NEGATIVE LIST BASED TAXATION
OF SERVICES
S B GABHAWALLA & CO.
CONCEPTUAL
FRAMEWORK
Framework:
Dissecting the “Charge”..
Service Tax shall
be levied at 12%
on the value
of all services
other than those
services specified
in the negative list
provided or
agreed to be
provided
in the taxable
territory
by one person to
another
and collected in
such manner as
may be
prescribed
S B GABHAWALLA & CO
The Elements..
Service
Territory
Service
Provider
Person Liable
to Pay Tax
Value
S B GABHAWALLA & CO
Service
Recipient
Definition of Service
Service
means
shall not
include
and includes
any activity
carried out by
a person for
another
declared
service
any activity
which
constitutes
merely
provision of
service by
employee to
employer
fees taken
by Court or
Tribunal
transfer of title in goods or
immoveable property
for
consideration
S B GABHAWALLA & CO
Transaction of
Deemed Sales
transaction in
money or
actionable claim
SERVICE MEANS….
S B GABHAWALLA & CO.
Service means
Activity
A Person
(Service Provider)
Another Person
(Service Recipient)
Consideration
Enforceable
Contract
S B GABHAWALLA & CO
DIVISIBLE VS. INDIVISIBLE CONTRACTS:
SIMPLE EXAMPLE
Product
VAT
Rate
Case 1
(Grocery Store)
Case 2
(Eating House)
Bread
0.00%
50.00
0.00
Butter
12.50%
50.00
6.25
Tomatoes
0.00%
25.00
0.00
Sandwich
4.00%
TOTAL
125.00
6.25
125.00
5.00
125.00
5.00
• Can it be said that:
• A grocery store sells a sandwich ?
• A eating house sells bread, butter & tomatoes ?
8
S B GABHAWALLA & CO
Composite Contracts: Judicial Thinking




A composite contract should not be vivisected to levy a tax on a
specific component of such a contract but should be analysed as
a whole
 State of Madras vs. Gannon Dunkerley & Co 9 STC 353 (SC)
Even in cases where the agreements provide for progressive
payments based on individual milestones
 Sentinel Rolling Shutters & Engg. Co. vs. CST 4 SCC 260 (SC)
Even if specific price breakup is given for individual milestones
 Daelim Industrial Co. Ltd. vs. CCE 155 ELT 457 (Tri) as approved
by SC
Even if there are separate agreements
 CIT vs. Sundwiger Empg & Co. 262 ITR 110 (AP)
S B GABHAWALLA & CO
9
SERVICE INCLUDES…
S B GABHAWALLA & CO.
Service includes declared
service
means







shall not include
renting of immovable property;
Sale of Under Construction Units
declared service
Leases & Licenses


and includes
Immoveable Property


Service
Temporary transfer or permitting the use or enjoyment of any intellectual property right;
Development, design, programming, customization, adaptation, up gradation, enhancement,
implementation of information technology software;
transfer of goods by way of hiring, leasing, licensing or any such manner without transfer of
right to use such goods;
activities in relation to delivery of goods on hire purchase or any system of payment by
installments;
agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to
do an act;
service portion in execution of a works contract;
service portion in an activity wherein goods, being food or any other article of human
consumption or any drink (whether or not intoxicating) is supplied in any manner as part
of the activity
S B GABHAWALLA & CO
Declared Services : Issues



Most of these represent an overlap with “deemed
sale”
However, deemed sales are excluded
Except in case of works contracts and catering
contracts, dominant intention is important to
determine taxability
S B GABHAWALLA & CO
Respecting the Boundaries…
Contracts
Dominant
Intention
For Service
For Sale
Composite
Works
Contracts
Transfer of
Property
Service
S B GABHAWALLA & CO
Catering
Supply of
Food
Service connected
with Supply
Deemed Sale vs. Declared Service
What is covered under Deemed Sale
Transfer of property in goods (whether as
goods or in some other form) involved in
the execution of a works contract
Delivery of goods on hire-purchase or any
system of payment by instalments
What is covered under Declared Service
service portion in execution of a works
contract
activities related to delivery of goods on
hire- purchase or any system of payment by
instalments
Transfer of the right to use any goods for transfer of goods by way of hiring, leasing
any purpose (whether or not for a specified or licensing or in any such manner without
period) for cash, deferred payment or other involving transfer of right to use goods
valuable consideration
Supply, by way of or as part of any service service portion in an activity where such
or in any other manner whatsoever, of supply of food or drinks takes place
goods, being food or any other article for
human consumption or any drink (whether
or not intoxicating), where such supply or
service, is for cash, deferred payment or
other valuable consideration
S B GABHAWALLA & CO
Service portion in execution of a works
contract

