Sei sulla pagina 1di 805
_ Service Tax - Negative List Regime CA Pritam Mahure
_
Service Tax -
Negative List
Regime
CA Pritam Mahure

9 t h

1 5

E d i t i o n

J u l y

201 4

CA Pritam Mahure

This book is a compilation of key Service Tax Legal provisions (as applicable from 1 July 2012). Relevant amendments have been shown in red colour/ track change. Also, Central Excise provisions which are applicable (vide sec. 83 of FA‘ 1994) to ST legislation are highlighted in green colour. For feedback/queries readers may write to capritam@gmail.com

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contents

1. ABOUT THE BOOK

9

2. NEGATIVE LIST IN A NUTSHELL

11

A. In a nutshell

11

B. Negative vis-à-vis Positive list regime A Comparative Analysis

11

C. Rules deleted/ substituted

11

D. Key provisions and effective date

12

E. Abatement (Refer Not. No. 26/2012 and Valuation Rules)

12

F. Reverse Charge Mechanism (Refer Not. No. 30/2012-ST)

13

G. Brief Note on Negative List regime

15

3. EXISTING INDIRECT TAX SYSTEM IN INDIA

18

Key features of specified indirect taxes:

18

Current Indirect tax implications on various transactions

20

4. SERVICE TAX STATUTORY PROVISIONS

22

5. APPLICABLE CENTRAL EXCISE PROVISIONS

85

6. SERVICE TAX RULES, 1994

123

1. Short title and commencement

123

2. Definitions

123

3. Appointment of officers

127

4. Registration

127

4A. Taxable service distributed on invoice, bill or challan

129

4B. Issue of consignment note

131

5.

Records

132

5A. Access to a registered premises

132

6.

Payment of service tax

133

6A. Export of services.-

139

7.

Returns

140

7A. Returns

141

7B. Revision of return

141

7C. Amount to be paid for delay in furnishing return

141

8. Form of appeals to commissioner of central excise (appeals)

142

9. Form of appeals to appellate tribunal

142

10. Procedure and facilities for large taxpayer

143

7. SERVICE TAX (DETERMINATION OF VALUE) RULES, 2006

145

1.Short title and commencement.

145

2.Definitions

145

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2A. Determination of value of works contract

145

2B.Determination of value of service in relation to money changing

148

2C. Determination of value of supply of food

149

3.Manner of determination of value

150

4.Rejection of value

150

5.Inclusion in or exclusion

151

6.Cases in which the commission, costs, etc., will be included or excluded . 153

8. POINT OF TAXATION RULES, 2011

156

1.Short title and commencement

156

2.Definitions

156

2A. Date of payment

156

3.Determination of point of taxation

157

4.Determination of POT in case of change in effective rate of tax

158

5. Payment of tax in case of new services

159

7. Determination of POT in case of specified services or persons

159

8.Determination of point of taxation in case of copyrights, etc

160

8A. Determination of point of taxation in other cases

160

9.Transitional Provisions

160

9. PLACE OF PROVISION OF SERVICES RULES, 2012

162

1. Short title, extent and commencement

162

2. Definitions

162

3. Place of provision generally

165

4. Place of provision of performance based services

165

5. Place of provision of services relating to immovable property

166

6. Place of provision of services relating to events

166

7. Place of provision of services provided at more than one location

166

8. POPS where provider and recipient are located in taxable territory

166

9. Place of provision of specified services

167

10. Place of provision of goods transportation services

167

11. Place of provision of passenger transportation service

167

12. Place of provision of services provided on board a conveyance

168

13. Powers to notify

168

14. Order of application of rules

168

10. CENVAT CREDIT RULES, 2004

169

1.Short title, extent and commencement

169

2.Definitions

169

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3.CENVAT credit

175

4.Conditions

for allowing CENVAT credit

185

5.

Refund of CENVAT Credit

190

5A.Refund of CENVAT credit to units in specified areas

191

5B. Refund of CENVAT credit

192

6.Obligation of a manufacturer and a provider of output service

192

7.Manner of distribution of credit by input service distributor

200

7A.Distribution of credit on inputs

201

8.Storage of input outside the factory of the manufacturer

202

9.Documents and accounts

202

9A.Information relating to principal inputs

206

10.Transfer of CENVAT credit

207

10A. Transfer of CENVAT credit of additional duty

207

11.Transitional provision

208

12.Special dispensation

210

12A. Procedure and facilities for large tax payer

210

12AAA. Power to impose restrictions in certain types of cases

214

13.Power of Central Government to notify

215

14.Recovery of CENVAT credit wrongly taken or erroneously refunded

215

15.Confiscation and penalty

215

15A. General penalty

216

16.Supplementary provision

216

11. SERVICE TAX VCES , 2013

217

12. Service Tax Voluntary Compliance Encouragement Rules, 2013

221

1. Short title and commencement

221

2. Definitions

221

3. Registration

221

4. Form of declaration

221

5. Form of acknowledgment of declaration

221

6. Payment of tax dues

221

7. Form of acknowledgement of discharge

222

FORM VCES-2

224

FORM VCES-3

226

13.

Notifications

227

14/2012 - Research & development cess

227

25/2012 - Mega exemption notification

228

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26/2012

-

Abatement notification

246

27/2012 - Exemption for foreign diplomatic mission

33/2012

34/2012 - Rescinding of earlier 81 notifications

Exemption

to

small service providers

254

29/2012 - Exemption on property tax paid

257

30/2012 - Reverse charge mechanism

259

31/2012 - Exemption to gta services for exporter

265

32/2012 - Exemption of services provided by tbi and

272

-

275

278

35/2012 - Earlier works contract composition scheme rescinded

282

28/2011 - Notified continuous supply of services

283

39/2012 - Rebate on inputs and input services

284

40/2012 - Exemption on services provided to sez operations

291

41/2012 - Rebate for service tax paid new scheme

305

42/2012 - Exemption to service of commission agent

332

27/2012(ce) Cenvat credit refund (rule 5)

339

43/2012 - Exemption to railways

343

45/2012 Rcm for directors and security services

344

46/2012 STR amended for rcm for directors and security

345

47/2012 Return due date

346

48/2012 - Amends ST-1 and Accounting codes re-notified

347

49/2012 - Exemption to Janashri and Aam Aadmi Bima Yojana

358

1/2013 - Amendment in Service Tax Rules, 1994

359

2/2013 - Construction of Complex Taxable value 25% or 30%

378

3/2013 - Mega Exemption Amended

379

4/2013 - Advance Ruling (Applicable for Public Company)

