J.B.NAGAR CPE STUDY CIRCLE

Transcription

1 J.B.NAGAR CPE STUDY CIRCLE Final Amendments in Service Tax Finance Act, 2012 CA Manish Gadia CA Jinit Shah 15 th July,

2 Sr. No. TOPICS COVERED Subjects Page Nos. 1 Service and declared service Charging Section Principles of Interpretation Negative List Important Exemptions Valuation of Service Abatement Taxable Territory & Place of Provision of Service Reverse Charge Mechanism Important Changes in Service tax Rules, 1994 Important Changed in Point of Taxation Rules,

3 1. SERVICE AND DECLARED SERVICE 1.1. Definition of Service [Section 65B (44)] Services definition can be divided into three part i.e. the means part, the includes part and the exclusion part. Services Means Part Includes Part Excludes Part Any activity Declared Services An activity which by a person to constitute ; another transfer of title in for consideration goods or immovable property, by way of sale, gift or any other manner such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution, transaction in money or actionable claim Provision of service by employee to an employer Fees taken in any Court or tribunal 3

4 Means Part For the term activity in the means part of the definition it has been clarified that it includes an act done, a work done, a deed done, an operation carried out, execution of an act, provision of a facility etc Activity could be active or passive and would also include forbearance to act It is also clarified that the phrase activity carried out by a person for another implies that services provided by a person to self are not liable to service tax. Further vide explanations to said section it has been provided that An unincorporated association or a body of persons and its members thereof shall be treated as distinct persons An establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having establishment in that territory The term consideration has not been defined in the Act. The definition of consideration as given in the Indian Contract Act, 1872 can be adopted to understand the concept of consideration. Consideration for a service provided or agreed to be provided by service provider would mean anything which the service receiver or any other person has done or abstained from doing, or does or abstain from doing, or promises to do or to abstain from doing for receiving the service. In simple term, consideration means everything received in return for a provision of service which includes monetary payment and any consideration of non- monetary nature as well as deferred consideration. Includes Part Declared Services are covered separately below in Para 1.3 4

5 Excludes Part Mere transfer of title in goods or immovable property by way of sale, gift or in any other manner for a consideration does not constitute service. For the said purpose, the term goods has been defined in section 65B(25) of the Act as every kind of moveable property other than actionable claims and money; and includes securities, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under contract of sale. The term Immovable property has not been defined in the Act. Therefore, the definition of immovable property in the General Clauses Act, 1897 will be applicable which defines immovable property to include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth Transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution. Thus, any action with respect to any goods which is deemed to be a sale as per Clause (29A) of article 366 of the Constitution shall not be considered as service Transactions only in money or actionable claims do not constitute service. The expression money is defined in section 65B(33) to means legal tender, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any such similar instrument but shall not include any currency that is held for its numismatic value. Further, the actionable claim is defined in section 65B(1) shall have the meaning assigned to it in section 3 of the Transfer of Property Act, Section 3 of the said Act defined "actionable claim" to mean a claim to any debt, other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognise as affording 5

6 grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent Provision of services by an employee to the employer in the course of or in relation to his employment is outside the ambit of services. However, services provided outside the scope of such employment for a consideration would be a service It is further provided that fees taken by Court or Tribunal shall not be included in the definition of service It is further provided that the following shall not be included in the definition of service. functions performed by the MP, MLA, Members of Panchayats, Members of Municipalities and Members of other local authorities any person who holds any post in pursuance of the provisions of the Constitution in that capacity Chairperson or a Member or a Director in a body established by the Central Government or State Governments or local authority 1.2. Declared Services (Section 66E) The declared service is forming part of inclusive part of definition of service. The following nine activities have been specified in section 66E as declared services and if the said activities are carried out by a person for another for consideration it would amount to provision of service : renting of immovable property; construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of certificate of completion by a competent authority; temporary transfer or permitting the use or enjoyment of any intellectual property right; 6

