies’ Registration Act, 1860 or any
other law;
(5) A co-operative Society established under any law;
(6) A corporation established under any law; or
(7) A body corporate established under any law
have been wholly exempt from payment of Service Tax.
In other words, individuals, sole proprietory concern or HUF providing the
aforesaid four services have been wholly exempt vide this Notification.
(b) Any commercial concern, irrespective of the status thereof i.e. whether
individuals, sole proprietory concern, partnership firm, company, registered
factory etc. providing any or all of the above four types of services are wholly
exempt under this Notification provided the Services relate to agriculture,
printing, textile processing or education.
18.5.4 Also refer Chapter 23.
36
18.6
Comments:
18.6.1 The services under the category of ‘Business Auxiliary Service’ are taxable only if
the same are provided by a ‘commercial concern’ in view of the provisions of Section
65(105)(zzb) of the Act.
The question that arises here is as to whether the term ‘commercial concern’ takes
within its ambit individual or sole proprietory concern ? The term ‘commercial
concern’ has not been defined anywhere in the Act. However, the term can be
explained so as to mean a concern engaged in or connected with commerce.
Here, it will be advantageous to refer to a following paragraph in the judgement in
the case of Gannon Dunkerley & Co. (Madras) Ltd. V/s. State of Madras – 1954 (15)
STC 216 – Mad:
“ ‘Trade’ has been explained, to quote the passage where it was considered in the
Concise Oxford Dictionary as ‘business, especially mechanical or mercantile
employment as opposed to profession carried on as means of livelihood or profit’.
The meaning of commerce as given by the Concise Oxford Dictionary is “exchange of
merchandise, especially on large scale”. In ordinary parlance, trade and commerce
carry with them the idea of purchase and sale with a view to make profit. If a person
buys goods with a view to sell them for profit, it is an ordinary case of trade. If the
transactions are on a large scale it is called commerce. Nobody can define the
volume of business, which would convert a trade into commerce. But everybody
understands the distinction between the two with sufficient vagueness”.
18.6.2 At this stage, it is worth its while to mention that under the Finance Act, 1994 as
amended, the taxable service providers have been described as person, commercial
concern, concern, agency, institute, establishment etc. at different places.
18.6.3 Nevertheless, it appears that the intention of the Government is not to subject the
individuals providing taxable services to levy of Service Tax. For instance, in the
context of “installation and commissioning agency’s service”, the taxable service
provided by any such agency other than a commercial concern has been exempted
from payment of Service Tax vide Notification No. 18/2003-ST dated 21.8.2003.
In the context of this Notification, the Board, vide its Circular No. 62/11/2003-ST
dated 21.8.2003 has clarified that commission or installation services provided by an
individual will be exempt from the Service Tax.
37
18.6.4 Similar exemptions have been provided in respect of the following taxable services
if rendered by individuals:
(i)
Photography – still photography service provided by a service provider other
than a commercial concern i.e. individual professional photographer
(Notification No. 6/2001-ST dated 9.7.2001 as amended by 13/2001-ST dated
27.12.2001).
(ii)
Videotape production - service in relation to videotape production provided
by individual professional videographers (Notification No. 7/2001-ST dated
9.7.2001).
(iii)
Individuals providing services relating to commercial coaching and training at
the premises of the service receiver (vide CBEC Circular No 59/8/2003 dated
20.6.2003).
18.6.5 It can therefore be concluded that if an individual is providing any taxable service,
say as ‘commission agent’ without any establishment and/or employing labour and
such service can be construed as means of earning livelihood for him, he may not be
included in the term ‘commercial concern’ and hence not subject to levy of Service
Tax under this category i.e. ‘Business Auxiliary Service’.
18.6.6 However, it is pertinent to note here that there has been no categorical clarification by
the Board stating that the term ‘commercial concern’ used in relation to any taxable
service would not include “individuals” and therefore, such individuals would be out
of the purview of the levy per se and it is not even necessary to exempt them.
Therefore, the above inference can be contested by the department.
18.7.1 Yet another litigation-prone amendment made in respect of ‘Business auxiliary
Service’ relates to inclusion of “service in relation to production of goods on behalf
of the client (except where the activity amounts to ‘manufacture’ within the meaning
of Section 2 (f) of CEA)”.