381

5/2013 - New ST-5, ST-6 and ST-7 notified

382

6/2013 - Focus Market Scheme

392

7/2013 - Focus Product Scheme

397

8/2013 - Vishes Krishi and Gram Udyog Yojana

400

9/2013 - Construction service Change in abatement

402

10/2013 - Service Tax Voluntary Compliance Enco. Rules notified

403

11/2013 - Amends Not. No. 6/2013-ST

404

12/2013 - Special Economic Zone (SEZ) Developer / Unit

406

13/2013 Amendment to Not. 25/2012

416

1/1/2013 - AD-HOC EXEMPTION

417

12/2013 (CE) Amendment in 3 (5A) of CCR

418

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14/2013 Catering in canteen

419

15/ 2013- Amendment in SEZ Not

420

16 /2013- E-payment (1 lac)

421

17/2013-Amendment to FMS

422

01/2014 Amendment in Mega

423

02/2014 ST Governmental Authority definition

424

03/2014-ST Forward contract sub-broker exemption

425

05/2014-ST FMS Amendment

427

18/2013-C.E. (N.T.) Rescinded later

428

01/2014-CE (NT) CENVAT Credit amendment

429

02/2014-CE(N.T.) Amends Rule 12

430

05/2014 CE (NT) Rule 7 (ISD Amendment)

431

07/2014 CE (NT) Rescinds 18/2013

432

09/2014-CE(N.T.) CCR Amendment

433

11/2014CE (N.T.) Quarterly Return

434

12/2014CE (NT)- Refund for Partial RCM service providers

436

13/2014CE (N.T.) Rescinds Not. No. 6/2012CE (NT)

441

15/2014 - CE(N.T.) 12AAA introduced

442

06/2014-ST Mega Not. amended

443

07/2014-ST SEZ refund simplified

447

08/2014-ST Abatement amended

450

09/2014-ST RCM amended

453

10/2014-ST RCM amended

455

11/2014-ST Valuation Rules amended

457

12/2014-ST Interest rates notified

458

13/2014-ST POT amended

459

14/2014-ST POPS amended

461

15/2014-ST Advance Ruling for private company

463

21/2014-CE(NT) CCR amendment

464

14. CIRCULARS

466

160/11/2012 - Applicablity of EC and SHEC

466

161/12/2012 Accounting code for Negative List

468

163/14/2012 - Clarification on remittances

470

164/15/2012 Clarification on vocational education

472

165/16/2012 - Circular on restoration of accounting codes

474

166/1/2013 reminder letters for insurance policies

486

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167/2/2013 - Milk transportation by rail

487

969/03/2013-CX CESTAT Appeal forms

488

168/3/2013 - Clarification on Pandal and Shamiyana

492

169/4/2013 - Clarification on VCES

494

170/5 /2013 - Clarification on VCES

496

171/6/2013 - Circular on Arrest and Bail

501

172/7/2013 Education services Clarification

505

173/8/2013 Restaurant clarifications

508

174/9/2013 VCES clarifications

510

175/01/2014 ST RWA Clarification

513

176/2/2014 ST VCES Discharge and CENVAT

515

177/03/2014 ST Rice, paddy clarification

516

974/08/2013-CX - Arrest and Bail

517

178/4/2014-ST ISD clarification

523

15.

PO T R C I R CUL AR S

526

341/34/2010-TRU - POTR Clarifications

154/5/2012-ST

POTR

clarification

526

530

155/6/2012-ST

POTR Clarifications

531

158/9/2012-ST Change in Rate

532

162/13/2012 - Clarification on POTR

533

16.

D R A FT C IR CU L AR

536

D r a f t c i r c u l a r o n s t a f f b e n e fi t s

536

Draft circular on service tax on air transport

542

17.

INSTRUCTIONS/ ORDERS

545

instructions Negative List Of Service Tax Regime

545

FILING OF ST-3

548

Order 3/2012 - Due date for filing of Service Tax return

550

Service Tax Instruction

551

Order 2/2013 - ST-3 [30 April 2013]

553

Order 3/2013 - ST-3 [31 August 2013]

554

Order 4/2013 - ST-3 [10 September 2013]

555

F.No: 137/116/2012- E-payment 1 lacs

556

F.

No. B1/19/2013-TRU (Pt.) - VCES

558

F.

No. 137/50/2013-VCES

560

F.No.275/05/2014-CX.8A Validity of Stay

561

17/1/2012-CX.1 Proposed amendment in Rule 6 of CCR

562

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18.

Budget 2013

564

Union FM Budget Speech (Extracts)

564

TRU Budget 2013 Service Tax

568

Article Budget 2013 Changes in Service Tax CA Pritam Mahure

571

Supply of food in restaurant, ‗sale‘ or ‗service‘? – CA Pritam Mahure

576

ST on Foreign Bank Charges

579

CEVAT Credit of ST paid under VCES

583

Applicability of VAT on flat

587

19. Interim Budget - 2014

591

Service Tax - Budget 2014 changes

591

Economic Times - Service tax applicable on transport etc rice, cotton

593

Economic Times - Tax Tribunal Posts on Pause

595

Barter between Landowner and Developer – ‗Complex‘ construction

596

Applicability of Excise duty on Sales Tax Retention

601

Service Tax on Mid-day meal scheme

605

CENVAT Credit - ‗Interest‘ing issue

610

20.

Budget 2014

613

Budget 2014 Key Service Tax changes in chronological order

613

Service Tax TRU letter

618

21. FAQ on VCES CBEC

633

22. Education Guide CBEC

645

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1. ABOUT THE BOOK

FOREWORDS (7 th Edition)

The challenge of dissemination of a tax law in a cogent and lucid manner is nearly as huge as its making. Mr. Pritam Mahure in this book has attempted to meet the challenge with laurels coming very close to what could even be termed as a ―work of art‖.

Indirect tax reforms in recent years have been largely guided keeping in view the eventual goal of GST. The changes over the last couple of years in the areas of service tax are definitely precursors in that direction. A careful understanding and applicability of the new provisions will go a great length in helping our smooth transition towards GST.

Taxation of services based on Negative List, together with many other significant changes, in 2012 has refreshed the challenge of managing change once again. Despite an elaborate effort to explain the new provisions by way of ―Education Guide‖ released by the Government, it still required considerable effort to carry out the task in the light of experience gained from its early applicability.

Service tax law by itself is not comprehensive and relies considerably on the provisions from other enactments. To put it in a user-friendly manner for the tax-payers and other practitioners is an enormous challenge.

I have noticed that Mr Pritam Mahure has taken immense pains to provide

comprehensive coverage to the subject. It has been a pleasure for me to go through the subject once again, somewhat like watching a suspense movie all over again, knowing the ultimate truth, yet enjoying the nuances from time-to time.

V K Garg

Joint Secretary (Tax Research Unit)

Department of Revenue

Central Board of Excise & Customs

Ministry of Finance,

Government of India

July 2013

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Special Thanks

- I would like to thank Shri J. C. Chaturvedi (DG, DGCEI) who had suggested me the idea to write this book on Service Tax

- I would like to thank Shri. Sunil Gabhawalla under whose able guidance I learnt Service Tax

- I would like to thank Shri. Rajan Choudhary (Addl. Commissioner of Service Tax, Pune) for his valuable feedback for the book and guidance

- Also, would like to thank Suresh Nair (Partner, Ernst & Young) for his valuable suggestions and expert guidance

- Also, I am grateful to Pratik Shah (Partner, SKP Business Consulting LLP) for his valuable suggestions and feedback

About the author

for his valuable suggestions and feedback About the author - CA Pritam Mahure practices in the

- CA Pritam Mahure practices in the field of Indirect Taxes (Service Tax, Excise and proposed GST) since more than a decade.