7 development, design, programming, customization, adaptation, up gradation, enhancement, implementation of information technology software; agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; 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; 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 The expression competent authority for is defined to mean the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non requirement of such certificate from such authority, from any of the following, namely: architect registered with the Council of Architecture constituted under the Architects Act, 1972; or chartered engineer registered with the Institution of Engineers (India); or licensed surveyor of the respective local body of the city or town or village or development or planning authority; The expression "construction" includes additions, alterations, replacements or remodeling of any existing civil structure; 2. CHARGING SECTION 2.1. Charging Section (Section 66B) Service tax shall be 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 7

8 Remarks: Service Tax Provided or agreed to be provided In the taxable territory By one person to another On the value of all services, not covered in negative 12% The charge shall be on the services either provided or agreed to be provided i.e. on advances received The charge shall be on the services provided in the taxable territory. The taxable territory has been defined under section 65B (52) to mean the territory to which the provisions of this chapter shall apply i.e. to the whole of India except the state of Jammu and Kashmir as referred to in Section 64(1) of the Finance Act, Further, non-taxable territory is defined under section 65B (35) to mean the territory which is outside the taxable territory. Thus, the State of Jammu and Kashmir and foreign countries would be covered under the definition of nontaxable territory. Furthermore, India is also defined in section 65B(27) to mean; the territory of the Union as referred to in clauses (2) and (3) of article 1 of the Constitution; its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976; the seabed and the subsoil underlying the territorial waters; the air space above its territory and territorial waters; and the installations, structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof; 8

9 As the term taxable territory has been used in the charging section thus it shall have a major impact on the taxability of a service. The charges shall be on the value of services when only provided by one person to another i.e. services to self shall not be liable to service tax. The service tax shall be levied on the value of all the services except those covered in the negative 12% 3. PRINCIPLES OF INTERPRETATION The new dispension under the service tax regime, Section 65A providing rules for classification has been deleted in absence of various definitions of taxable services. However, the classification of service still remains necessary even in the negative list regime, as there are different rules for abatements, valuations, payment under reverse charge mechanism, rules relating to place of provision of service, etc. for different kind of services. Section 66F seeks to achieve the following goals: 3.1. Sub-section 1 provides that, unless otherwise specified, reference to service referred to as main service shall not include reference to a service which is used for providing main service. For example, Transportation of goods on an inland waterway is a specified entry in the negative list in section 66D of the Act. Services provided by an agent to book such transportation of goods on inland waterways or to facilitate such transportation would not be entitled to the negative list entry Sub-section 2 provides for prevalence of more specific description over general description where a service is capable of differential treatment on account of peculiarity of its description. This is in line with existing Section 65A. For example, Pandal and Shamiana is an existing service and will remain a subject of taxation. Likewise service provided by way of catering is a taxable service and entitled to abatement. There is abatement when the two are provided in combination. Since the combination is more a specific entry than the two provided individually, there is no 9

10 need to apply the later rule of bundled services, where the character could be judged by the service which provides it the essential character Sub-section 3 is a novel concept of bundled service. It applies where two or more services are bundled together in the ordinary course of business or not in such ordinary course of business. In the former case, it is described as naturally bundled service and in such case it shall be treated as provision of single service which gives such bundle its essential character. If two or more services are not naturally bundled, all the services shall be treated as provision of single service which results in the highest liability of service tax Bundled service is defined as a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services Two rules have been prescribed for determining the taxability of such services in subsection (3) of Section 66F. These provisions are subject to provisions of rule contained in sub-section (2) of S. 66F Naturally bundled service: The rule is, If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character. For example, A 5-star hotel in Gurgaon (Haryana) provides a 4-D/3-N package with the facility breakfast. This is a natural bundling of services in the ordinary course of business. The service of hotel accommodation gives the bundle, the essential character and would, therefore, be treated as service of providing hotel accommodation Services which are not naturally bundled: The rule is, If various elements of a bundled service are not naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which attracts the highest amount of service tax. For example, 10