As is evident, the amendment has far reaching consequences and the net cast by it
may take within its ambit a large number of activities carried on by the job workers –
small or big – situated in every nook and corner of the country.
18.7.2 Prima-facie, it appears that any person undertakes any work/processing on job work
basis on any material supplied by the customer and if such work/processing does not
amount to ‘manufacture’ within the meaning of Section 2 (f) of the CEA, the charges
collected in respect of such job work will attract the levy of Service Tax w.e.f.
10.9.2004.
18.7.3 Since the exception provided in relation to this clause is only in respect of that
activity which amounts to ‘manufacture’ under Section 2 (f) of CEA, it will be
necessary to understand the meaning of this term in light of the statutory provisions
and judicial pronouncements.
38
18.7.4 The term “manufacture” has been defined in an inclusive manner vide Section 2 (f) of
CEA. The relevant portion of the statutory definition given under Section 2 (f) reads
as under:
“Manufacture” includes any process –
(i)
incidental or ancillary to the completion of a manufactured product;
and
(ii)
which is specified in relation to any goods in the Section or Chapter
notes of the First Schedule to the Central Excise Tariff Act, 1985 (5 of
1986) as amounting to manufacture or;
(iii)
which, in relation to the goods specified in the Third Schedule,
involves packing or repacking of such goods in a unit container or
labeling or re-labelling of containers including the declaration or
alteration of retail sale price on it or adoption of any other treatment on
the goods to render the product marketable to the consumer,
and the word “manufacturer” shall be construed accordingly and shall include not
only a person who employs hired labour in the production or manufacture of
excisable goods, but also any person who engages in their production or manufacture
on his own account”.
18.7.5 In view of the inclusive definition of the term “manufacture”, which process would
amount to ‘manufacture’ so as to attract the levy of Excise duty has always been a
subject matter of dispute between the manufacturer of goods and the Central Excise
department. It is therefore necessary to refer to a few historic judgements of the
Hon’ble Supreme Court interpreting and explaining the term “manufacture” as used
under Section 2 (f) of CEA.
1.
Union of India V/s. DCM Ltd. – 1977 (1) ELT J 199 (SC):
“The word ‘manufacture’ used as a verb is generally understood to mean as
“bringing into existence a new substance” and does not mean merely “to
produce some change in a substance”, however minor in consequence the
change may be. This distinction is well brought about in a passage thus
quoted in Permanent Edition of Words and Phrases, Vol.26, from an
American Judgement. The passage runs thus :“Manufacture implies a change, but every change is not manufacture
and yet e very change of an article is the result of treatment, labour and
manipulation. But something more is necessary and there must be
transformation; a new and different article must emerge having a distinctive
name, character or use”.
39
15. It is helpful to consider also in this connection the ordinary meaning of
the word “goods”. For, by the very words of the Central excise and Salt Act,
1944, excise duty is leviable on “goods”. The Act itself does not define
“goods” but define “excisable goods as meaning” “goods specified in the
First Schedule as being subject to a duty of excise and includes salt”. On the
meaning of the word ‘goods’ an interesting passage is quoted in the Words
and Phrases, Permanent Edition, Vol.18 from a judgment of a New York
Court thus :“The first exposition I have found of the word “goods” is in Bailey’s
Large dictionary of 1732, which defines it simply “merchandise”’ and by
Johnson, who followed as the next lexicographer it is defined to be movable in
a house; personal or immovable estates; wares; freight; merchandise.”
16.
Webster defines the word “goods” thus :-
“Goods, noun, plural; (1) movables; household furniture; (2) Personal
or movable estate, as horses, cattle, utensils, etc., (3) Wares; merchandise;
commodities bought and sold by merchants and traders.”.
17.
These definitions make it clear that to become “goods” an article must
be something which can ordinarily come to the market to be bought and sold.
18.
These considerations of the meaning of the word “goods” provides
strong support for the view that “manufacture” which is liable to excise duty
under the Central Excises and Salt Act, 1944 must be the “bringing into
existence of a new substance known to the market”.
2.
