Taxable Services
TAXABLE SERVICES NOTIFIED BY ICAI 1.
List the Services brought under Service Tax Levy by Finance Act, 2010
Section No.
Nature of Service
65(105)(zzzzv)
Restaurant Services
65(105)(zzzzw)
Short Term Accommodation Services
17.1 Agency Services 2.
Entities engaged in Clearing & Forwarding Activities are no exceptions to service tax levy. Discuss. [Sec 65(105)(j)]
1.
Taxable Service: Services provided to any person by a Clearing and Forwarding Agent in relation to clearing and Forwarding Operations in any manner.
2.
Taxable Activities / Persons: (a) (b) (c) (d) (e) (f)
3.
C&F Agents, Consignment Agents, Unregistered Customs Clearance Agents, Octroi Agents and Coal Merchants Receiving the goods from the factories or premises of the principal or the agent Warehousing the goods Receiving dispatch orders and arranging for the same Maintaining records of the receipt and dispatch of the goods Preparing invoices on behalf of the Principal
Non–Taxable Activities / Exemptions: (a) Del Credere Agents, Consignment Agent (not providing C & F Services) [Taxable under Business Auxiliary Services] (b) Activity / Service of providing of storage facility and charging rent. (c) Mere procurement of orders. [United Plastomers 10 STR 229 (P & H)]
4.
Meaning: (a) Clearing and Forwarding Agent is any person, engaged in providing any service, directly or indirectly connected with clearing and forwarding operations and includes a Consignment Agent. (b) They are appointed by Manufacturers, Producers and Distributors of Goods (Excisable and Non–Excisable). Exclusions from Clearing and Forwarding Agent Service
Coverage of both clearing and forwarding [RTP]: Both Clearing and Forwarding services should be rendered by the service provider. Where one renders only Forwarding service and not clearing service, he cannot be deemed to render both the services. [Kulcip Medicines Pvt Ltd (2009)14 STR 608 (P&H)] [However, this decision has been disagreed in CCE Vs
Mahaveer Generics (2010) 17 STR 225 (Kar.)]
D
Independent dealer – Not a Clearing and Forwarding Agent: An independent dealer of goods, who procures goods from the manufacturer and sells them from his own outlet, shall not be considered as Clearing and Forwarding Agent. [Valli Inc. 2009 (14) S.T.R. 528 (Tri. - Chennai)] Promoting sale of computers to overseas buyers and marketing in India is not covered under Clearing and Forwarding Agent’s Services. [Acer India Pvt. Ltd [2007 (6) STR 380 (Bang. – Tri.)] Mere collection of Loading / unloading, coolie / cartage, handling / portage and lorry freight charges on behalf of principal, is not C&F Activity. Where the principal himself pays Service tax, the collecting assessee is not liable to pay Service Tax. [U.M. Thariath & Company 2007 (008) STR 0161 Tri.-Bang]
3.
Tulip Medicines entered into an agreement with M/s.Sipla for handling and distribution of their products and was entrusted with the job of receiving, storing and distributing Sipla products to their Authorised Stockists and Distributing Centres. For the services so rendered, the Tulip Medicines was entitled to commission based on agreed percentage of sales figures and also to reimbursement of recurring expenses. Revenue contended that the services provided by the assessee attracted service tax under the category “Clearing & Forwarding Agent’s Services”. On the other hand, the assessee pleaded that service tax could be levied under the said category only when Clearing and Forwarding Agent would have carried out both Clearing And Forwarding Operations and in the given case, the assessee had not rendered any clearing services. Examine, whether the contention of Department is justified in law. RTP 1
Indirect Tax Laws – CA Final 1.
Principle: The following principles are laid down in Kulcip Medicines (P) Ltd. 2009 (14) S.T.R. 608 (P & H) – (a) The Assessee carried on only forwarding activity and there was no clearing activity being undertaken by the dealer. (b) Service tax is leviable under the said category only if an agent renders both clearing and forwarding services. (c) Since no clearing activity was directly undertaken by the agent from the manufacturer’s (Principal) premises, he was not liable to pay the service tax under the category “clearing and forwarding agent’s services”. (d) The Court explained that if one person who has rendered service only as ‘forwarding agent’ without rendering any service as ‘clearing agent’ would be deemed to have rendered both services, it would amount to replacing the conjunctive ‘and’ by a disjunctive which is not possible.
2.
Conclusion: Tulip Medicines shall not be considered as Clearing and Forwarding Agent. Revenue’s contention is invalid.