11 A house is given on rent one floor of which is to be used as residence and the other for housing a printing press. Such renting for two different purposes is not naturally bundled in the ordinary course of business. Therefore, if a single rent deed is executed it will be treated as a service comprising entirely of such service which attracts highest liability of service tax. In this case renting for use as residence is a negative list service while renting for non-residence use is chargeable to tax. Since the latter category attracts highest liability of service tax amongst the two services bundled together, the entire bundle would be treated as renting of commercial property Manner of determining if the services are bundled in the ordinary course of business: This would depend upon the normal practice followed in the business. Such practice adopted in the business can be ascertained from the terms of the contract, perception of the recipient of service, the nature of various services in the bundle, the prevailing practice of majority service provider in a particular business and such other factors. Other illustrative indicator would be that there is a single price the consumer pays for a package, or the elements are normally advertised as a package, or where the different elements are not available separately and they are integral to one or overall supply that if one or more is removed from that, the nature of supply would get affected. However, no straight jacket formula can be laid down and each case has to be individually examined Determination of taxability of composite transactions : The manner of treatment of such composite transaction wherein an element of provision of service is combined with an element of sale of goods for the purpose of taxation. The test is laid down in case of Bharat Sanchar Nigam Limited v/s. UOI [2006 (2) STR 161] wherein the Hon ble Supreme Court has applied test of dominant nature for the purpose of discerning whether a transaction is of sale of goods or service. This test would equally apply to composite transactions involving element of transfer of title in immoveable property. 11

12 4. NEGATIVE LIST For the first time, levy of service tax based on a negative list was proposed by the Hon ble Finance Minister while presenting the Union Budget, Till date, selective approach is being followed in India for the purposes of service tax i.e. only the specified services as defined or covered by the Finance Act, 1994 were liable to service tax. Given the above background, it would be pertinent to discuss services specified in the negative list (section 66D) and probable issues which could arise there under: 4.1. Services by Government or a local authority Services provided by the government or a local authority are covered under the negative list except A. Services provided by the Department of Posts by way of speed post, express parcel post, life insurance and agency services to a person other than government B. Services in relation to a vessel or an aircraft inside or outside the precincts of a port or an airport C. Transport of goods and / or passengers D. Support services, other than those covered by clauses (a) to (c) above, to business entities. Remarks: Government has not been defined in the Act, definition of Government as contained in the General Clauses Act, 1897 would be applicable as per which Government includes both the State and Central Government and further State includes Union Territory. In case of support services provided by the government to the business entities it would be the said business entities who shall be liable to pay service tax under reverse charge mechanism, whereas for the service specified in A to C above the respective departments shall have to pay service tax. 12

13 4.2. Services provided by Reserve Bank of India Only services which are provided by RBI are covered under the negative list. Therefore, services provided to RBI, unless specifically exempt elsewhere, would be taxable Services by a foreign diplomatic mission located in India Any service that is provided by a diplomatic mission of any country located in India are in the negative list. This entry does not cover services, if any, provided by any office or establishment of an international organization Services in relation to agriculture only specified services relating to agriculture are covered. Remarks: The Education Guide provides that activities such as pisciculture, sericulture, floriculture, horticulture, forestry are covered under the definition of agriculture. Plantation crops like rubber, tea or coffee are covered under the term agricultural produce. Potato chips, tomato ketchup which are manufactured through processes which alter the essential characteristics of farm produce are not covered Process amounting to manufacture or production of goods The phrase processes amounting to manufacture or production of goods has been defined in section 65B of the Act as a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 (1 of 1944) or any process amounting to manufacture of alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act. This entry, therefore, covers manufacturing activity carried out on contract or job work basis provided duties of excise are leviable on such processes under the Central Excise Act, 1944 or any of the State Acts. Remarks: 13