Union of India V/s.Parle Products Pvt. Ltd., - 1994 (74) ELT 492 (SC)
“The question whether the process involved in converting the “aluminiumfoil” into “paper-backed aluminium-foil” amounts to manufacture within the
meaning of S. 2 (f) of the Central Excise and Salt Act, 1944, or not, turns
upon whether as a result of the application of the process a new and
commercially distinct article, known to the market as such, emerges at the
end. This, in turn, depends upon the evidence as to the requisite
transformation of the goods into a new and different article having distinct
identity and character or use. Unless this occurs, the process, however,
elaborate it might otherwise be, would not graduate itself into ‘manufacture’.
The article that results from applying the process must be commercial known
as another and different article.
40
Such a question can be decided on evidence as to how the article is known and
recognized by those in the trade, industry or commerce dealing with the
article. The finding of the court must be based on such evidence and not on
its own perceptions of the matter”.
3.
Ujagar Prints & Ors. V/s. Union of India –1988 (38) ELT 535(SC);
“The prevalent and generally accepted test to ascertain that there is
‘manufacture’ is whether the change or the series of changes brought about
by the application of processes take the commodity to the point where,
commercially, it can no longer be regarded as the original commodity but is,
instead, recognized as a distinct and new article that has emerged because of
the result of the processes. There might be border-line cases where either
conclusion with equal justification be reached. Insistence on any sharp or
intrinsic distinction between ‘processing’ and ‘manufacture’, results in an over
simplification of both and tends to blur their interdependence in cases.”
4.
Empire Industries Ltd. V/s. UOI – 1985 (20) ELT 179 (SC);
“To constitute manufacture it is not necessary that one should absolutely make
out a new thing because it is well-settled that one cannot absolutely make a
thing by hand in the sense that nobody can create matter by hand, it is the
transformation of a matter into something else and that something else is
question of degree, whether that something else is a different commercial
commodity having its distinct character, use and name and commercially
known as such. In other words, if by application of labour and skill an object
is transformed to the extent that it is commercially known differently, it will
suffice to say that manufacture has taken place for the purpose of Central
Excise. The degrees of transformation and labour and skill spent are
irrelevant. Therefore, the question of whether a particular process is a process
of manufacture or not, has to be determined naturally having regard to the
well known test laid down by the Supreme Court in various decisions.
The word “produce” appearing in Entry 84 of List I of Seventh Schedule to
the constitution is used in juxtaposition with the word “manufacture” and
used in connection with the duties of Excise which contemplates some
expenditure of human skill and labour in bringing the goods concerned into
condition which would attract the duty. It is not required that the goods would
be manufactured in the sense that raw material should be used to turn out
something all to different. It would still require that these should be produced
in the sense that some human activity and energy should be subjected to some
processes in order that these might be brought to the state in which they might
become fit for consumption. Therefore the transformation of a product to the
extent that it becomes commercially different commodity is sufficient to
attract levy of Excise duty.
41
The taxable event for Central Excise is the manufacture of excisable goods
and the moment there is a transformation into a new commodity commercially
known as a distinct and separate commodity having its own character, use and
name, whether be it the result of one process or several processes
“manufacture” takes place and liability to duty is attracted. The sale or the
ownership of the end-product is absolutely irrelevant for the purpose of
taxable event under the Central Excise”.
18.7.6 On the other hand, the word “production” is much wider in scope than the word
“manufacture”. In CIT V/s. N. C .Budharaja & Co. AIR 1993 SC 2529, the Hon’ble
Supreme Court held that the word ‘production’ has a wider connotation than the
word ‘manufacture’. Every ‘manufacture’ can be characterized as ‘production’, but
every ‘production’ need not amount to manufacture. When the word ‘producer’ or
‘production’ is used in juxtaposition with the word ‘manufacture’, it takes in bringing
into existence new goods by a process which may or may not amount to manufacture.
It also takes in all by products, intermediate products and residual products, which
emerge in the course of manufacture of goods. Thus, waste, scrap and by-products
are dutiable even if they are not manufactured, as they are ‘produced’.
Thus, the word ‘produced’ covers (a) Items like coffee, tea, tobacco, coal, dairy
products, ores etc. which are ‘produced’ (b) The word “Produced’ can also cover live
products like horse, fish, flowers etc. which are ‘produced’ (c) By-products, scrap etc.
which are not really ‘manufactured’ but they do get ‘produced’”.
