COMMENTS SERVICE TAX RECENT AMENDMENTS MADE VIDE FINANCE (NO.2) ACT, 2004

Transcription

1 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, 3 rd Floor, 201, Trade Centre, 2 nd Floor, Kantilal Sharma Marg, Sardarnagar Main Road, (Lohar Chawl), Rajkot Mumbai Telephone: Tel: Telefax: e.mail: spsheth@vsnl.com 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.

2 1 I N D E X 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

3 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

4 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 With this, total 76 services have been effectively covered under the levy as on 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 and has further been enhanced to 10% w.e.f In addition to this, Education 2% on the amount of Service tax has also become effective from Therefore, the total quantum of tax payable on the taxable services will be 10.2% on and from 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 in supersession of Cenvat Credit Rules, 2002 and Service tax Credit Rules, 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

5 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 : (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) Business Exhibition Services Airport Services Transport of goods by air Survey and exploration of minerals Opinion poll services Intellectual property services (other than copyrights) Forward contract services Pandal or shamiana services Outdoor catering services TV and radio programme production services Construction services (commercial and industrial building or civil structures) Travel agents (other than air/rail travel agents) 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 : (i) (ii) (iii) (iv) Commission and installation service to include erection service Stock brokers to include sub-brokers Cable operators to include multi-system operators 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

6 (v) (vi) 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. Tour operators to include such package tour operators who organize tours involving different modes of transport. 2.3 Withdrawal of Exemptions: The exemption hitherto available in respect of the following taxable services have been withdrawn w.e.f : (i) (ii) (iii) (iv) (v) Broadcasting services provided by Cable Television Operators (Notification No.8/2001-ST dated rescinded by Notification No.7/2004-ST dated ) Business Auxiliary Services provided by a Commission Agent except in relation to sale or purchase of agricultural produce. [Notification No.13/2003- ST dated amended by Notification No.8/2004-ST dated ] Maintenance or repair of Computers, Computer systems or Computer peripherals [Notification No.20/2003-ST dated rescinded by Notification No.7/2004-ST dated ] Mandap Keeper Services (including catering services) provided by Hotels [Notification No.12/2001-ST dated as amended by Notification No.8/2004-ST dated Services relating to safe deposit lockers or security or safe vaults provided by Security Agencies [Notification No.56/98-ST dated rescinded by Notification No.07/2004-ST dated ] 2.4 In the ensuing chapters, various aspects of the aforesaid changes have been discussed. CHAPTER : 3 6

7 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 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.

8 3.5 Exemption/Abatement: Refer Chapter 23

9 CHAPTER : 4 8 BUSINESS EXHIBITION SERVICES: 4.1 Statutory Provisions: (a) (b) (c) 4.2 Scope of the levy: Section 65 (19a) of the Act defines the term Business Exhibitions 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. 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. 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: i) Events like Trade fairs, road shows, fashion shows etc. organized by the organizers; ii) 4.4 Exclusions: Display show-cases kept in Airports, Railway stations, Hotels, Theaters, etc. 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) iii) iv) 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. 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. Art galleries renting out galleries for exhibition of art, paintings etc. 9

10 4.5 Exemption/Abatement: Refer Chapter COMMENTS: 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 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 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.

11 10 CHAPTER : 5 CONSTRUCTION SERVICES: 5.1 Statutory Provisions: (a) (b) (c) Section 65 (30a) of the Act defines the term Construction Service. 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. 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. 5.2 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) iii) iv) Persons engaged in the construction of office or industrial premises; Local Government bodies engaged in the construction for commercial purposes i.e. letting out shops constructed; 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) 5.4 Exclusions:- 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

12 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) iii) iv) Construction of buildings etc. purely for residential purposes; Constructions for the use of non-profit organizations or institutions established solely for educational, religious, charitable, health, sanitation or philanthropic purposes; 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. 5.5 Exemption/Abatement: Vide Notification No.15/2004-ST dated , 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 Also refer Chapter COMMENTS: 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 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

13 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 Alternatively, the said person can apt for the total exemption available under Notification No.12/2003-ST dated as amended. Subject to the conditions prescribed thereunder 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.