- Pritam has also authored book on ―GST – Supply Chain Perspective‖ for Confederation of Indian Industry (CII)

- Pritam has conducted numerous session for:

o

Corporates and industry

o

Government officers (Central Excise and Service Tax Department, DGST etc),

o

ASSOCHAM, CII, Marattha Chamber of Commerce and Industry (MCCIA), Deccan Chamber of Commerce (DCCIA), ICAI, GCM Worldwide etc.

- Pritam has also raised and represented industry specific issues before CBEC

- Pritam is also a faculty for ‗Indirect Tax‘ [CA/CS/CMA]

- Pritam also writes regularly at Economic Times, Deccan Herald, Taxindiaonline.com, Taxmann, Centax, Lexsite etc

- For suggestions/ feedback/ queries readers may feel free to revert at capritam@gmail.com/ +919920644648

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2. NEGATIVE LIST IN A NUTSHELL

A. In a nutshell

1. Negative List Service is taxable unless exempt Applicable wef 1 July 2012
1. Negative List
Service is taxable unless
exempt
Applicable wef 1 July 2012
2. Positive List Service is exempt unless taxable Applicable upto 30 June 2012
2. Positive List
Service is exempt unless
taxable
Applicable upto 30 June 2012

B. Negative vis-à-vis Positive list regime A Comparative Analysis

Current provisions

Coverage

Earlier provisions

(Negative List)

(Positive List)

65B

Definitions

65

66B

Charging Section

66

and 66A

66C

Determination of Place of

Export and Import Rules

Provision of services

66D

Negative List

Service specific

exclusions/ exemptions

66E

Declared services

65

(105)

66F

Interpretation Rules and

65A (covers classification

Bundled services

only)

67 and Valuation Rules

Valuation

67

and Valuation Rules

(Amended)

 

67A and POTR

Date of determination tax rate,

POTR

value and exchange Rate

25/2012-ST

One mega notification

Various notifications

C. Rules deleted/ substituted

SR

Rules

Particulars

Rationale for deletion of rules

1

Taxation of Services (Provided from Outside India & Received in India) Rules, 2006

Deleted

Introduction of ‗Place of Provision of Services Rules,

2012‘

2

Export of Services Rules, 2005

Deleted

Introduction of ‗Place of Provision of Services Rules,

2012‘

3

Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007

Deleted

Insertion of Rule 2A in the

Service Tax Valuation Rules,

2006

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D. Key provisions and effective date

Provisions

Particulars

Negative List regime

Applicable w.e.f. 1 July 2012

Applicable rate of Service Tax

 

12.36%

Service tax returns

-

For the period for April 2014 to September 2014 returns to be filed before 25 October 2014

E. Abatement (Refer Not. No. 26/2012 and Valuation Rules)

SR

Service

Taxable

1

Goods Transport Agency (GTA) (any person who pays or is liable to pay freight either himself or through his agent for the transportation of such goods by road in a goods carriage)

25%

Provided that when such person is located in a non-taxable territory, the provider of such service shall be liable to pay service tax.

2

Transport of goods by rail

30%

3

Transport of passengers by rail

30%

4

Transport of goods in a vessel from one port in India to another

50% 1

5

Transport of passengers by air

40%

6

Supply of food or any other article of human consumption or any drink, in a restaurant / other premises

40%/

60%

7

Supply of food in convention centre, pandal, shamiana etc

70%

8

Accommodation in hotels, inns etc

60%

9

Renting of [any vehicle designed to carry passengers] 2

40%

10

Package tour

25%

11

Booking accommodation

10%

12

Services other than 11 and 12 provided in relation to tour

40%

13

Financial leasing services including hire purchase

10%

1 40% wef 1 October 2014 vide Not. No. 8/2014-ST 2 Substituted as „motorcab‟ wef 1 October 2014 vide Not. No. 8/2014-ST

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14

Services in relation to chit 3

70%

15

4 Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly, except where entire consideration is received after issuance of completion certificate by the competent authority,-

 

(a)

for a residential unit satisfying both the following

conditions, namely:

(i) the carpet area of the unit is less than 2000 square feet; and

25%

(ii)

the amount charged for the unit is less than rupees one

crore;

(b)

for other than the (a) above

30%

16

Works contracts entered into for execution of original works

40%

17

Works contracts entered into for maintenance or repair or reconditioning or restoration or servicing of any goods

70%

18

For other works contracts, not covered under sr. no. 16 and 17 , including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property,

60% 5

F. Reverse Charge Mechanism (Refer Not. No. 30/2012-ST)

SR

Service

Service recipient

% of ST payable

Provider

Recipient

1

Provided by person who is located in non-taxable territory and received by any person located in taxable territory

Any person 6

Nil

100%

2

Works contract services by individual, HUF, firm or AOP

Body corporate

50%

50%

3 In a chit business, the subscription is tendered in any one of the forms of ‗money‘ as defined in section 65B(33). It would, therefore, be a transaction in money. So considered, the transaction would fall within the exclusionary part of the definition of the word ‗service‘ as being merely a transaction in money…The notification No.26/2012-ST dated 20.06.2012 issued by the Government of India, Ministry of Finance (Department of Revenue) is quashed to the extent of the entry in serial No.8 thereof. Delhi Chit Fund Association 2013-TIOL-331-HC-DEL-ST - SLP against High Court Order Dismissed by Supreme Court [UoI Vs Delhi Chit Fund Association

2014-TIOL-23-SC-ST]

4 Not. No. 9/2013-ST dated 8 May 2013 5 70% wef 1 October 2014 vide Not. No. 11/2014-ST

6 Exemption provided to certain persons vide Sr. No. 34 of Not. No. 25/2012-ST

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3

Manpower supply for any purposes or security services by individual, HUF, firm or AOP

Body corporate

25%

75%

 

4

Renting of vehicle to any person who is not engaged in the similar line of business to carry passenger by individual, HUF, firm or AOP

Body corporate

   

- With abatement

Nil

100%

- Without abatement

6050%

4050

7 %

5

Support services 8 by Government and Local Authority (excluding renting and 66D (a) (i) to (iii)

Business entity

Nil

100%

6

Provided or agreed to be provided by a director of a company to the said company (w.e.f. 7 August 2012 vide Not.