18.7.7 Therefore, the question whether a particular process amounts to ‘manufacture’ or not
within the meaning of Section 2 (f) of CEA shall be considered and resolved in light
of the tests laid down by the aforesaid judicial pronouncements, amongst others and
then only, it shall be ascertained as to whether the activity will attract the levy of
Service Tax or Excise duty.
18.7.8 It is further clarified here that if any process/activity amounts to ‘manufacture’
within the meaning of Section 2 (f) of CEA, then no Service tax will be attracted in
respect thereof notwithstanding the fact that the person undertaking such
process/activity is not required to pay Excise duty either on account of exemption
granted under the Notification issued under the law or the tariff rate being prescribed
as ‘Nil’ in respect of the product emerging as a result of such process/activity. In
other words, the actual payment of Excise duty is not required to escape the levy of
Service Tax in respect of a process/activity undertaken on job work basis and it is
sufficient if such process/activity amounts to ‘manufacture’ under Section 2 (f) of the
CEA.
42
CHAPTER : 19
CABLE SERVICES:
19.1
Statutory Provisions:
a) Section 65(2) of the Act adopts the definition of the term “Cable Operator” given
vide Section 2(aa) of Cable Television Networks (Regulation) Act, 1995;
b) Section 65(22) of the Act defines the term “Cable Services” to mean the
transmission by cables of a programme including retransmission by cable of any
broadcast television signals”.
c) Section 65(105)(zs) of the Act defines the term “Taxable Services” to mean any
service provided to any person, by a cable operator, including multi system
operator, in relation to cable services;
d) Section 67 of the Act defines the term “Value of Taxable Services” as gross
amount charged by the service provider i.e. the Cable Operator including multi
system operator.
19.2
Scope of the levy:
In Cable TV Services, the Broadcasting channels transmit television signals to Multisystem Operators (MSO) who further send them to the Cable Operators. Now, the
services provided by the MSOs to the Cable Operators have also been made taxable.
19.3
Inclusions:
a) MSOs transmitting signals directly to the customers;
b) MSOs transmitting signals to sub-cable operators who retransmits the same to
various subscribers. In this case, both, MSO and Sub-Cable Operators will be
liable to pay service-tax. However, the credit of service tax paid by Cable
Operators to MSO will be available.
19.4
Exclusions:
a) Installation charges recovered from the Customers towards the cost of cables.
b) Entertainment tax leviable under any local law provided the same is separately
indicated to in the bill raised on the customer.
c) Advertisement charges collected by the MSOs or Cable Operators for exhibiting
advertisements.
19.5
Exemptions/Abatement:
Refer Chapter 23.
43
CHAPTER: 20
COMMISSION OR INSTALLATION SERVICE:
20.1
The statutory definition of “Commission or Installation Service” has been amended to
specifically include “Erection” therein w.e.f. 10.09.2004.
20.2
Statutory Provisions:
a) Section 65 (39a) defines the term “Erection, Commissioning or Installation” to
mean any service provided by a Commissioning and Installation agency in
relation to erection, commissioning or installation of plant, machinery or
equipment.
b) Section 65(29) defines the term “Commissioning and Installation Agency” to
mean any agency providing any service in relation to erection, commissioning or
installation.
c) Section 65(105)(zzd) of the Act defines the term “Taxable Service” to mean any
service provided to a customer by a commissioning and installation agency in
relation to erection, commissioning or installation.
d) Section 67 defines the term “Value of Taxable Service” as gross amount charged
by the Service Provider. Vide clause (vii) of Explanation 1 to Section 67, the cost
of parts or other material, if any sold to the customer during the course of
providing this service is required to be excluded.
20.3
Scope of the levy:
Service-tax was levied on commissioning or installation of plant, machinery or
equipment w.e.f. 01.07.2003. The scope of this taxable service has now been
expanded to include “Erection” also. The Service-tax will be payable on the gross
amount charged by the Commissioning and Installation Agency to its client.
However, the cost of parts or other material, if any, sold to the customer during the
course of providing the service would be excluded.
20.4
Inclusions:
a) Drawing and designing work in relation to erection and installation carried out by
on Commissioning and Installation Agency.
b) Erection, installation or commissioning of plant, machinery or equipment.