14 The Educational Guide provides that only those processes amounting to manufacture or production of goods under the Central Excise Act, 1944 or any State Excise Act on which duties of excise are leviable would be covered. No service tax would be leviable on processes which otherwise amount to manufacture under the Central Excise Act, 1944 but are specifically exempted Trading of goods No definition of trading of goods provided. The same would have to be construed as per ordinary and general meaning of the term. Remarks: The Educational Guide clarifies that future contracts, commodities and commodity futures would be covered under the purview of trading of goods. However, auxiliary services relating to future contracts or commodity futures shall not be covered under the negative list Selling of space or time slots for advertisements other than advertisements broadcast by radio or television The aforesaid entry implies that sale of space for advertisement in print media, bill boards, public places, buildings, conveyances, cell phones, automated teller machines, internet, etc. would not be leviable to service tax. Thus, such service providers, who were otherwise covered under the erstwhile taxable category of Sale of space or time for advertisements other than print media under Section 65(105)(zzzm) will now be, not taxable. Remarks: Services relating to preparation of advertisements would not be covered in the negative list and would hence, be taxable. However, in case of composite services, having both taxable and non-taxable element of services, then taxability will have to be determined under Section 66F of the Finance Act which relates to bundled services. Sale of space or time for advertisement to be broadcast on radio or television and time slots by broadcasting organisations shall be taxable. 14

15 4.8. Service by way of access to a road or a bridge on payment of toll charges The aforesaid activity will not be taxable per se. Remarks: Services provided by a toll collecting agency to the owner of the road (ordinarily, the state) would not be covered in the negative list Betting, gambling or lottery The same, being covered under List II, is a subject matter of the State and hence, covered under the negative list. Remarks: Services used for organizing or promoting betting or gambling events are not covered Admission to entertainment events or access to amusement facilities The terms entertainment events and amusement facilities are specifically defined in Section 65B of the Act Entertainment Events has been defined as an event or a performance which is intended to provide recreation, pastime, fun or enjoyment, such as exhibition of cinematographic films, circus, concerts, sporting events, fairs, pageants, award functions, dance performances, musical performances, theatrical performances including cultural programs, drama, ballets or any such event or programme Amusement facilities has been defined as a facility where fun or recreation is provided by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks, theme parks or such other place but does not include a place within such facility where other services are provided Remarks: The negative list covers services such as exhibition of cinematographic films, circus, concerts, theatrical performances, facilities for fun and recreation by means of rides, gaming devices, water parks, theme parks etc. Basically, covered by List II, subject matter of the State being open to entertainment tax. 15

16 Membership of a club would not fall under the purview of amusement facility. Hence, shall not be covered under the negative list. Services provided by an event manager for organizing an entertainment event or by entertainer to an entertainment event organizer are not covered in the negative list Transmission or distribution of electricity by electricity transmission or distribution utility Electricity transmission and distribution utility has been defined in section 65B of the Act. Basically this entry covers only transmission or distribution of electricity only by transmission or distribution utility as defined. Remarks: Educational Guide clarifies that charges collected by a developer or a housing society for distribution of electricity within a residential complex are not covered under the negative list unless it entrusted with such function by the Central or State Government or it is a distribution licensee under the Electricity Act, Specified services relating to education Only following specified services are covered in the negative list Pre-school education and education up to Higher Secondary School or equivalent Education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force Education as part of an approved vocational education course Remarks: Services provided to educational institutions are not covered unless specifically exempted. In case of a course provided in college which leads to dual qualification, each such qualification will be assessed separately, if the curriculum and fees for each of such qualifications are prescribed separately. 16

17 In addition, if the qualifications are bundled artificially, in terms of section 66F, the same is liable to be treated as a course which attracts the highest rate of tax Renting of residential dwelling for use as residence Renting has been defined in Section 65B as allowing, permitting or granting access, entry, occupation, usage or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property. Further, residential dwelling has not been defined in the Act and it has to be interpretated in terms of the normal trade parlance. Remarks: Educational Guide clarifies that residential dwelling shall not include hotel, motel, inn, guest-house, camp-sit, lodge, houseboat, or like places meant for temporary stay. If the residential dwelling is been used partly as residence and partly for non residential use then such dwelling shall be considered as a case of bundled services Further furnished flats given on rent for temporary stay shall not be treated as residential dwelling as they are in the nature of lodges or guest houses, as per the Educational Guide Financial Sector Services services by way of extending deposits, loans, advances to the extent consideration is represented by interest or discount. Further, inter-se sale or purchase of foreign currency amongst banks or authorised dealers or amongst banks and such dealers are covered under the negative list. Remarks: 17

