V S Datey
Website – http://www.dateyvs.com
Background
 Service tax introduced in July 1994 on three services –
scope expanded every year and about 117 services were
taxable in year 2011
 Practically, excluding statutory activities, basic
education, medical services and legal services by
individual advocate to individuals, all services were
taxable even prior to 1-7-2012
Classification of services
 Till 1-7-2012, service tax was based on positive list i.e.
service listed are taxed in section 65(105)
 Disputes occur due to wordings in definitions
 Hence, now service tax payable all services excluding
16 services in negative list of services w.e.f. 1-7-2012 (In
addition there is huge list of exemptions and some
activities excluded from definition of service itself)
Constitutional Background
 India, that is Bharat, shall be a Union of States
[Article 1(1)]
 Article 246 read with Seventh Schedule gives
bifurcation of powers between Union and State  List I – Union List
 List II – State List
 List III – Concurrent List
Taxation in Union List – List I
 Income Tax other than agricultural income (Entry
82)
 Customs duty (Entry 83)
 Excise Duty other than alcoholic liquor (Entry 84)
 Stamp duty on specified transactions (Entry 91)
Union List (Continued)
 Tax on advertisements in
newspapers (Entry 92)
 Inter State Sales (Entry 92A)
 Tax on Services (Entry 92C – not yet
effective)
Residual Entry in List I
 Entry 97 – Any other matter not included in List II,
List III and any tax not mentioned in list II or List III
(These are residual powers)
 Service tax is imposed under Entry 97. Thus, if a
transaction is covered under List II, service tax cannot
be imposed.
State List – List II
 Land Revenue (Entry 45), Agricultural income (Entry
46)
 Taxes on land and buildings (Entry 49), tax on mineral
rights (Entry 50)
 Excise on alcoholic liquors, opium and narcotics
(Entry 51)
 Octroi and Entry tax (Entry 52)
 Tax on consumption and sale of electricity (Entry 53)
State List II (Continued)
Sale within State, other than
newspapers (Entry 54)
Betting and gambling (Entry 34)
Tax on advertisements other than
newspapers (Entry 55)
State List (Continued)
 Tax on goods or passengers carried by road or inland
waterways [Entry 56]
 Tax on vehicles [Entry 57]
 Tolls [Entry 59]
 Professional Tax [Entry 60]
 Stamp duty [other than those under Union List) (Entry
63)
Deemed Sale of goods– Article 366(29A) –
46th Amendment - 1982
 Compulsory Sale (Now not much relevant)
 Hire purchase and financial Lease
 Transfer of right to use (Hire or operating lease)
 Goods Involved in works contract
 Sale of food articles
 Sale among unincorporated bodies
Service tax on portion of
deemed sale of goods
 Service part of Works Contract
 Service part of Food in restaurant or outdoor catering
or catering as part of other services like mandap,
shamiana, convention
 In addition, Swachh Bharat Cess payable @ 0.5% w.e.f.
15-11-2015
Overlapping of State Vat and
service tax
 Hire purchase and financial lease
 Operating Lease (Hire) –Vat and service tax in
different situations – disputes in borderline cases
 Temporary transfer of IPR – disputes in borderline
cases
 Software – entirely goods and service at one and same
time
 Entertainment and amusement
Charging section 66B
 Service tax at the rate of 14% on the value of all
services, other than those services specified in the
negative list – w.e.f. 1-6-2015 [till 31-5-2015, it was
12.36%]
 plus 0.5% Swachh Bharat Cess w.e.f. 15-11-2015
 Education Cess – Cenvat Credit after 1-3-2015
 provided or agreed to be provided
 in the taxable territory
 by one person to another and collected in such manner
as may be prescribed.
What is service [section 65B(44)]
 Any activity carried out by one person to another
for consideration
 Consideration required – may be in cash or kind
 No service tax on free services
 ‘service’ includes ‘declared service’ (deemed
service’)
 Some activities specifically excluded from
definition of ‘service’
What is not service - 1
 Activity of mere transfer of title in
goods or immovable property is not
‘service’
 Deemed sale of goods under Article
366(29A) of Constitution of India is
not ‘service’
 Mere transaction in money is not
service.