•
•
Authors’ Note: However, in CCE Vs Mahaveer Generics (2010) 17 STR 225 (Kar.)], the High Court held in the case having SIMILAR FACTS, that the activity carried on by the asssesee (i.e.) Mahaveer Generics are covered under Clearing and Forwarding Agent (based on the agreement terms) and not just Consignment Agent. But, the above Karnataka HC decision did not base its judgment on the nature of use of the word “and” in Clearing and Forwarding Agent. So, the decision of P&H HC is not yet contradicted by any other HC.
4.
Discuss the situs of taxation for Cargo Handling Services. [Sec 65(105)(zr)]
1.
Taxable Service: Service provided in relation to cargo handling service by a cargo handling agency to any person.
2.
Taxable Activities / Persons: (a) Freight Terminals including Container Freight Terminal. (b) Services provided by an Inland Container Depot (ICD) or a Container Freight Station such as— • Receipt, dispatch or delivery of cargo; • Stuffing and stripping of containers; • Transit operations by rail / road to and from serving ports; • Temporary storage of cargo / containers etc. (c) Services of transshipment of Import Cargo from international to domestic carrier. (d) Packing together with transportation of cargo or using services like loading, unloading, unpacking (e) Cargo handling services provided for freight in Special Containers / Non-Containerized Freight.
3.
Non–Taxable Activities / Persons: (a) Services relating to Agricultural Produce / goods intended for cold storage. [N 03, RTP] (b) Mere Transportation of Goods; (c) Handling of Export Cargo / Passenger Baggage. (d) Marketing or canvassing for cargo for Airlines (e) Service of auction of abandoned cargo (f) Cargo handling services provided in the port (Port Services) (g) Supply of labour for handling the cargo (Manpower Recruitment and Supply Services) (h) Storing, Washing, Repairing and Handling of empty containers for shipping lines. (Storage and Warehousing Services; Port Services if rendered within a Port)
5.
Meaning: Cargo Handling services means [Section 65(23)] Loading, Unloading, Packing or Unpacking of cargo and includes specified activities.
Loading and unloading of iron ore in a mine is not covered under Cargo Handling Service because iron ore cannot be commercially called “Cargo”. [B.K.Thakkar (2008) 9 STR 542 (Tri–Kolkatta)]
5.
XYZ Co. was involved in the services of unloading of coal from wagon tipping system, stacking / reclaiming of coal to stacker reclaimer system and feeding of coal to boiler bunkers through conveyer system. The Department had taken a view that the charges received by XYZ Co. for such activity were taxable under the category of Cargo Handling Services in terms of Section 65(105)(zr) read with Section 65(23) of the Finance Act, 1994.
2
Taxable Services
M/s XYZ Co. claimed that the services rendered by it cannot be brought under Cargo Handling Service as it is engaged only in the handling of coal from Railway Wagons to the required destination of the Thermal Power Station wherein machines are used with the aid of some manpower. Briefly explain with reference to relevant provisions and case law, if any, whether the state taken is correct in law. N 08 1.
Cargo handling service: (a) Coal is handled / moved from railway wagons to the site of thermal power station with the aid of wagon tippling system to be fed in boiler bunkers through conveyor system. (b) No motor vehicle or any means of transportation was involved in handling of cargo. The said service does not fall under the ambit of cargo handling services. [SB Construction Co (4) STR 545 (Raj.)]
2.
Conclusion: Hence, the given activity does not fall within the ambit of Cargo Handling Services.
6.
Calculate the value of taxable service under Cargo handling services of Cargo Ltd., providing brief reasons where required with suitable assumptions based on the following information for the month of April, 2011: N 09 Particulars (` in lakhs) (i) Total amount charged for all services 40 (ii) Services in relation to export cargo and handling of passenger baggage included in (i) above 13 (iii) Charges for storage and cleaning of empty containers of shipping lines included in (i) above 10 (iv) Charges for packing and transport of Cargo included in (i) above 03 (v) Charges for handling of agricultural produce included in (i) above 02 (vi) Charges for transportation of Cargo included in (i) above 05 Value of Taxable Service under “Cargo Handling Agency” for April 2011
Particulars
` Larkhs
Total Amount charged for all services Less:
40
Exclusions Services in relation to export cargo and handling of passenger baggage
(13)
Charges for storage and cleaning of empty containers of shipping lines
(10)
Charges for handling of agricultural produce
(2)
Charges for transportation of cargo
(5)
Value of Taxable Service
10
7.
Who is a Custom House Agent? Are all his services taxable? [Sec 65(105)(h)]
M 06
1.
Taxable Service: Service provided in relation to the entry or departure of conveyances or the Import or Export of goods to any person by a Custom House Agent.
2.