18 The Educational Guide provides that any service/administrative/entry charges collected over and above interest/discount would not be covered in the negative list. Only inter-bank dealings or dealings between banks and authorized dealers of foreign exchange as regards sale and purchase of foreign exchange are covered. Any such service provided to general public is taxable Transportation of passengers services of transportation of passengers, with or without accompanied belongings are covered under the negative list. The said service shall have to be provided by A stage carriage Railways in a class other than first class or air conditioned coach Metro, monorail or tramway Inland waterways Metered cabs, radio taxis or auto rickshaws Public transport, other than predominantly for tourism purpose, in a vessel Remarks Stage carriage, inland waterways and metered cabs are defined in section 65B Service by way of giving motor vehicles, meant to carry more than 12 passengers, on hire to state transport undertakings are not covered Transportation of goods The services provided by way of transportation of goods By road except the service of a goods transport agency or a courier agency By an aircraft or a vessel from a place outside India to the first customs station of clearance in India By inland waterways Remarks 1 Exemption in respect of passengers travelling in first class or airconditioned coach by rail has been provided upto 30 th September,

19 Inland waterways, which were earlier taxable under taxable head of Transport of coastal goods ; and goods transported through inland water ways are now specifically covered in the negative list. Agents providing services for inland waterways are not covered in the negative list Funeral, burial, crematorium or mortuary services including transportation of the deceased self explanatory. Thus, all the aforesaid services with hidden terms and conditions, typically Indian style, are covered in the negative list. 5. EXEMPTION OF SERVICES Under the present system there are 88 exemption notifications. The need for exemptions is not obliterated with the introduction of negative list. While some existing exemptions have been built into the negative list, others, wherever necessary, have been retained as exemptions. In addition new exemptions are introduced in the context of the negative list. For ease of reference and simplicity, most of the exemptions are part of one single mega exemption notification vide Notification no. 25/2012 Service Tax, Dated 20 th June, These Exemptions shall become effective from the 1 st July Services in relation to Health care services New Exemption w.e.f. 1 st July, Health care services provided by a clinical establishment, an authorised medical practitioner or para-medics The term authorised medical practitioner means any medical practitioner registered with any of the Councils of the recognised system of medicine and includes medical professional having the requisite qualification to practice in any recognised system of medicine as per any law for the time being in force. 19

20 The term "clinical establishment" means a hospital, nursing home, clinic, sanatorium or an institution by, whatever name called, that offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicine, established and administered or maintained by any person or a place established as an independent entity or a part of an establishment to carry out diagnostic or investigative services of diseases The term Paramedics generally means trained health care professionals, for example nursing staff, physiotherapists, technicians, lab assistants etc Services provided by a charitable entity New Exemption w.e.f. 1 st July, Services by an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) by way of charitable activities The term charitable activities means activities relating to - A. public health by way of - (I) care or counseling of (i) terminally ill persons or persons with severe physical or mental disability, (ii) persons afflicted with HIV or AIDS, or (iii) persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or (II) public awareness of preventive health, family planning or prevention of HIV infection; B. advancement of religion; C. advancement of educational programmes or skill development relating to,- (I) abandoned, orphaned or homeless children; (II) physically or mentally abused and traumatized persons; (III) prisoners; or (IV) persons over the age of 65 years residing in a rural area; 20

21 D. preservation of environment including watershed, forests and wildlife; or E. advancement of any other object of general public utility up to a value of eighteen lakh and seventy five thousand rupees for the year subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during and twenty five lakh rupees in any other financial year subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during the preceding financial year. Explanation: - For the purpose of this clause, general public means the body of people at large sufficiently defined by some common quality of public or impersonal nature Remark Services by charitable institutions are meant for the benefit of general public. Thus simply speaking all charitable institutions providing services not covered in clause (a) to (d) above for the value upto Rs. 25 lakhs in a financial year will be covered by clause (e) above and will be exempt. For charitable institutions providing services of value more than Rs. 25 lakhs, any of the objects as contained in clause (a) to (d) needs to be satisfied for claiming exemption from service tax, other than for the first year (where the limit is Rs. 18 lakhs 75 thousand) 5.3. Services in relation to temporary renting of ground or place New Exemption w.e.f. 1 st July, Services by a person by way of, A. Renting of precincts (building or surrounding land) of a religious place meant for general public. B. Conduct of any religious ceremony The term religious place means a place which is primarily meant for conduct of prayers or worship pertaining to a religion Services by an advocate and arbitral Tribunal. 21