14 CHAPTER 6: 13 FORWARD CONTRACT SERVICES: 6.1 Statutory Provisions: (a) (b) (c) 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. 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. 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. 6.2 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 Inclusions: (a) (b) Forward Contracts entered through members of association recognized under the Forward Contract (Regulation) Act, 1952 in respect of the commodities notified under the Act; Future Trading Contracts entered into through the associations registered with the Forward Market Commission in respect of the commodities not notified under the FCRA; 6.4 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

15 CHAPTER 7: INTELLECTUAL PROPERTY SERVICES (OTHERTHAN COPYRIGHT) 7.1 Statutory Provisions: (a) (b) (c) Section 65 (55a) of the Act defines the term Intellectual Property Services. 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. 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. 7.2 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) (b) 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. 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.

16 7.4 Exclusions: (a) (b) (c) Copyright; Permanent transfer of Intellectual Property Right; Intellectual Property Rights like Integrated Circuits or undisclosed information (not covered by Indian Law). 7.5 Exemptions/Abatements: Vide Notification No. 17/04-ST dated , 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, Also refer Chapter COMMENTS: 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 However, the Board, vide its Circular dated , 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 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.

17 16 CHAPTER 8: OPINION POLL SERVICES: 8.1 Statutory Provisions : (a) (b) (c) Section 65 (75a) & 65 (75b) of the Act define the terms Opinion Poll and Opinion Poll Agency respectively. 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. 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. 8.2 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) (b) (c) (d) (e) (f) Opinion Polls conducted to secure information on social, economic, political or other issues. 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. Opinion Polls conducted on various issues like sports, fashion, cinema etc. Private Opinion Polls, the results of which are not made public. Opinion Polls conducted to ascertain the popularity of TV serials, Radio programmes, TV Channels etc. (known as TRP Ratings). Processing activity outsourced from a specialized data processing unit in relation to In-house opinion polls. 17

18 8.4 Exclusions: (a) (b) (c) In-house opinion polls conducted by an organization itself. Fixed (time bound) opinion polls conducted by any media like newspapers aimed at public at large. 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. 8.5 Exemption/Abatement: Please refer Chapter 23

19 18 CHAPTER 9: OUTDOOR CATERER S SERVICE: 9.1 Statutory Provisions: (a) Section 65 (76a) defines the term Outdoor Caterer and Section 65 (24) defines the term Caterer. (b) (c) 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. 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. 9.2 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 Inclusions: (a) (b) (c) In-flight caterers 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. Restaurants, hotels etc. providing home delivery service if charge other than for the cost of the food is also recovered. 9.4 Exclusions: (a) (b) Canteen Contractors situated within the academic institution like schools, colleges etc. or medical establishments like hospitals and providing catering services within the premises. Mobile Food Vans preparing and supplying the food to the customers at particular location. (c) Restaurants etc. providing free home delivery service. 19

20 9.5 Exemptions/Abatements: 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 Catering services provided by an outside caterer is wholly exempt vide Notification No. 21/04-ST dated provided such caterer is located within the premises of any academic institution or medical establishment and such services provided only within the said premises Vide notification No. 20/04-ST dated , an abatement of 50% from the gross amount charged by the outdoor caterer has been provided subject to the following conditions viz: (i) (ii) (iii) The catering services provided also includes food and the invoice etc. indicates that it is inclusive of charge of supply of food; No credit of duty paid on inputs/capital goods has been availed under CCR; The outdoor caterer has also not availed the benefit of the exemption under Notification No. 12/2003-ST dated regarding exclusion of cost of materials from the value of taxable service Please also refer Chapter COMMENTS: 9.6.1a b. 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. 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 c. 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 The exemption in respect of catering provided within academic/medical institution/establishment is also intended for those caterers who prepare the food at

21 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.

22 21 CHAPTER 10 PANDAL OR SHAMIANA SERVICES: 10.1 Statutory provisions: (a) (b) (c) Section 65 (77a) and 65 (77b) of the Act defines the term Pandal or Shamiana and Pandal or Shamiana Contactor. 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. 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 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 Exemption/Abatement : An abatement of 30% of the gross amount has been provided vide Notification No.22/2004-ST dated 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

23 (a) (c) (c) 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 no credit of duty paid on inputs or capital goods has been taken under the provisions of the Cenvat Credit Rules, 2004; and; such pandal or shamiana contractor has not availed the benefit of exemption on cost of materials under Notification No.12/2003-ST, dated For the purposes of this exemption, the expression food means a substantial and satisfying meal. [Notification No.22/2004-ST dated ] Also refer Chapter COMMENTS: Refer the Comments under Chapter 9.