Taxable Activities / Persons: Services in relation to — (a) Entry or Departure of Conveyances — Filing of Import / Export General Manifest, Arranging for loading or discharge of cargo and Obtaining Entry Inwards or Entry Outwards, (b) Import or Export of Goods — • Clearing of Import / Export Consignment • Loading / Unloading of Import / Export Goods • Packing, Weighment, Measurement of Export Goods • Carrying out statutory or other formalities (like payment of Octroi, Dock Fees, Survey Fees; and activities like destuffing, pelletisation, terminal handling, fumigation etc.)
3.
Non–Taxable Activities / Persons: Exclusions: Unlicensed Agents, Agents working under Sub–Contract basis and rendering service to the main CHA.
4.
Meaning: Custom House Agent refers to a person licensed, temporarily or otherwise, under regulations of the Customs Act. [Section 65(35)]
3
Indirect Tax Laws – CA Final 5.
Valuation: [Circular No.119/13/2009-S.T., dt. 21-12-2009 and Rule 5(2) of Valuation Rules] (a) Reimbursable charges paid by the CHA would be excluded from the value of taxable service if the conditions specified for pure agent are satisfied. (b) Any other miscellaneous/out of pocket expenses charged by CHA (not satisfying the conditions of pure agent) would be included.
8.
Outline the taxability of Market Research Agency’s Services. [Sec 65(105)(y)]
1.
Taxable Service: Service provided to any person by a market research agency in relation to market research of any product, service or utility.
2.
Taxable Activities / Persons: Services in relation to — (a) Advertising Research, Market Related any research conducted in any manner. (b) Services of customized and syndicated research. (c) Services relating to Consumer Markets, Industrial Marketing, Business to Business Marketing, Social & Rural Marketing. (d) Strategic Research, Brand Name, Logo, Pack Label Research, Corporate Image, Investor Awareness, Statistical Data Collection, Market Awareness, Product Launch, Brand Positioning Development, New Product Development Research, Creative Development Research, Diagnostic Market Research etc. (e) All India Survey for products.
3.
Non–Taxable Activities / Persons: Exclusions: (a) Academic and Professional Research. (b) Mere activity of assisting companies to sell the goods. Jain Steel [2005] 187 ELT 33 (c) Opinion Poll Services (d) Employees of Research Agency, Research Wing or Department of Company Agencies
4.
Meaning: Market Research Agency refers [Section 65(69)] – Any Person, who conducts market research in any manner, including all types of customised and syndicated research services in relation to any product, service or utility
9.
Manpower Recruitment Agencies have been brought into the Service Tax net. Highlight the important provisions applicable to them. [Sec 65(105)(k)] RTP ABX & Co temporarily supplies manpower for data entry to MN Ltd. for 6 months. Is it liable to service tax? RTP Discuss the applicability of Service tax – Manpower recruitment agency services in respect of staff not contractually employed by the recipient of service but who come under his direction. N 07 Services provided by educational institutions like IIM’s by charging a fee from prospective employers like corporate house regarding recruiting candidates through campus interviews. M 08
1.
Taxable Service: Service provided in relation to the recruitment or supply of manpower to any person by a manpower recruitment or supply agency.
2.
Taxable Activities / Persons: Services in relation to — (a) Placement, Arranging Interviews, Counseling, Manpower Database, Paid Websites for Manpower Recruitment. (b) Pre–recruitment Screening, Verifying the credentials and antecedents of the candidate, authenticity of documents submitted by the candidates. (c) Temporary supply of manpower by manpower recruitment agency. [RTP] (d) Educational institutes like IITs and IIMs charging fees from Prospective employers for recruiting candidates through Campus Interviews.
3.
Non–Taxable Activities / Persons: Exclusions: (a) Academic and Professional Research. (b) Mere activity of assisting companies to sell the goods. Jain Steel [2005] 187 ELT 33 (c) Opinion Poll Services (d) Employees of Research Agency, Research Wing or Department of Company Agencies. (e) Services provided to a Goods Transport Agency. [Notification No. 1/2009 ST dated 05.01.2009]
4.
Meaning: Manpower Recruitment and Supply Agency are [Section 65(68)] – Persons, who provide any service for recruitment or supply of manpower (either directly or indirectly) to any person, temporarily or otherwise.