22 New Exemption w.e.f. 1 st July, Services provided by an arbitral tribunal to any person other than a business entity or, a business entity with a t/o upto Rs. 10 Lacs in the preceding F.Y Services provided by an individual as an advocate or a partnership firm of advocates by way of legal services to,- An advocate or partnership firm of advocate providing legal service Any person other than a business entity or, A business entity with a t/o upto Rs. 10 Lacs in the preceding F.Y A person represented on and as arbitral tribunals The term "business entity" means any person ordinarily carrying out any activity relating to industry, commerce or any other business Scenario prior to 1st July, 2012 in respect of above said services Legal Service in relation to advice, consultancy or assistance in any branch of law provided by a business entity is taxable Representation service provided to any business entity is taxable Arbitration service provided to any business entity by an arbitral tribunal is taxable Remark Under exemption, services provided by Individual advocates to individuals not carrying out any activity relating to industry, commerce or any other business are covered All arbitral tribunals are proposed to be exempted Services in relation to Technical Testing or analysis. 22

23 Services by way of technical testing or analysis of newly developed drugs, including vaccines and herbal remedies, on human participants by a clinical research organization approved to conduct clinical trials by the Drug Controller General of India. Same exemption was available under notification No. 11/2007-ST, dated 1 st March 2007 under the category Technical Testing or Analysis Services Services in relation to Training and Coaching New Exemption w.e.f. 1 st July, Services by way of training or coaching in recreational activities relating to arts, culture or sports Scenario prior to 1st July, 2012 in respect of above said services All types of training or coaching for imparting skill or knowledge or lessons on any subject, other than sports are taxable under the category Commercial Coaching Services Remark Now the new exemption restricts to recreational activity relating to arts, culture or sports. Prior to 1 st July, 2012 exemption was allowed to coaching and training related to recreational activity in any field In the case of Fast Arithmetic V. ACCE, [2010 (17) S.T.R. 158 (Tri -Bang)], Honorable Tribunal held that teaching Math by way of Abacus is a recreational activity and thus not liable to service tax. It seems that this decision will get nullified under proposed exemption scheme for service tax Services in relation to Educational Institution New Exemption w.e.f. 1 st July, 2012 Services provided To or by an educational institution in respect of education exempted from service tax by way of 23

24 Auxiliary services Renting of immovable property Auxiliary educational services means any services relating to imparting any skill, knowledge, education or development of course content or any other knowledge enhancement activity, whether for the students or the faculty, or any other services which educational institutions ordinarily carry out themselves but may obtain as outsourced services from any other person, including services relating to admission to such institution, conduct of examination, catering for the students under any mid-day meals scheme sponsored by Government, or transportation of students, faculty or staff of such institution; Scenario prior to 1st July, 2012 in respect of above said services Exemptions were available to catering under any centrally assisted mid day meals scheme sponsored by Government under the category Outdoor Caterer s Services Exemptions were available to transportation of school bus facility provided by a School in relation to transportation of students under the category Tour Operator Services by way of Trade Notice No. 17/2009, dated , Madurai Commissionerate Remark In respect of transportation services provided to an institution is exempted. For example, if a bus contractor collects fees directly from student then the service of transportation of students is provided to the students and not to an institution. In such cases the said bus transporter is not exempted from service tax. However where the transportation (bus) fees is collected by institution and paid to bus transporter then such bus transport service is been provided to the institution and consequently such services would be exempt from service tax. 24