44
20.5
Exclusions:
a) Drawing and Designing work carried out by any person other than Commission &
Installation agency. [However, such services may attract the levy of service tax
under the category of “Consulting Engineers”].
b) Erection, Commission or Installation of items other than Plant, Machinery or
Equipment.
c) Composite Contracts involving Erection, Commissioning and Installation
d) Erection, Commission or Installation services provided by an individual.
20.6
Exemptions/Abatements:
Refer Chapter 23
20.7
COMMENTS:
20.7.1 Vide Circular dated 20.06.2003 as modified vide subsequent Circular dated
21.08.2003, the Board had clarified that the charges for erection activities other than
Commissioning and Installation per se, will not be chargeable to service tax on only
“C & I” are made taxable.
20.7.2 However, w.e.f. 10.09.2004, “Erection” has specifically been included under this
taxable category.
20.7.3 Vide the above Circular, the Board has further clarified that in case of turnkey
project, if no separate value is assigned to Commissioning or Installation of goods,
the service tax would be leviable on the consolidated amount.
20.7.4 However, this clarification by the Board may not stand the scrutiny of law. While
dealing with almost an identical issue in the context of levy of service tax on
“Consulting Engineers”, the Appellate Tribunal, in the case of Dailion Industrial Co.
Vs. C.C.E. – 2003 (155) ELT 457, observed as under:“A perusal of the clauses of the contract leaves no doubt that the appellant contract
with IOC was a work contract on turnkey basis and not a consultancy contract. It is
well settled that a work contract cannot be vivisected and part of it subjected to tax.
The impugned orders have proceeded to do precisely that. Therefore, they are
required to be set aside.”
The ratio laid down in this judgement squarely applies in the case of Turnkey project
involving Erection, Commissioning & Installation. It is also significant to note here
that the judgement of the Tribunal in Dailion Industrial Co.’s case stands upheld by
the Supreme Court vide 2004 (17) ELT A181 as the SLP filed by the Department has
been dismissed.
20.7.5 Also refer Chapter 23.
45
CHAPTER : 21
STOCK BROKERS:
21.1
Statutory Provisions:
a) Section 65 (101) defines the term “Stock-broker” to mean a person, who has
either made an application for registration or is registered as a stock-broker or
sub-broker, as the case may be, in accordance with the rules and regulations made
under the Securities and Exchange Board of India Act, 1992;
b) Section 65(105)(a) defines the term “Taxable Service” to mean any service
provided to any person, by a stock-broker in connection with the sale or purchase
of securities listed on a recognized stock exchange;
c) Section 67 defines the term “Value of Taxable Service” to mean the gross amount
charged by the service provider i.e. stock broker for services provided by him.
Explanation 1(a) to Section 67 provides that the “Value of Taxable Service” shall
include the aggregate of commission or brokerage charged by a broker on the sale
or purchase of securities including the commission or brokerage paid by the
stock-broker to any Sub-broker.
21.2
Scope of the levy:
“Stock-broking services” was one of the three services subjected to levy of Servicetax when it was first introduced in 1994. However, for almost a decade, the levy was
confined to only “Stock-brokers” and the “Sub-brokers” remained outside the scope
of the levy. In fact, the Board, vide its Circular dated 19.10.2004, had clarified that
“Sub-brokers” were not covered by the levy of Service-tax. However, the definition
of “Stock-broker” has now been amended to include “sub-brokers” also w.e.f.
10.09.2004. The Service-tax will be payable on the aggregate of commission or
brokerage charged by the Stock-broker including that paid to any Sub-broker.
21.3
Inclusions:
a) Stock-brokers (including Sub-brokers) registered as such or who have applied for
registration under SEBI Act, 1992;
b) Services provided to any person by the Stock-broker or Sub-broker in connection
with the sale or purchase of securities listed on a recognized stockexchange.(words in bold letters substituted for “an Investor” w.e.f. 10.09.2004)
46
21.4
Exclusions:
a) Private placement charges;
b) Services on underwriters (This is separately taxable under the category of
“Underwriters” w.e.f. 16.10.1998);
c) Public Issue Consultation fee;
d) Brokerage for primary market operations;
e) Jobbing;
f) Arbitrage;
g) Own trading transactions;
h) Cases where no brokerage is charged by the stock brokers
21.5
Exemptions/Abatement:
See Chapter 23
21.6
COMMENTS:
21.6.1 W.e.f. 10.09.2004, the “Sub-brokers” have also been subjected to levy of service-tax
on the commission/brokerage earned by them. However, Sub-Brokers can avail the
credit of service tax charged to him by the main broker and utilize the same for
payment of Service-tax on commission/brokerage charged by him to client.