Assistance in appointing, training marketing /service staff is covered under Manpower Recruitment or Supply Agency Services. [Bangalore Commercial Corporation [2006(2) STR 353 (Tri.Chennai)]]
4
Taxable Services
10. A Ltd is engaged in providing Manpower Recruitment and Supply Agency’s services. For the financial year 2011–12, its services are as follows:Particulars Amount (` ) Pre-recruitment screening of the prospective candidates 12,00,000 Verification of the credentials of the candidates 7,00,000 Supply of contractual employees to big business houses 15,00,000 Manpower recruitment services provided to S Transports Ltd - Goods Transport Agency 2,25,000 On the basis of the above information, compute the service tax payable by A Ltd under the category of ‘Manpower Recruitment and Supply Agency’s services for the Financial Year 2011–12. Note: Anthrix Consultants enjoys a good reputation among its clients. Resultantly, its aggregate value of taxable services amounted to ` 23 lakh in the Financial Year 2010–11. Further, the amount of service tax has been charged separately. RTP Computation of Service Tax “Manpower Recruitment and Supply Agency” services Particulars
Amount (` )
Pre–requirement screening of the prospective candidates
12,00,000
Verification of the credentials of the candidates
7,00,000
Supply of contractual employees to big business houses
15,00,000
Value of taxable services
34,00,000 3,40,000
Service tax @ 10% = ` 34,00,000 × 10% Add: Education cess payable @2% = ` 3,40,000 × 2%
6,800
Add: Secondary and education cess payable @1% = ` 3,40,000 × 1%
3,400
Amount of service tax payable Note: 1. Services to GTA exempt from ST – ` 2,25000.
2.
3,50,200
Exemption from service tax under Notification No. 6/2005-ST dated 01.03.2005 is not available to A Ltd for the Financial Year 2011–12 because the aggregate value of taxable services exceeds ` 10 lakh in the preceding FY 2010–11.
17.2 Transportation Services 11. Summarize the provisions relating to the service of transport of Goods by road. [Sec 65(105)(zzp)]
N 05
1.
Taxable Service: Services provided or to be provided to any person by a Goods Transport Agency in relation to transport of goods by road in a Goods Carriage.
2.
Taxable Activities / Persons:
(a) Person Liable to Pay Freight Charges: The Consignor / Consignee who pays the Freight Charges (directly or through their Agents, if he is covered under any of the specified persons. (b) Specified Persons (i) Factory registered by Factories Act, 1948; (ii) Co–operative Society established under any law; (iii) Company under Companies Act, 1956; (iv) Registered Dealer under Central Excise; or (v) Statutory Corporation by or under any Law (vi) Society under Societies Registration Act, 1860 (vii) Any Body Corporate / Registered Partnership Firm registered under any law; (c) In case goods are transported for persons other than above, then the Goods Transport Agency shall pay Service Tax and the reverse charge shall not be applicable. 3.
Non–Taxable Activities / Exemptions: (a) Transport of Eggs, milk, food grains, pulses, Fruits and Vegetables by Road (Notfn No.4/2010 dt 27.02.10) (b) Truck Owners / Operators — Any person owning or possessing a Transport Carriage by ownership or lease or hire agreement, who is responsible for effecting carriage of goods alone is not required to issue Consignment Note (c) Giving truck on Hire
5
Indirect Tax Laws – CA Final (d) Booking Delivery Agent: Person acting as agent of the Transport Company, carrying out functions of booking and / or delivery. (e) Truck Broker: Person acting as conduit between the Transport Company and the Truck Owner, but does not include Branch of a Transport Company, rendering such service to the Company itself. (f) Transportation of goods outside India (W.e.f. 01.04.2011): The goods are transported from a place located outside India to a final destination which is also situated outside India. (Notn No.8/2011 – ST dt. 01.03.2011) 4.
Abatement / Partial Exemption: (a) Abatement of 75% is allowed.(25% is taxable) [Notfn No. 13/2008 – ST / 01.03.2008]
(b) Exemption for each Consignment: If a Goods Carriage carry Single Consignment per trip
Freight Charges upto ` 750/trip are exempt
If a Goods Carriage carry mutlipe Consignments in a single trip
Freight Charges upto ` 1,500/trip are exempt
Note: The limits are applicable with respect to the freight charged by the GTA. Further, if the freight charged is greater than above limits, then the entire amount shall be taxable (subject to abatement).
5.
Meaning:
(a) Goods Transport Agency means any person, providing service in relation to transport of goods by road (Booking, Handling, Delivering, Temporary Storage etc.) and issues Consignment Note. (b) Goods Carriage: Goods Carriage means any motor vehicle used for carriage of goods, except those running on fixed rails (Railways, Trams) or Special vehicles used within a factory or other enclosed premises (Cranes, Forklift etc.)