25 Similarly in case where a university provides any educational course which is exempt from service tax then if any fees is charged by such university towards entrance fees or exam fees for admission to such course would be exempt from service tax. Likewise in case where university outsources the admission process for such course to an third party then the fees charged by third party to the university will also not attract service tax Services in relation to erection, construction, commissioning, installation, completion, fitting out, maintenance, repair, alteration or renovation provided to government / Local authority/ governmental authority New Exemption w.e.f. 1 st July, Services provided to the Government or local authority/ governmental authority by way of erection, construction, commissioning, installation, completion, fitting out, maintenance, repair, alteration or renovation of A. a civil structure or any other original work meant predominantly for a nonindustrial or non-commercial use or any other business or profession; B. a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958); C. a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; D. canal, dam or other irrigation works; E. pipeline, conduit or plant for (i) water supply (ii) water treatment or (iii)sewerage treatment or disposal; or F. a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Finance Act. Governmental authority means a board, or an authority or any other body established with 90% or more participation by way of equity or control by 25

26 Government and set up by an Act of the Parliament or a State Legislature to carry out any function entrusted to a municipality under article 243W of the Constitution 5.9. Services in relation to construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration w.r.t. certain services used by public at large New Exemption w.e.f. 1 st July, Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of, A. road, bridge, tunnel, or terminal for road transportation for use by general public; B. a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana C. building owned by an entity registered under section 12 AA of the Income tax Act, 1961(43 of 1961) and meant predominantly for religious use by general public; D. pollution control or effluent treatment plant, except located as a part of a factory; or E. a structure meant for funeral, burial or cremation of deceased Remark The maintenance services provided w.r.t. services mentioned in (c) to (e) above was taxable. It has now exempt all the above said services provided In case of Roads, earlier, construction of all roads was excluded. However the new exemption exempts services in respect of road used by general public. Thus any of the aforesaid services in relation to road in a residential complex or a factory, etc. will attract service tax. 26

27 Earlier construction, repair, etc. of non commercial building such as schools, college, hospitals, charitable clinic, etc. was not leviable to service tax. The new exemption does not cover the above service Services in relation to erection, commissioning, installation, construction, w.r.t. certain specified purposes New Exemption w.e.f. 1 st July, Services by way of erection, construction, commissioning and installation of original works pertaining to,- A. airport, port or railways including monorail or metro; B. single residential unit otherwise than as a part of a residential complex; C. low- cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the Scheme of Affordable Housing in Partnership framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India; D. post- harvest storage infrastructure for agricultural produce including cold storages for such purposes; or E. mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages; The term original works means - A. all new constructions; or B. all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable, C. erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise 27

28 The term single residential unit means a self-contained residential unit which is designed for use, wholly or principally, for residential purposes for one family Scenario prior to 1st July, 2012 in respect of above said services Services in respect of airport, port and railways were all together excluded from the ambit of service tax by way of specific exclusion from the definition Services in respect of construction of complex services were exempt from service tax if the complex was having 12 or less units. The definition also excluded complexes used for personal use Remark Earlier in respect of services as specified in clause (a), constructions other than original work, repairs, alteration, restorations and maintenance was not leviable to tax. However under proposed exemption the said services are taxable In respect of services mentioned in clause (b) - A millionaire using the services for construction of a bungalow for himself will not pay service tax whereas a common man buying a under construction flat having which is not approved by competent authority empowered under the Scheme of Affordable Housing in Partnership framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India/ having an area of more than 60 square meters even if approved by the above mentioned authority in a building having more than one unit will have to pay service tax Earlier construction of residential complex / building having less than 12 units were not leviable to service tax. However it is proposed that only those unit having an area of less than 60 square meters approved by competent authority empowered under the Scheme of Affordable Housing in Partnership framed by the Ministry of Housing and Urban Poverty 28