Definition:


Vivisection



Contract wherein transfer of property in goods involved in the
execution of such contract is leviable to tax as sale of goods and
such contract is for the purpose of carrying out construction,
erection, commissioning, installation, completion, fitting out, repair,
maintenance, renovation, alteration of any moveable or
immoveable property or for carrying out any other similar
activity or a part thereof in relation to such property
Value of goods liable for VAT
Service Component can be taxed under Service Tax
Goods component not a part of taxability, so credit not
available
S B GABHAWALLA & CO
Works Contract : General Concept
Contract for Sale
Contract for Work
Contract for Other
Services
Indirect Transfer of
Property in Goods
Labour Contracts
Accretion
Accession
Also WC under
Service Tax Law
Also WC under
Service Tax Law
Original Works
40%
Others
70%
60%
S B GABHAWALLA & CO
Blending
Not Works Contract
under Service Tax
Law
Works Contracts : Some Examples
Example
Income
Tax 94C
VAT –
29A
Service Tax
– 65B(44)
Treated as Works Contracts under all laws
Erection of Power Plant (on turnkey basis)
Yes
Yes
Yes
Annual Maintenance Contracts (Comprehensive)
Yes
Yes
Yes
Repairs of Motor Cars (with materials)
Yes
Yes
Yes
Treated as Works Contracts under IT & VAT Law but not under Service Tax Law
Printing Contracts
Yes
Yes
No
Photography Contracts
Yes
Yes
No
S B GABHAWALLA & CO
Works Contracts : Some Examples
Example
Income
Tax 94C
VAT –
29A
Service Tax
– 65B(44)
Treated as Works Contracts under IT Law but not under Service Tax or VAT Law
Construction Work undertaken on labour job
basis without any transfer of material
Yes
No
No
Annual Maintenance Contracts (Non
Comprehensive)
Yes
No
No
Not treated as Works Contracts under any of the laws
Sale of Computer with free installation
No
No
No
Catering Contracts
No
No
No
Software Licenses
No
No
No
S B GABHAWALLA & CO
Works Contract Valuation…
Valuation Options
Value adopted for
State VAT purposes
to be reduced
Actual Value of
materials to be
reduced
S B GABHAWALLA & CO
If not possible,
adopt presumptive
Value
…Works Contract Valuation
Nature of Works Contract
Presumptive Service Value
i) execution of original works
40% of the total amount charged
ii) Works contracts connected with
moveable properties
70% of the total amount charged
iii) works contracts, other than contracts
60% of the total amount charged
for execution of original works, including
contracts for completion and finishing
services such as glazing, plastering,
floor and wall tiling, installation of
electrical fittings.
Total amount charged to include the value of goods or services supplied
free of cost.
S B GABHAWALLA & CO
BUNDLING OF SERVICES
CORPORATE GURUKUL
Gamut of Indirect Taxes:
Macro Perspective
Contracts
Sale
Works Contracts &
Catering Contracts
Service
Only VAT Payable
No Service Tax
Payable
Only Service Tax
Payable
Naturally Bundled
Both VAT and Service
Tax Payable
Artificially Bundled
Dominant Intention
Test
S B GABHAWALLA & CO
Highest Applicable
Rate
Bundled Services







Section 65A not applicable under Negative List
Classification of transaction as either a service or not a service
Transaction as a sale or service as per BSNL vs. Union of India 2006
(2) STR 161 (SC)
Principles under section 66F for taxability of bundled services
Nature of the output service will not determine the nature of input
service
Most specific description shall be preferred over a more general
description
‘Bundled service’
 naturally bundled
 not naturally bundled
S B GABHAWALLA & CO
Examples on Bundled Services

Food Supplied by Airline

Placement Services by Educational Institution

Loading of Goods by Goods Transport Agencies

Sale of Print and Radio Slots as a Package

Site Formation and Construction of Dam
S B GABHAWALLA & CO
VALUATION
CORPORATE GURUKUL
Important Principles under Section 67

Value of Taxable Services:
 Gross
amount charged by the service provider
 for such service provided or to be provided by him



No Notional Valuation Rules, however, non monetary
consideration taxable
Cum Tax Benefit Available if tax not separately
charged
Dominant Intention Test Important in contracts other
than works contracts and catering contracts
S B GABHAWALLA & CO
Valuation Rules