What is not service - 2
 Mere Actionable claim – claim of debt or beneficial
interest in movable property, lottery ticket – it is not
service
 Service - employee to employer – not ‘service’, but
service provided by employer to employee is taxable
e.g. transport, telephone
 Fees paid to Court or Tribunal is not service
 Services of MP, MLA is not service
Mere transaction in money is
not service
 Any legal tender (Indian or foreign currency) is
‘money’
 Transaction may be by cash, cheque, promissory note,
DD, LC, money order, electronic transfer
 Dividend, loans, deposits, repos, reverse repos is mere
transaction in money
Transfer of title in goods or
immovable property
 Simple sale of goods or immovable
property not service
 Goods include securities
 Sale purchase of securities (shares,
derivatives) not taxable
 Forward contracts, future contracts not
taxable
Grant or Donation is not service
 Grant stipulating merely proper usage of
funds and furnishing of account also will not
result in making it a provision of service.
 Donations are not consideration unless the
receiver is obligated to provide something in
return
 Thin distinction between sponsorship and
donation
Negative List of Services
 Statutory Services by Government, RBI, foreign
diplomatic missions
 Agriculture related services
 Trading is not service
 Activity that results in ‘manufacture’ of goods is not
‘service’ – except alcoholic liquor
 Sale of space for Advertisement in print media
Negative List (Continued)
 Toll charges (but service for collection of toll is
taxable)
 Transmission and Distribution of Electricity
(Electricity is goods – hence no service tax)
 Recognised Educational services, training in arts,
culture, sports – no tax on midday meals and school
bus services
Negative List (Continued)
 Renting for residential purposes
 Interest and inter se sale or purchase of foreign
currency among Banks and authorised dealers not
taxable
 Other banking services taxable
 Passenger transport except in tourist vehicles and tour
operators
Negative List (Continued)
 Transport of goods by road (except GTA, Courier) – tax
on GTA on 30% of value w.e.f. 1-4-2015
 No service tax on freight on import of goods by air or
vessel
 Tax on rail transport on 30% value – payable by
railways
 Funeral related services not taxable
Declared Services
 Renting of immovable property,
construction, software, hiring, leasing, hire
purchase, service portion of works contract,
service portion of supply of food are
‘declared services’ [section 66E]
 [really some of these are ‘deemed services’ as
these are partly covered under List II i.e.
State List]
Exemptions – Notification No.
25/2012-ST dated 20-6-2012
 Exemptions apply to SBC also
 Medical services, Ambulance services
 Specified Charitable activities
 Religious ceremony and renting of religious places
 Individual advocate and firm of advocates to non-
business entity is exempt – if provided to business
entity – the business entity is liable
 Recreation relating to arts, culture, sports
Exemptions (Continued)
 Copyright, performing arts, sportsman (but not
brand ambassador), sports sponsorship
 Job work of agriculture, textile processing,
diamonds and gemstones – but not of alcoholic
liquor
 Job work - where principal manufacturer is paying
excise duty
 Society to its members upto Rs 5,000 p.m.
 Infrastructure related services
Exemptions (Continued)
 Hotels, guest houses with less than Rs 1,000
per day tariff
 Restaurants without AC or central heating
 Goods transport upto Rs 750 per consignee
 Sub brokers, authorised persons
Small Service provider
 Exemption if value of taxable services
provided in previous financial year did not
exceed Rs 10 lakhs
 Clubbing provisions applicable
 Service should not be under brand name of
other
 Exemption applies to SBC also
Exemption only to main service
 Reference of main service shall not include
reference to a service which is used for
proving that main service [section 66F(1)]
 Thus, even if main service is exempt,
ancillary service or services of subcontractors may not be exempt
 Exception is back to back works contract
service
Thanks
 Thanks
 Website – www.dateyvs.com