29 Alleviation, Government of India are only exempt and it does not matter if the unit is less than 12 units and more than one unit The exemption to services mentioned in clause (d) and (e) in relation to agricultural activity is newly introduced Services in relation of Copy rights New Exemption w.e.f. 1 st July, Temporary transfer or permitting the use or enjoyment of a copyright covered under clauses (a) or (b) of sub-section (1) of section 13 of the Indian Copyright Act, 1957 (14 of 1957), relating to original literary, dramatic, musical, artistic works or cinematograph films Scenario prior to 1st July, 2012 in respect of above said services Earlier, Right covered under sub-clause (a) of clause (1) of section 13 of the copyright Act, 1957 was exempted Remark Clause (b) of Copyright Act, 1957 provides for case of computer programme in respect of any acts specified in clause (a) of the said act Thus in nutshell the new exemption is more-or-less identical to existing provisions except for minor tweaking in respect of computer programme A musical company having a copy right to music, permits the use of such copy right to another person then such service will be liable to service tax. However where the right to original work is given for a royalty by a composer such services will not be taxable Services provided by an artist New Exemption w.e.f. 1 st July, Services by a performing artist in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre, excluding services provided by such artist as a brand ambassador. 29

30 5.13. Services in respect of Hotels, short term accommodation, etc New Exemption w.e.f. 1 st July, Services by way of renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a unit of accommodation below rupees one thousand per day or equivalent Services provided by Restaurants New Exemption w.e.f. 1 st July, Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, and which has a licence to serve alcoholic beverages Services provided by way of transportation by Road New Exemption w.e.f. 1 st July, Services provided by a goods transport agency by way of transportation of - A. fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage; B. goods where gross amount charged for the transportation of goods on a consignment transported in a single goods carriage does not exceed one thousand five hundred rupees; or C. goods, where gross amount charged for transportation of all such goods for a single consignee in the goods carriage does not exceed rupees seven hundred fifty; Services provided by way of giving motor vehicle on hire New Exemption w.e.f. 1 st July, Services by way of giving on hire - 30

31 A. to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers; or B. to a goods transport agency, a means of transportation of goods; Scenario prior to 1st July, 2012 in respect of above said services In case of Goods transport agency (GTA), any means of transportation of goods given on hire (covered under the category Supply of Tangible goods service) was exempted by way of notification No.1/2009-ST, dated 5 th January 2009 retrospectively w.e.f The notification prescribed certain conditions to be fulfilled for availing such exemption benefit such as mentioning the name and address of such goods transport agency and the name and date of consignment note, issued in his behalf Remark The new exemption now seeks to restrict the exemption provided only in respect of providing hiring of vehicles to a goods transport agency. Such exemptions are available without any conditions Other services like Clearing and forwarding services, Manpower recruitment or supply service, cargo handling service, storage and warehousing of goods service, business auxiliary service, packaging activity service and support service of business or commerce which are earlier exempt vide notification seem to be no longer available to a GTA under new exemption Service by way of renting of land for the purpose of Parking facility New Exemption w.e.f. 1 st July, Services by way of vehicle parking to general public excluding leasing of space to an entity for providing such parking facility; Scenario prior to 1st July, 2012 in respect of above said services Immovable property was defined to exclude land used for parking purposes Remark 31

32 Say, Mr A is the owner of a vacant land. If the said land is given on lease to Mr B and that the land is to be used for parking purpose only. Under new exemption the transaction between Mr A and Mr B would be subject to service tax. Earlier such transactions between Mr A and Mr B were exempt from service tax Service provided by an unincorporated body or an non- profit entity registered as a society New Exemption w.e.f. 1 st July, Service by an unincorporated body or a non- profit entity registered under any law for the time being in force to its own members by way of reimbursement of charges or share of contribution - A. as a trade union; B. for the provision of carrying out any activity which is exempt from the levy of service tax; or C. up to an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex; Scenario prior to 1st July, 2012 in respect of above said services Exemption is granted upto an amount of Rs. 3,000 per month to a resident welfare association on services provided to its members Remark The new exemption has provided exemption upto Rs. 5000/- compared to exemption of Rs. 3000/- which existed earlier. So, if a society was charging Rs. 6000/- a month, the entire amount was taxable earlier whereas now, only the differential amount of Rs. 1000/- would be taxable. It has also been clarified that the amount would include amount towards reimbursement or share of contribution for sourcing of goods (i.e. water or electricity) or services. 32