21.6.2 It has been held by the Appellate Tribunal in the case of Chandravadan Desai Vs.
C.C.E. – 1998 (98) ELT 515 that in cases where the Stock-brokers do not charge any
brokerage, no service-tax will be payable as there can be no levy of service-tax on
notional amount.
47
CHAPTER : 22
TOUR OPERATORS:
22.1
Statutory Provisions:
a) Section 65(115) defines the term “Tour Operator” to mean any person engaged in
the business of planning, scheduling, organizing or arranging tours (which may
include arrangements for accommodation, sightseeing or other similar services)
by any mode of transport, and includes any person engaged in the business of
operating tours in a tourist vehicle covered by a permit granted under the Motor
Vehicles Act, 1988 (59 of 1988) or the rules made thereunder.
b) Section 65(105) defines the terms “Taxable Services” to mean any service
provided to any person, by a tour operator in relation to a tour.
c) Section 67 defines the term “Value of Taxable Service” as the gross amount
charged by the service provider i.e. tour operator.
d) Also, relevant are the definitions of the following terms given vide the relevant
statute, viz.:
i) Tour (vide Section 65(113) of the Act);
ii) Tourist Vehicle (vide Section 2(43) of the Motor Vehicles Act, 1988);
iii) Contract carriage (vide Section 2(7) of the Motor Vehicles Act, 1988);
iv) Stage carriage (vide Section 2(40) of the Motor Vehicles Act, 1988);
v) Permit (Section 2(31) of the Motor Vehicles Act, 1988).
22.2
Scope of the levy:
Prior to 10.09.2004, the levy of Service-tax under this category was restricted only to
those persons who were operating tours in a tourist vehicle covered by a permit
granted under the Motor Vehicles Act.
However, w.e.f. 10.09.2004, the scope of the levy has been significantly expanded to
include all the persons who are engaged in planning, scheduling, organizing or
arranging tours (including accommodation, sightseeing or other similar Services) by
any mode of transport i.e. rail, air, waterways etc. The Service-tax will be payable on
the gross amount charged by the tour operator.
22.3
Inclusions:
a) Contract Carriage Operators;
b) Reserve vehicles used as “Contract Carriage” under special permits;
c) Services like boarding / lodging, local sight-seeing, providing tourist guides,
arrangement
for
accommodation,
reservation
for
amusement
park/Theaters/Museums etc.
48
22.4
Exclusions:
a) Stage Carriage;
b) Rent received by an owner of the tourist vehicle from tour operator for providing
the vehicle on hire;
c) Packaged tours offered by the Airlines to their customers;
d) Services rendered in respect of out-bound tours i.e. tours abroad;
e) State Roadways Corporations.
22.5
Exemptions/Abatements:
22.5.1 Vide Notification No.2/2004-ST dated 05.02.2004 as amended, an exemption of 60%
of the gross amount charged by the tour operator for the services rendered in relation
to a tour (other than package tour) has been provided subject to the conditions
prescribed therein.
22.5.2 In case of package tour, the exemption (abatement) of 60% of the gross amount
charged has been provided vide Notification No.39/97-ST dated 22.08.1997 as
amended subject to the condition laid down therein.
22.5.3 In case where the services provided relate only to accommodation, exemption of 90%
of the gross amount charged has been provided vide Notification No.40/97-ST dated
22.08.1997 as amended subject to the condition prescribed therein. In other words,
the Service-tax will be payable only on 10% of the gross amount charged in such
cases.
22.5.4 Also refer Chapter 23.
49
CHAPTER : 23:
SCHEME OF EXEMPTIONS & ABATEMENTS:
23.1
GENERAL EXEMPTIONS:
There are four general exemption notifications applicable to all taxable services
and exempting the same from the payment of whole amount of service tax payable
thereon.
The said four notifications are discussed hereinbelow:
23.2
Exemption to Services provided to U.N. and specified International
Organisations – Notification No.16/2002-ST dated 02.08.2002:
Vide Notification No.16/2002-ST ibid, total exemption from the payment of
Service tax leviable on all the taxable Services have been provided if such services
are provided to –
a) the United Nations; or
b) an International Organisation declared by the Central Government in
pursuance of Section 3 of the United Nations (Privileges and Humanities) Act,
1947 to which the provisions of the Schedule to the said Act apply.