Body Corporate 9

Nil

100%

45/2012)

7

Individual advocate

Business entity 10

Nil

100%

8

Arbitral Tribunal

Business entity 11

Nil

100%

9

Sponsorship

Body corporate or PF

Nil

100%

7 Change effective from 1 October 2014 vide Not. No. 10/2014-ST

8 Para 4.1.7 of Education Guide: What is the meaning of ―support services‖ which appears to be a phrase of wide ambit? Support services have been defined in section 65B of the Act as infrastructural, operational, administrative, logistic marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of movable or immovable property, security, testing and analysis. Thus services which are provided by government in terms of their sovereign right to business entities, and which are not substitutable in any manner by any private entity, are not support services e.g. grant of mining or licensing rights or audit of government entities established by a special law, which are required to be audited by CAG under section 18 of the Comptroller and Auditor-General‗s (Duties, Powers and Conditions of Service) Act, 1971 (such services are performed by CAG under the statue and cannot be performed by the business entity themselves and thus do not constitute support services.) Para 4.1.8 of Education Guide: Will the services provided by Police or security agencies to PSUs or corporate entities or sports events held by private entities be taxable? Yes. Services provided by government security agencies are covered by the main portion of the definition of support service as similar services can be provided by private entities. In any case it is also covered by the inclusive portion of the definition. However the tax will be actually payable on reverse charge by the recipient. 9 Substituted for ‗company‘ from 11 July 2014 vide Not. No. 9/20141-ST

10 Exemption provided to certain persons vide Sr. No. 6 of Not. No. 25/2012-ST

11 Exemption provided to certain persons vide Sr. No. 6 of Not. No. 25/2012-ST

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10

GTA

Company, P. Firm, Factory, Society, excise registered assessee

Nil

100%

11

Insurance agent to insurance companies

Insurance business

Nil

100%

12

In relation to service provided or agreed to be provided by a recovery agent 12

Banking company or a financial institution or a non-banking financial company

Nil

100%

G. Brief Note on Negative List regime 13

What is the significance of the changes due to the new system of taxation?

Budget 2012 proposes to usher a paradigm shift in the manner services will be taxed in

future. The transition involves shift from taxation of 119 service-specific descriptions to a

new regime whereby all services will be taxed unless they are covered by any of the

entries in the negative list or are otherwise exempted. The new system is a marked shift

by way of comprehensive taxation of the entire service sector without getting into

complex issues of classification of services.

What is the broad the scheme of new taxation?

In the new system, service tax will be levied on all services provided in a taxable

territory other than the services specified in the negative list. The key features of this

system are as follows:

At the outset ‗service‘ has been defined in clause (44) of section65B of the Act.list. The key features of this system are as follows: Section 66B specifies the charge of

Section 66B specifies the charge of service tax which is essentially that service taxhas been defined in clause (44) of section65B of the Act. shall be levied on all

shall be levied on all services provided or agreed to be provided in a taxable

territory, other than services specified in the negative list.

The negative list of services is contained in section 66D of the Act.other than services specified in the negative list. Since provision of service in the taxable territory

Since provision of service in the taxable territory is an important ingredient oflist of services is contained in section 66D of the Act. taxability, section 66C empowers the

taxability, section 66C empowers the Central Government to make rules for

determination of place of provision of service. Under these provisions the Place of

Provision of Services Rules, 2012 have been made for which a separate and detailed

guidance paper (GPB) has been issued.

To remove some ambiguities certain activities have been specifically defined byseparate and detailed guidance paper (GPB) has been issued. description as services and are referred as

description as services and are referred as Declared Services (listed in section 66E).

In addition to the services specified in the negative list, certain exemptions haveare referred as Declared Services (listed in section 66E). been given. Most of the exemptions are

been given. Most of the exemptions are proposed to be consolidated in a single

mega exemption for ease of reference.

12 Inserted from 11 July 2014 vide Not. No. 9/20141-ST

13 Relevant paras from TRU DOF No 334/1/2012-TRU dated 16 March 2012

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Principles have been laid down in section 66F of the Act for interpretation wherever services have to be treated differentially for any reason and also for determining the taxability of bundled services.The system of valuation of services for levy of service tax and of availment and

The system of valuation of services for levy of service tax and of availment and utilization of Cenvat credits essentially remains the same with only incidental changes required for the new system of taxationand also for determining the taxability of bundled services. What is service? In the existing system,

What is service?

In the existing system, only the services specified in clause (105) of section 65 of the Finance Act, 1994 are taxed under the charging section 66. In the new system, all services, other than services specified in the negative list, provided or agreed to be provided in the taxable territory by a person to another would be taxed under section 66B. This Note explains the various ingredients and aspects of the definition of service. Service‘ has been defined in clause (44) of the new section 65B and means –

- any activity

- for consideration

- carried out by a person for another

- and includes a declared service.

The said definition further provides that ‗Service‘ does not include –

- any activity that constitutes only a transfer in title of (i) goods or (ii) immovable property by way of sale, gift or in any other manner

- a transaction only in (iii) money or (iv) actionable claim

- any service provided by an employee to an employer in the course of the employment.

- fees payable to a court or a tribunal set up under a law for the time being in force

There are three explanations appended to the definition of ‗service‘ which are dealt with in later part of this Guidance Note. Each of the ingredients bulleted above have been

explained in the points below.

Taxability of service

The taxability of services or the charge of service tax has been specified in section 66B of the Act. To be a taxable a service should be

- provided or agreed to be provided by a person to another

- in the taxable territory

- and should not be specified in the negative list.

Provided in the taxable territory

- Taxable territory has been defined in section 65B of the Act as the territory to which the Act applies i.e the whole of territory of India other than the State of Jammu and Kashmir.

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- Detailed rules called the Place of Provision of Service Rules, 2012 have been made which determine the place of provision of service depending on the nature and description of service.

- Please refer to the Place of Provision of Service Rules, 2012

Rules of interpretation

Despite doing away with the service-specific descriptions, there will be some descriptions where some differential treatment will be available to a service or a class of services. Section 66F lays down the principles of interpretation of specified descriptions of services and bundled services.

Principles for interpretation of specified descriptions of services

Although the negative list approach largely obviates the need for descriptions of services, such descriptions continue to exist in the following areas

- In the negative list of services.

- In the declared list of services.

- In exemption notifications.

- In the Place of Provision of Service Rules, 2012

- In few other rules and notifications.

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3. EXISTING INDIRECT TAX SYSTEM IN INDIA

As per the Constitution of India, the taxing powers of the Central Government

encompass taxes on income (except agricultural income), excise duty on goods

manufactured in India (other than alcohol for human consumption), customs

duty, inter-state sale of goods etc. The taxing powers of the State Governments

include the power to tax agricultural income, excise duty on alcohol for human

consumption, sales tax on intra-State sale of goods etc.