Special Cases for Valuation:
 Works
Contracts
 service
 Money
component of composite contract (Rule 2A)
Changing
 Service
 Catering
 Service


component of sale of foreign currency (Rule 2B)
Services
Component of Supply of Food (Rule 2C)
Reduction through Notification
Section 67A defines the point of taxation for rate,
value and exchange rate purposes
S B GABHAWALLA & CO
Reimbursement of Expenses

Any expenditure or costs incurred by the service
provider

In the course of providing taxable service

Shall be treated as a consideration and

Shall be included in the value for the purpose of
charging service tax
S B GABHAWALLA & CO
Reimbursement:
Climb of the Everest

Service Provider






Service Recipient





Enters into contractual arrangement
Does not hold title to goods / services
Does not use goods / services
Receives actual amount
Invoices separately the amount
Receives and uses the goods / services
Liable to pay
Authorises the service provider
Knows that the services are provided by third party
Service

In Addition to the basic service
S B GABHAWALLA & CO
Valuation: Works Contracts
Value of Service
Can be
determined
Cannot be
determined
Gross – Value of
Materials
execution of
original works
VAT Assessment
Acceptable if on
actuals
maintenance or
repair or
reconditioning or
restoration or
servicing of any
goods
40%
60%
70%
S B GABHAWALLA & CO
other works
contracts
Valuation: Works Contracts : Issues



If value can be determined, can presumptive
method be adopted?
If value is not adopted by the State VAT Authorities,
can the actual method be adopted?
What is the scope of inclusion of free issue
materials and services?
S B GABHAWALLA & CO
Restaurant & Catering
Sl.
Description
Percentage
of
No.
the total
amount
1.
Service portion in an activity wherein goods, being food or any
40
other article of human consumption or any drink(whether or
not intoxicating) is supplied in any manner as a part of the
activity, at a restaurant
2.
Service portion in outdoor catering wherein goods, being food
or any other article of human consumption or any
drink(whether or not intoxicating) is supplied in any manner as
a part of such outdoor catering
S B GABHAWALLA & CO
60
Money Changing
Description
Rate upto 31.03.2012
Rate w.e.f. 01.04.2012
Money Changing
Value = Difference between buying/selling rate
and RBI Reference Rate
Alternate Tax Amounts
-
Upto Rs. 100000
-
Between Rs. 100000 Rs. 100 + 0.05% of Rs. 120 + 0.06% of
-
0.1% (Min of Rs. 25)
0.12% (Min of Rs. 30)
and Rs. 1000000
excess over 100000
Above Rs. 1000000
Rs. 550 + 0.01% of Rs. 660 + 0.12% of
excess
over
excess over 100000
1000000 excess
(Max of Rs. 5000)
S B GABHAWALLA & CO
over
1000000
(Max of Rs. 6000)
Abatements through Notification
Description of taxable service
Financial leasing services including equipment
leasing and hire purchase
Transport of goods by rail
Transport of passengers, with or without
accompanied belongings by rail
Supply of food or any other article of human
consumption or any drink, in a premises, including
hotel, convention center, club, pandal, shamiana
or any place specially arranged for organizing a
function
Transport of passengers by air, with or without
accompanied belongings
New
Taxable
Portion
Eligibility of CENVAT Credit on
10
Yes
Capital
Goods
Yes
30
30
Yes
Yes
Yes
Yes
Yes
Yes
70
Yes
Yes
No (for Chap
1 to 22), Yes,
for other
Chap.
40
Yes
No
No
S B GABHAWALLA & CO
Inputs
Input
services
Yes
Abatements through Notification
Description of taxable service
New
Taxable
Portion
Eligibility of CENVAT Credit
on
Inputs Capital
Input
Goods services
Renting of hotels, inns, guest houses, clubs,
campsites or other commercial places meant for
residential or lodging purposes
Transport of goods by road by Goods Transport
Agency
Services provided in relation to chit
60
Yes
No
No
25
No
No
No
70
No
No
No
Renting of any motor vehicle designed to carry
passengers
Transport of goods in a vessel from one port in India
to another
Services provided or to be provided to any person,
by a tour operator in relation to a package tour
Services provided by a builder
40
No
No
No
50
No
No
No
25
No
No
No
25
No
Yes
Yes
S B GABHAWALLA & CO
TIME FOR QUESTIONS …
S B GABHAWALLA & CO.