23.3.
Exemption to Services provided to a Developer of Special Economic Zone
or a Unit of a Special Economic Zone – Notification No.4/2004-ST dated
31.03.2004:
Vide Notification No.4/04-ST ibid, the whole of the Service tax leviable on all the
taxable Services have been exempted if such services are provided to a developer
of Special Economic Zone (SEZ) or a unit (including a unit under Construction) of
SEZ subject to the conditions specified therein.
COMMENTS:
23.3.1
The exemption is available only to the Developer of SEZ or a unit (including a unit
under construction) of SEZ. Therefore, in case of taxable services provided to
100% EOU, no exemption will be available.
23.3.2
From the language of the Notification, it is evident that the exemption thereunder
will be available only if the taxable Service is consumed within the SEZ only.
Therefore, if a unit of SEZ avails the taxable services outside the Zone, exemption
will not be available.
23.4
Exemption to receipt in Foreign Exchange – Notification No.21/2003-ST
dated 20.11.2003:
Notification No.21/03-ST ibid wholly exempts all taxable services provided to any
person from the payment of Service-tax if the payment in respect thereof is
received in Convertible Foreign Exchange provided the same is not repatriated
from, or sent outside India.
50
COMMENTS:
23.4.1
Though there have been repeated announcements by the Government regarding the
proposed issue of a comprehensive set of Notifications / Rules governing various
aspects of “Export of Services”, no such Notification/Rules have been issued till
date.
The above Notification No.21/2003-ST therefore, still holds the field as on date.
23.4.2
Rule 5 of CCR, inter-alia, provides that if Cenvat Credit availed on any input or
input services and used in the final product/Intermediate product exported under
Bond/Letter of Undertaking or used for providing output Services which is
exported, then the manufacturer/output service provider will be entitled to utilize
the unutilized Cenvat Credit for the payment of Excise Duty on final products
cleared for home consumption/ export on payment of duty or service tax on output
services, as the case may be.
However, in case, such adjustment is not possible for any reason, the manufacturer
will be entitled for the refund of unutilized Cenvat Credit subject to the prescribed
conditions.
It is significant to note here that the facility of refund of unutilized Cenvat Credit
has been extended to the manufacturers of the excisable goods and not to the
output service providers. Though, this may appear to be an inadvertent omission, it
is worth noting that under the Service Tax Credit Rules, 2002, refund of Service
Tax Credit availed on input services was totally disallowed vide Rule 4 (2) thereof.
Again, the proviso to Rule 5, inter-alia, provides that no refund of credit shall be
allowed if the drawback/rebate facility has been availed by the manufacturer or
provider of output service. The mention of “provider of output service” in the
proviso is baffling, to say the least, in as much as they have been per se made
ineligible for claiming any refund under the main provisions. So much for the
drafting !
The ‘Output Service Exporters’ has been defined to mean those Services in respect
of which the payment is received in Convertible Foreign Exchange subject to nonrepatriation from or non-sending outside India.
23.5
Exemption to value of Goods & Materials sold by Service Provider –
Notification No.12/2003-ST dated 20.06.2003 as amended:
Vide Notification No.12/2003-ST ibid, the exemption to so much of the value of
all taxable Services has been provided as is equal to the value of goods and
materials sold by the service provider to the recipient of services subject to the
following conditions viz.:
51
i)
that there is documentary proof specifically indicating the value of said
goods and materials;
ii)
No credit of duty paid on such goods and materials sold has been taken
under the CCR; or
iii)
where such credit has been taken, an amount equal to the credit availed on
goods and materials sold has been paid before the sale of such goods and
materials.
COMMENTS
23.5.1
This Notification is one of the most loosely and carelessly drafted one and may
lead to a spate of litigation in future.
23.5.2
Shockingly, the Notification exempts the ‘Value of Taxable Service’!
23.5.3
The word ‘sold’ used in the notification is also a misnomer. If the goods or
materials on which Cenvat Credit (of the duty paid) has been availed and later on,
if the same are ‘sold’, the question of levy of Service tax thereon does not arise at
all. The Service Provider will be required only to pay an amount equal to the credit
availed on such goods or materials sold in term of the CCR.