On a high level basis, indirect taxes in the country can be categorised in three baskets

- Central level indirect taxes : Customs duty, Excise duty, Service Tax etc

- State level indirect taxes: VAT, Entry Tax, Purchase Tax etc

- Local level indirect taxes: Octroi etc

The following diagram captures the aforesaid:

Central Goverrnment

Customs duty

Excise Duty

Service Tax

Central Sales Tax, Research & Dev. Cess

State Government

VAT/Sales Tax

Entry Tax, Purchase Tax, Entertainment tax, Elect. duty

Local Taxes

Octroi / Local Body

Tax

tax, Elect. duty Local Taxes Octroi / Local Body Tax Key features of specified indirect taxes:
tax, Elect. duty Local Taxes Octroi / Local Body Tax Key features of specified indirect taxes:

Key features of specified indirect taxes:

SR

Indirect Tax

Key features

1

Customs duty

-

Customs duty is applicable on import of goods into India

 

-

Customs duty is payable by the importer

-

Rate of Customs duty is specified in the Customs Tariff

-

Generic rate of Customs duty is 28.85% which comprises the following:

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a. Basic Customs Duty (generic rate is 10%)

b. Additional Duty of Customs in lieu of excise 14 (generic rate is 12%)

c. Additional Duty of Customs in lieu of VAT 15 (generic rate is

 

4%)

 

d. Education cess 16 @ 3%

 

-

Customs duty is levied and governed under the Customs Act,

 

1962

and the Rules made thereunder

2 Excise duty

-

Excise duty is applicable on ‗manufacture‘ of goods in India

-

‗Manufacture‘ typically implies a process at end the end of which a new and different article, having a distinctive name, character or use, emerges.

-

Excise duty is payable by the manufacturer

-

Rate of Excise duty is specified in the Excise Tariff

-

Generic rate of Excise duty is 12.36% (including Cess 3%). Further, certain goods are liable to concessional rate of Excise duty of (i.e. 2.06%, 6.18%)

-

Excise duty is levied and governed under the Excise Act, 1944 and the Rules made thereunder

3 Service Tax

-

Service tax is applicable on provision of all services

-

Service tax is not applicable on ‗Negative list 17 ‘ services and certain exempt services 18

-

Service tax is payable by Service provider. However, in certain case service recipient is also liable to pay service tax 19 .

-

Rate of Service Tax is 12.36% (including Cess 3%). Further, for certain services abatement is provided 20

-

Service tax is levied and governed under the Finance Act, 1994 and the Rules made thereunder

4 Research and

-

Research and Development (R&D) cess is applicable on import of technology through foreign collaborator

 

Development

Cess

-

The rate of R&D cess is 5%

 

-

R&D cess is levied and governed under Research and Development Cess Act, 1986 and the Rules made thereunder

5 VAT/ Sales Tax

-

VAT / Sales tax is applicable on sale of goods within a State

-

VAT is payable by the seller

-

Rate of VAT is State specific. Rate of VAT is specified the VAT schedule of the State

-

Typically, the rate of VAT varies from 0% to 15%

-

VAT is levied and governed under the State specific VAT Act and the Rules made thereunder

6 CST

-

CST is applicable on inter State sale of goods

-

CST is payable by the seller

-

Rate of CST is 2% provided the buyer issues C form. If the

 

buyer doesn‘t issue C form then CST is applicable at the rate equal to rate of VAT in the State from which goods are sold

 

-

CST is levied and governed under The Central Sales Tax Act,

1956 and the Rules made thereunder

14 Also known as Counter-Veiling Duty/ CVD

15 Also known as Special Additional Duty of Customs / SACD

16 Education cess @ 2% plus Secondary and Higher Education cess @ 1%

17 Negative List of services comprises of 17 services and is specified under Section 66D of Finance Act, 1994

18 Exemption is provided to 39 services vide Not. No. 25/2012-ST 19 Situations where service recipient is liable to pay ST (as recipient of service) is specified in Not. No. 30/2012-ST

20 Abatement to various services is specified under Not. No. 26/2012-ST and Service Tax (Determination of Value of Services) Rules, 2006

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7 Entry Tax

-

Entry tax is applicable on entry of specified goods in the State for sale, use or consumption

-

Entry tax is levied by various States in India

-

Entry tax is levied and governed under State specific Entry Tax Act and the Rules made thereunder

8 Octroi / Local Body Tax (LBT)

-

Octroi is levied by the Municipal Corporation on entry of specified goods in their jurisdiction for sale, use or consumption

-

Octroi is levied by various Municipal Corporations in the State of Maharashtra (such as Mumbai, Thane, Pune etc)

-

Octroi is levied and governed under Rules made by the Municipal Corporations

-

LBT is proposed to be introduced by substituting Octroi.

9 Purchase Tax

-

Purchase tax is applicable on purchase of specified goods

-

Purchase Tax is a major source of revenue for Punjab and Haryana

-

In Punjab, Purchase Tax is levied under Punjab Value Added Tax Act, 2005

-

Its pertinent to note that in 2012, Maharashtra has also introduced Purchase Tax on cotton and oil seeds

10 Entertainment

-

Entertainment tax is applicable on movie tickets, commercial shows etc

tax

 

-

Entertainment tax is levied by the State Governments

-

The rate of entertainment tax varies from 0% to 110% 21

-

This source of revenue has grown with the advent of Pay Television Services in India. Since, entertainment is being provided through the services such as Broadcasting Services, DTH Services, Pay TV Services, Cable Services, etc. The component of entertainment is intrinsically intertwined in the transaction of service, that it cannot be separated from the whole transaction. Given the nature of transaction of service, it is being subjected to tax by the Union and the State governments both 22

Current Indirect tax implications on various transactions

A transaction in an economy can be one of the following type:

a. Transaction in goods:

o

Trading (i.e. buying and subsequently selling the goods)

o

Manufacturing and subsequently selling of goods

b. Transaction is services (such as provision of logistics services, advisory services, courier services etc)

c. Transaction involving both goods and services (i.e. works contract such as contract for construction of compound wall wherein material alongwith labour is provided by the contractor)

d. Transaction in immovable property

e. Other transactions (such as employment, grants etc)

21 Source www.filmtvguildindia.org

22 Source www.en.wikipedia.org

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Transactions in an economy are subject to indirect taxes. We have given below the typical indirect tax implications on the aforesaid transactions:

SR

Activity

Tax applicable

1

Trading Sale to a customer located in same State (Intra- State sale)

Value Added Tax 23 (VAT) would be applicable on the sale to the customer

2

Trading Sale to a customer located in different State (inter-State sale)

Central Sales Tax (CST) would be applicable on the customer sale to the customer

3

Manufacturing and subsequently intra-State sale of goods

- Excise duty on manufacture of goods

- VAT on sale of goods

4

Manufacturing and subsequently inter-State sale of goods

- Excise duty on manufacture of goods

- CST on sale of goods

5

Provision of services

Service Tax 24

6

Works contracts (i.e. transaction involving both goods and services)

- VAT on ‗goods‘ portion in works contract

- Service Tax on ‗service‘ portion in the works contract

7

Transaction of sale of an completed 25 immovable property

Stamp duty

8

Other transactions (such as employment, donation etc)

Income from salary, donation etc is subject matter of Income Tax

Apart from the aforesaid taxes, certain States and Municipal Corporations also levy Entry Tax, Octroi for entry of goods for consumption/ sale in their respective jurisdiction.