24 23 CHAPTER 11: SURVEY AND EXPLORATION OF MINERAL, OIL AND GAS SERVICES: 11.1 Statutory Provisions: (a) (b) (c) Section 65 (104a) defines the term Survey and Exploration of Mineral. 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. 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 Inclusions: (a) (b) 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. Activities such as seismic survey, collection/processing/interpretation of data and drilling or testing in relation to survey or exploration Exclusions: (a) (b) Actual extractions of the Minerals etc. after completion of survey and exploration. Transport, refining, processing or production of the extracted products Exemption/Abatement: Refer Chapter 23 24

25 CHAPTER : 12 TRAVEL AGENTS (OTHER THAN AIR/RAIL TRAVEL AGENTS): 12.1 Statutory Provisions: (a) (b) (c) 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. 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. 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 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 Exemption/Abatement: Refer Chapter 23

26 25 CHAPTER : 13 TRANSPORT OF GOODS BY AIR 13.1 Statutory Provisions: (a) (b) (c) Section 65 (3a) & 65 (3b) defines the term Aircraft and Aircraft Operator respectively. 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. 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 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 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 Exemptions/Abatement: Refer Chapter 23

27 CHAPTER : TV AND RADIO PROGRAMME PRODUCTION SERVICE: 14.1 Statutory Provisions: (a) Section 65 (86a) defines the term Programme. (a) (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. 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 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 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

28 14.6 COMMENTS: The Board, vide its Circular dated , 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.

29 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, (b) (c) 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. 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 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 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

30 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 Exemptions/Abatements: Refer Chapter COMMENTS: The Board, vide its Circular dated , 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 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 , 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 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.

31 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 The amendments so made have become effective from and all the taxable services covered within the scope of the amended provisions would attract Service 10% plus 2% Education Cess thereon w.e.f The scope and implications of the said amendments are discussed in the following Chapters. 30

32 CHAPTER 17: BANKING AND FINANCIAL SERVICES: Statutory Provisions: (a) (b) (c) (d) 31 Section 65 (12) of the Act, prior to its amendment w.e.f , 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; After its substitution vide Finance (No.2) Act, 2004 w.e.f , the Commercial Concern have also been included within the scope of the Service providers under Section 65 (12) of the Act. The scope of taxable services mentioned in Section 65 (12) has also been further expanded w.e.f 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. 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

33 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 Inclusions: (a) (b) (c) (d) All nationalized banks, private banks, co-operative banks and scheduled banks All types of non-banking financial companies providing the specified services; Financial institutions providing the specified services; 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: 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 Vide Notification No. 29/2004-ST dated , 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 or from in the absence of any retrospective effect given thereto? Vide Notification No. 13/2004-ST dated , 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 Also refer Chapter 23.

34 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 defines the term Business Auxiliary Service so as to mean any service in relation to, - (i) (ii) (iii) (iv) (v) (vi) (vii) Promotion or marketing or sale of goods produced or provided by or belonging to the client; or Promotion or marketing of services provided by the client; or Any customer care service provided on behalf of the client; or Procurement of goods or services, which are inputs for the client; or Production of goods on behalf of the client; or Provision of service on behalf of the client; or 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. (b) (c) 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. 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: The scope of the levy of Service Tax under this category has been significantly widened by budgetary amendments made through Budget, 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

35 The exemption available to commission agents vide Notification No. 13/2003-ST dated has been restricted to the commission agents providing services in relation to sale or purchase of agricultural produce w.e.f consequent to amendment made to the said Notification vide Notification No. 8/2004-ST dated The following three services have been included under this category w.e.f 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 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 or , as the case may be: (a) (b) (c) (d) (e) 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 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, Persons engaged in making provision of service on behalf of the client. Other Auxiliary services relating to procurement, inventory, production of goods or provision of service rendered on behalf of the client. Commission agent providing services in relation to sale or purchase of services Exclusions: (a) (b) Production of goods on behalf of the client if the process involved amounts to manufacture within the meaning of Section 2 (f) of CEA. 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