However, if the goods and materials are provided/ consumed during the course of
providing any taxable service, then it cannot be said that the same have been ‘sold’
just because the value thereof has been separately indicated in the Bill.
23.5.4
Again, the condition regarding the payment reversal of Cenvat Credit prior to sale
of goods and materials will also create a lot of practical hardship. If an output
Service Provider has availed the Cenvat credit of the duty paid on any goods
purchased by him and if he claims the benefit of this Notification, then he will
have to pay an amount equal to the credit availed on goods/ materials prior to its’
sale i.e. before he raises the Sale Bill on the customer for the services provided.
23.5.5
The provisions of this notification are also worth comparing to the provisions of
Section 67 of the Act, inter-alia, providing for similar benefit in respect of a few
specified services.
Section 67 deals with the valuation of taxable services for charging Service Tax
and provides that for the purposes of the Chapter, the value of any taxable service
shall be the gross amount charged by the service provider for such service
rendered by him.
52
However, vide Explanation I thereto, it has been provided that in case of certain
specified services, the cost of materials etc. shall not be included in the value of
taxable service. The exclusions provided include the following :
(i)
The cost of unexposed photography film, unrecorded magnetic tape or
such other storage device, if any sold to the client during the course of
providing the service;
(ii)
The cost of parts or accessories or consumables such as lubricants and
coolants, if any sold to the customer during the course of service or repair
of motor cars, light motor vehicle or two wheeled motor vehicle;
(iii)
The cost of parts or other materials, if any, sold to the customers during
the course of providing maintenance or repair service;
(iv)
The cost of parts or other material, if any sold to the customer during the
course of providing erection, commissioning or installation service.
23.5.6
On careful reading of Notification No. 12/2003-ST and the aforesaid provisions of
Section 67, it will be observed that though both seek to exempt the value of parts
or materials etc. sold during the course of providing the specified taxable service,
the condition relating to non-availment of Cenvat Credit on such goods and
materials and/or the reversal of credit if so availed prescribed under the
Notification is conspicuous by its absence in Section 67. In other words, in
respect of the above specified services where the benefit of exemption in respect of
cost of materials etc. sold has been provided vide Section 67, the concerned
service provider will be entitled to avail the Cenvat Credit of the duty paid by him
on such materials and utilize the same for the purpose of payment of Service Tax
even though the cost of such materials etc. is excluded for the purpose of
determination of value of taxable service.
23.5.7
Yet another glaring difference between the provisions of Notification No.12/2003ST and Section 67 relates to the use of the term “value” in the former whereas the
use of the term “cost” in the later i.e. Section 67. The term “value” would refer
to the total amount charged by the service provider in respect of the goods and
materials sold, the term “cost” may refer to the actual cost of purchase of such
materials or the department may so interpret. Therefore, the department may
dispute the claim of the service provider for exclusion of value of the materials etc.
sold from the value of taxable service in terms of Section 67 insisting that only
“cost” thereof would be deductible. Obviously, such apparent looseness in
drafting will lead to unavoidable litigation.
53
23.6
Vide Budgetary Notification No. 18/2004-ST dated 10.9.2004 and 25/2004-ST dated
10.9.2004, the total exemption has been granted to that part of the value of the taxable
service received by the service provider prior to 10.9.2004 in respect of new services
which have been brought under the levy from 10.9.2004 and also the services in
respect of which exemption have been withdrawn after 10.9.2004.
54
CHAPTER : 24:
CONCLUSION:
24.1
The revenue from the service tax has seen the quantum leaps over the years since its
introduction in 1994. From the initial collection of Rs.410.61 Crores in 1994-95 only
from three services, the same touched to Rs.8350 Crores in 2003-04 and is projected
at Rs.14,150 Crores (including Education Cess) in 2004-05.
24.2
Needless to say, Service tax would emerge as a significant contributor to the
Exchequer in the coming years and exciting times are ahead in so far as the
enforcement of this levy is concerned.
24.3
Besides this, bold initiative taken by the Central Government to provide intersectoral credits heralds a new chapter in the field of Indirect Taxation and is, by far,
the most decisive step, in recent times, towards the proposed introduction of VAT
system in the country.
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