From the aforesaid discussion, it can be observed from the above that currently the indirect tax system in the India is governed by the ‗taxable events‘ (such as manufacture, sale, provision of service etc). However, this approach to levy and collect indirect tax has its own limitations and it results in inefficiency in certain cases due to non-availability of input tax credit.

23 Also known as Sales tax

24 However, certain specified services such as entertainment, advertisement etc may be liable to State VAT

25 W.e.f. 1 July 2010, Service tax has been made applicable on sale of property before completion certificate is received for the same.

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4. SERVICE TAX STATUTORY PROVISIONS

SECTIONS 64 TO 96-I (CHAPTERS V and VA) OF THE FINANCE ACT, 1994 PROVIDING FOR SERVICE TAX)

SECTION 64.

Extent, commencement and application.

(1) This Chapter extends to the whole of India except the State of Jammu and Kashmir.

(2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

(3) It shall apply to taxable services provided on or after the commencement of this Chapter.

65B. Interpretations 26 .

In this Chapter, unless the context otherwise requires,-

(1) "actionable claim" shall have the meaning assigned to it in section 3 of the Transfer of Property Act, 1882 (4 of 1882.);

(2) "advertisement" means any form of presentation for promotion of, or bringing awareness about, any event, idea, immovable property, person, service, goods or actionable claim through newspaper, television, radio or any other means but does not include any presentation made in person;

(3) "agriculture" means the cultivation of plants and rearing of all life-forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products;

(4) "agricultural extension" means application of scientific research and knowledge to agricultural practices through farmer education or training 27 ;

26 Applicable wef 1 July 2012 vide Not. No. 19/2012-ST dated 5 June 2012

27 From the language it may be stated that the exemption is restricted to ‗Application of scientific research and knowledge to agricultural practices through farmer education or training‘. The term farmer precedes ‗education or training‘. Herein the context in which the term ‗education or training‘ is used needs to be understood. Typically, the farmers in India are either illiterate or less educated. Thus, a knowledge sharing platform, per-se, which adds knowledge and thus ‗educate or train‘ the farmers would become eligible. Further, the exemption is available for ‗application of Scientific research and knowledge to agricultural practices‘. Thus, in case scientific research,

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(5) "agricultural produce" means any produce of agriculture on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market 28 ;

(6) "Agricultural Produce Marketing Committee or Board" means any committee or board constituted under a State law for the time being in force for the purpose of regulating the marketing of agricultural produce;

(7) "aircraft" has the meaning assigned to it in clause (1) of section 2 of the Aircraft Act, 1934 (22 of 1934.);

(8) "airport" has the meaning assigned to it in clause (b) of section 2 of the Airports Authority of India Act, 1994 (55 of 1994.);

(9) "amusement facility" means 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 places but does not include a place within such facility where other services are provided;

knowledge, know-how etc about agricultural practices etc is shared with the farmers for application in farm then the same will be eligible for exemption.

28 The Finance Act 1994 exempts storage or warehousing of ‗agricultural produce‘. In this context, question had arisen as to whether ‗rice‘ is an ‗agricultural produce‘ or not? In this regard, the H‘ble Finance Minister had vide letter dated 9 November 2013 had clarified that ‗paddy‘ is an ‗agricultural produce‘ but ‗rice‘ is not since it is subject to processing (de-husking etc) and it will not qualify as ‗agricultural produce‘ and thus its storage, warehousing etc will be liable to service tax. Now, as a relief, vide Notification No. 4/2014-ST dated 17 February 2014, the Finance Ministry has exempted storage or warehousing, loading, unloading, packing of ‗rice‘ from service tax.

However, this Notification is half-hearted as the exemption is provided but it will be applicable for period from 17 February 2014 onwards (i.e. prospective), thus implying that the Government considers this service was taxable prior to 17 February 2014. This leads to a paradox as the Government thinks the storage, warehousing etc of ‗rice‘ as exempt with effect from 17 February 2014 onwards but taxable prior to 17 February 2014. Though the interpretation of the Finance Ministry that ‗rice‘ is not an ‗agricultural produce‘ is itself doubtful still the warehousing industry may receive notices asking them to pay service tax for the period prior to 17 February 2014. In our view, it is of atmost importance that the aforesaid services are exempted retrospectively.

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(10) "Appellate Tribunal" means the Customs, Excise and Service Tax Appellate Tribunal constituted under section 129 of the Customs Act, 1962 (52 of 1962.);

(11) "approved vocational education course" means,-

(i) a course run by an industrial training institute or an industrial training centre affiliated to the National Council for Vocational Training or State Council for Vocational Training 29 offering courses in designated trades notified under the Apprentices Act, 1961 (52 of 1961.); or

(ii) a Modular Employable Skill Course, approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Employment and Training, Union Ministry of Labour and Employment; or

(iii) a course run by an institute affiliated to the National Skill Development Corporation set up by the Government of India; 30

(12) "assessee" means a person liable to pay tax and includes his agent;

(13) "associated enterprise" shall have the meaning assigned to it in section 92A of the Income-tax Act, 1961 (43 of 1961.);

(14) "authorised dealer of foreign exchange" shall have the meaning assigned to "authorised person" in clause (c) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999.);

(15) "betting or gambling" means putting on stake something of value, particularly money, with consciousness of risk and hope of gain on the outcome of a game or a contest, whose result may be determined by chance or accident, or on the likelihood of anything occurring or not occurring;

(16) "Board" means the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963.);

(17) "business entity" means any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession;

29 Applicable from 10 May 2013

30 Applicable from 10 May 2013

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(18) "Central Electricity Authority" means the authority constituted under section 3 of the Electricity (Supply) Act, 1948 (54 of 1948.);

(19) "Central Transmission Utility" shall have the meaning assigned to it in clause (10) of section 2 of the Electricity Act, 2003 (36 of 2003.);

(20) "courier agency" means any person engaged in the door-to-door transportation of time-sensitive documents, goods or articles utilising the services of a person, either directly or indirectly, to carry or accompany such documents, goods or articles;

(21) "customs station" shall have the meaning assigned to it in clause (13) of section 2 of the Customs Act, 1962 (52 of 1962.);

(22) "declared service" means any activity carried out by a person for another person for consideration and declared as such under section 66E;

(23) "electricity transmission or distribution utility" means the Central Electricity Authority; a State Electricity Board; the Central Transmission Utility or a State Transmission Utility notified under the Electricity Act, 2003 (36 of 2003.); or a distribution or transmission licensee under the said Act, or any other entity entrusted with such function by the Central Government or, as the case may be, the State Government;

(24) "entertainment event" means an event or a performance which is intended to provide recreation, pastime, fun or enjoyment, by way of exhibition of cinematographic film, circus, concerts, sporting event, pageants, award functions, dance, musical or theatrical performances including drama, ballets or any such event or programme;

(25) "goods" means every kind of movable property other than actionable claim and money; and includes securities 31 , growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale;

31 ‗Securities‘ is included in the definition of ‗goods‘ so as to exclude the same from the definition of ‗service‘ (as ‗service‘ excludes transaction in ‗goods‘)

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(26) "goods transport agency" means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called 32 ;

(27) "India" means,-

(a)

the territory of the Union as referred to in clauses (2) and (3) of article 1 of the Constitution;

(b)

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 (80 of 1976.);

(c)

the seabed and the subsoil underlying the territorial waters;

(d)

the air space above its territory and territorial waters; and

(e)

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;

(28) "information technology software" means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment;

(29) "inland waterway" means national waterways as defined in clause (h) of section 2 of the Inland Waterways Authority of India Act, 1985 (82 of 1985.) or other waterway on any inland water, as defined in clause (b) of section 2 of the Inland Vessels Act, 1917 (1 of 1917.);

(30) "interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) but does not include any service fee or other charges in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has been utilised;

32 In the case of U P State Sugar Corp Ltd [2011 (24) S.T.R. 423 (Tri - Del)] the Tribunal prima-facie held that as no proforma for Consignment Note is prescribed hence issue of formal Consignment Note not mandatory for levy of Service tax [Stay case]

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(31) "local authority" means-

(a)

a Panchayat as referred to in clause (d) of article 243 of the

Constitution;

(b)

a Municipality as referred to in clause (e) of article 243P of the

Constitution;

(c)

a Municipal Committee and a District Board, legally entitled to, or

entrusted by the Government with, the control or management of a

municipal or local fund;

(d)

a Cantonment Board as defined in section 3 of the Cantonments Act,

2006 (41 of 2006.);

(e)

a regional council or a district council constituted under the Sixth

Schedule to the Constitution;

(f) a development board constituted under article 371 of the Constitution;

or

(g) a regional council constituted under article 371A of the Constitution;

(32) "metered cab" means any contract carriage on which an automatic device, of the type and make approved under the relevant rules by the State Transport Authority, is fitted which indicates reading of the fare chargeable at any moment and that is charged accordingly under the conditions of its permit issued under the Motor Vehicles Act, 1988 (59 of 1988.) and the rules made thereunder but does not include radio taxi 33 ;

(33) "money" 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 similar instrument but shall not include any

currency that is held for its numismatic value;

(34) "negative list" means the services which are listed in section 66D;

(35) "non-taxable territory" means the territory which is outside the taxable

territory 34 ;

(36) "notification" means notification published in the Official Gazette and the

expressions "notify'' and "notified" shall be construed accordingly;

(37) "person 35 " includes,-

33 With effect from date to be notified

34 Non-taxable territory would mean Jammu & Kashmir and rest of the world

35 It may be noted that in the Positive List Regime (i.e. upto 30 June 2012) the term 'person' was not defined in the Finance Act, 1994 or Rules made thereunder. Thus upto 30.06.2012 the definition of the term ―person‖ as defined in the General Clauses

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(i) an individual,

(ii)

a Hindu undivided family,

(iii)

a company,

(iv)

a society,

(v)

a limited liability partnership,

(vi)

a firm,

(vii) an association of persons or body of individuals, whether incorporated

or not,

(viii) Government,

(ix)

a local authority, or

(x)

every artificial juridical person, not falling within any of the preceding

sub-clauses;

(38) "port" has the meaning assigned to it in clause (q) of section 2 of the

Major Port Trusts Act, 1963 (38 of 1963.) or in clause (4) of section 3 of

the Indian Ports Act, 1908 (15 of 1908.);

(39) "prescribed" means prescribed by rules made under this Chapter;

(39a) ―print media‖ means,—

(i) ―book‖ as defined in sub-section (1) of section 1 of the Press and Registration of Books Act, 1867, but does not include business directories, yellow pages and trade catalogues which are primarily meant for commercial purposes;

(ii) ―newspaper‖ as defined in sub-section (1) of section 1 of the Press and

Registration of Books Act, 1867 36

(40) "process amounting to manufacture or production of goods 37 "

means a process on which duties of excise are leviable under section 3 of

the Central Excise Act, 1944 (1 of 1944) or the Medicinal and Toilet

Preparations (Excise Duties) Act,1955 38 or any process amounting to

Act, 1897 should be referred to, which defines the term ―person‖ as Sec.3 (42) "person" shall include any company or association or body of individuals, whether incorporated or not; However, from 1.07.2012 as the term ‗person‘ is specifically defined ,it should be referred. 36 With effect from date to be notified

37 Business Support Services - Processes amounting to manufacture - Same activity cannot be considered as manufacturing and subjected to Excise levy and also considered as service and subjected to Service Tax Jubilant Industries Limited [2013 (9) TMI 358 - CESTAT NEW DELHI]

38 Applicable from 10 May 2013

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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 for the time being in force;

(41) "renting" means allowing, permitting or granting access, entry, occupation, use 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;

(42) "Reserve Bank of India" means the bank established under section 3 of the Reserve Bank of India Act, 1934 (2 of 1934.);

(43) "securities" has the meaning assigned to it in clause (h) of section 2 of the Securities Contract (Regulation) Act, 1956 (42 of 1956.);

(44) "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include-

(a) an activity which constitutes merely,-

(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or

(ia) 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; or".

(ii) a transaction in money or actionable claim 39 ;

39 In the case of Future Gaming Solutions India Pvt Ltd 2013-TIOL-904-HC-Sikkim-ST, the High Court held that:

70. In view of the facts and circumstances and the discussions, our conclusions are as

under:-

(i) In the light of Sub-Section (1) to Section 65B read with Sub-Section (44) thereof lottery is excluded from the definition of 'service' being 'actionable claim… (iii) The activity of the Petitioner comprising of promotions, organising, reselling or any other manner assisting in arranging of lottery tickets of the State Lotteries does not establish the relationship of a principal or an agent but rather that of a buyer and a seller and, on principal to principal basis in view of the nature of the transaction consisting of bulk purchases of lottery tickets by the Petitioner from the State Government on full payment on a discounted price as a natural business transaction and, other related features like there being no

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(b) a provision of service by an employee to the employer in the course of or in relation to his employment;

(c) fees taken in any Court or tribunal established under any law for the time being in force.

Explanation 1 For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply to,-

(A)

the functions performed by the Members of Parliament, Members of State Legislative, Members of Panchayats, Members of Municipalities and Members of other local authorities who receive any consideration in performing the functions of that office as such member; or

(B)

the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or

(C)

the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Governments or local authority and who is not deemed as an employee before the commencement of this section.

Explanation 1A- For the purposes of this clause, transaction in money shall not include, any activity relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination to another form, currency or denomination for which a separate consideration is charged:".

Explanation 2.- For the purposes of this Chapter,-

(a)

an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons 40 ;

(b)

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 41 .

privity of contract between the State Government and the stockists, agents, resellers under the Petitioner‖ 40 In view of this clause, services provided by club to its members will attract service tax

41 It may be noted that this clause would cover Jammu & Kashmir branch providing services to another Branch in say Pune or vice-versa

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Explanation 3.- A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory;

(45) "Special Economic Zone" has the meaning assigned to it in clause (za) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005.);

(46) "stage carriage" shall have the meaning assigned to it in clause (40) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988.);

(47) "State Electricity Board" means the Board constituted under section 5 of the Electricity (Supply) Act, 1948 (54 of 1948.);

(48) "State Transmission Utility" shall have the meaning assigned to it in clause (67) of section 2 of the Electricity Act, 2003 (36 of 2003.);

(49) "support services" means infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis;

(50) "tax" means service tax leviable under the provisions of this Chapter;

(51) "taxable service" means any service on which service tax is leviable under section 66B ;

(52) "taxable territory" means the territory to which the provisions of this Chapter apply;

(53) "vessel" has the meaning assigned to it in clause (z) of section 2 of the Major Port Trusts Act, 1963 (38 of 1963.);

(54) "works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any moveable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property;

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(55) words and expressions used but not defined in this Chapter and defined in the Central Excise Act, 1944 ( 1 of 1944.) or the rules made thereunder, shall apply, so far as may be, in relation to service tax as they apply in relation to a duty of excise.'

66B. Charge of service tax on and after Finance Act, 2012 42 . There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent. 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.

43 Explanation.- For the removal of doubts, it is hereby clarified that the references to the provisions of section 66 in Chapter V of the Finance Act, 1994(32 of 1994) or any other Act, for the purpose of levy and collection of service tax, shall be construed as references to the provisions of section 66B

44 66BA.

(1) For the purpose of levy and collection of service tax, any reference to section 66 in the Finance Act, 1994 or any other Act for the time being in force, shall be construed as reference to section 66B thereof. (2) The provisions of this section shall be deemed to have come into force on the 1st day of July, 2012

66C. Determination of place of provision of service 45 . (1) The Central Government may, having regard to the nature and description of various services 46 , by rules made in this regard, determine the place where such services are provided or deemed to have been provided or agreed to be provided or deemed to have been agreed to be provided. (2) Any rule made under sub-section (1) shall not be invalid merely on the ground that either the service provider or the service receiver or both are located at a place being outside the taxable territory.

42 Applicable wef 1 July 2012 vide Not. No. 19/2012-ST dated 5 June 2012

43 Omitted from 10 May 2013

44 Applicable from 10 May 2013

45 Applicable wef 1 July 2012 vide Not. No. 19/2012-ST dated 5 June 2012

46 From the language used in the section 66C it may be construed that section 66C permits determination of place of provision by ‗having regard to the nature and description of various services‘. However, this principle is completely ignored in Rule 8 of Place of Provision of Services Rules, 2012

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66D. Negative list of services 47 . The negative list shall comprise of the following services, namely:––

(a) services by Government or a local authority excluding the following services to the extent they are not covered elsewhere(i) services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government 48 ; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;

(iii) transport of goods or passengers; or

(iv) support services, other than services covered under clauses (i) to (iii) above, provided to business entities;

(b)

services by the Reserve Bank of India 49 ;

(c)

services by a foreign diplomatic mission located in India 50 ;

(d) services relating to agriculture or agricultural produce by way of (i) agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed 51 testing;

(ii)

supply of farm labour;

(iii)

processes carried out at an agricultural farm including tending,

pruning, cutting, harvesting, drying, cleaning, trimming, sun drying,

fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market 52 ;

(iv) renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;

(v) loading, unloading, packing, storage or warehousing of agricultural

produce;

47 Applicable wef 1 July 2012 vide Not. No. 19/2012-ST dated 5 June 2012

48 Only specific services such as speed post etc are liable to Service Tax. Thus, basic mail service, money order service, pension payment etc is not liable to Service Tax

49 Services provided BY RBI are exempt (and not TO RBI)

50 This exemption seems to be given in view of Vienna Convention (which provides for grants immunity from local laws to the missions)

51 Omitted from 10 May 2013

52 Such as shelling of paddy or cleaning of wheat

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(vi) agricultural extension services 53 ; (vii) services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce;

(e)

trading of goods 54 ;

(f)

any process amounting to manufacture or production of goods 55 ;

56 (g) selling of space or time slots for advertisements other than advertisements broadcast by radio or television in print media 57 ;

(h)

service by way of access to a road or a bridge on payment of toll charges 58 ;

(i)

betting, gambling or lottery 59 ;

(j)

admission to entertainment events or access to amusement facilities 60 ;

(k)

transmission or distribution of electricity by an electricity transmission or distribution utility 61 ;

(l) services by way of(i) pre-school education and education up to higher secondary school or equivalent; (ii) education as a part of a curriculum for obtaining a qualification recognised by any law 62 for the time being in force;

53 As per Section 65B (4) "agricultural extension" means application of scientific research and knowledge to agricultural practices through farmer education or training

54 Refer Entry No. 54 to List II (State List) in Seventh Schedule to Constitution of India which reads as Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I‖

55 Refer Entry No. 84 to List I (Union List) in Seventh Schedule to Constitution of India which reads as ―Duties of excise on tobacco and other goods manufactured or produced in India except

(a)

alcoholic liquors for human consumption;

(b)

opium, Indian hemp and other narcotic drugs and narcotics,

but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry.‖ Also, refer Entry 51 of State List.

56 Refer Entry No. 55 to List II (State List) in Seventh Schedule to Constitution of India which reads as ―Taxes on advertisements other than advertisements published in the newspapers and advertisements broadcast by radio or television‖

57 Effective from a date to be notified

58 Refer Entry No. 59 to List II (State List) in Seventh Schedule to Constitution of India which reads as ―Tolls‖

59 Refer Entry No. 34 to List II (State List) in Seventh Schedule to Constitution of India which reads as ―Betting and gambling‖

60 Refer Entry No. 62 to List II (State List) in Seventh Schedule to Constitution of India which reads as ―Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling‖

61 Refer Entry No. 53 to List II (State List) in Seventh Schedule to Constitution of India which reads as ―Taxes on consumption or sale of electricity‖

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(iii) education as a part of an approved vocational education course;

(m) services by way of renting of residential dwelling for use as residence;

(n) services by way of

(i) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount; (ii) inter se sale or purchase of foreign currency amongst banks or authorised

dealers of foreign exchange or amongst banks and such dealers;

(o)

service of transportation of passengers 63 , with or without accompanied belongings, by(i) a stage carriage;

(ii)

railways in a class other than

 

(A)

first class; or

(B)

an airconditioned coach;

 

(iii)

metro, monorail or tramway;

(iv)

inland waterways;

(v)

public transport, other than predominantly for tourism purpose, in a vessel, between places located in India; and