12. Goods Transport Agency M 11 M/s Commercial Goods Services, a Goods Transport Agency, furnishes the following information in respect of services provided for the year ending March 31, 2011. Determine the value of Taxable Services and Tax thereon under ‘Transport of Goods by Road’ falling under Section 65(105) (zzp) of the Finance Act, 1994. ` Particulars (i) Service provided to M/s XYZ Co. Ltd. 30,00,000 (ii) Freight for transport of food grains and pulses 1,50,000 (iii) Service to an Unregistered Firm 6,00,000 (iv) Service provided as a ‘Clearing and Forwarding Agent’ 2,00,000 (v) Composite Service which include packing/unpacking, loading, unloading in the course of transportation by road 2,00,000 (vi) Service Tax paid on Input Services used for providing Goods Transport Agency Services 72,000 (Provide suitable explanations where required) Solution:
Determination of Value of Taxable Services under “Transport of Good by Road” Particulars
(i)
Services provided to M/s XYZ Co. Ltd
(ii) Freight for Transport of food grains and pulses (iii) Service to Unregistered Firm (iv) Service provided as “Clearing and Forwarding Agent”
Reasoning
Nil
Service Tax is payable by consignor / consignee and not by the GTA, if the consignor / consignee is a specified person. Hence, no liability on GTA.
Nil
Transport of food and grains exempt from Service Tax vide Notification No.4/2010 dt. 27.02.2010.
6,00,000
Since the unregistered firm is not covered under specified person, the Service Tax shall be payable by the GTA. Assumed that value / trip is > ` 750
Nil
(v) Composite Service which include packing / unpacking. Loading, unloading in the course of transportation Grand Total Less: Abatement at 75% Taxable Value under “Goods Transport Agency”
`
2,00,000 8,00,000 (6,00,000) 2,00,000
6
C&F agent is taxable as a Clearing and Forwarding Agent and not as GTA service “Goods Transport Agency” means any person who provides service in relation to transport of goods by road. Such services include packing / unpacking, loading, unloading etc.
N
Taxable Services Particulars
Reasoning
`
Service Tax @ 10.3% (incl. EC @ 2% & SHEC @ 1%) Less: CENVAT Credit of Service Tax on Input Services (Refer Notes 1 & 3)
20,600 (20,600)
Net Service Tax Liability
CENVAT Credit of ` 72,000 restricted to ` 20,600. Balance ` 51,400 C/fd to next period.
Nil
Notes: 1. Goods Transport Agency can avail CENVAT Credit of Service Tax paid on Input Services even if it avails abatement. 2. Service Tax is payable on ` 2,00,000 under Clearing and Forwarding Agency Service. 3. If the Service Provider is a Small Service Provider for FY 2010–11, then it would be eligible for exemption to the extent of ` 10,00,000 and hence, the Service Tax Liability shall be NIL. However, CENVAT Credit shall not be availed by the assessee on input services during the period of availing exemption.
13. Calculate the value of taxable service of ‘X’ Transport Company engaged in the business of Transport Company engaged in the business of transport of goods by road. Give reasons for taxability or exemption of each item. No freight is received from any of the specified category of Consignor/Consignee. M 09 ` Particulars 1. Total Freight Charges received by ‘X’ during the year 13,50,000 2. Freight Charges received for Transporting Fruits 1,25,000 3. Freight Collected for transporting small consignment for persons who paid < ` 750 for each consignment 75,000 4. Freight Collected for transporting goods in small vehicles for persons, who paid less than ` 1,500 per trip 1,50,000 Computation of Value of Taxable Service of X (Transport Company) Particulars
`
Total freight charges received by ‘X’ during the year
13,50,000
Less: Freight charges received for transporting fruits – Exempt as given in Previous Question
(1,25,000)
Freight for transporting small consignment for persons who paid less than ` 750 / trip – Exempt Freight for transporting goods in small vehicles for persons, who paid less than ` 1,500 per trip (assumed as multiple consignments in a single trip) Gross Amount Charged liable for Service Tax
(75,000) (1,50,000) 10,00,000
Value of Taxable Services (` 10,00,000 × 25%) (after abatement of 75%)
2,50,000
14. Transport of Goods by Air (Air Cargo) attracts service tax levy. Elucidate. [Sec 65(105)(zzn)] 1.
Taxable Service: Service provided by an aircraft operator in relation to transport of goods by Aircraft.
2.
Taxable Activties / Persons: Any person who Provides the service of transport of Goods or Passengers by aircraft.
3.
Non–Taxable Activities / Exemptions:
(a) Transport service in relation of Export of Goods (Exempt vide Notn No. 29 / 2005 – ST dated 15.07.2005) (b) Air Travel by Passengers (International Air Travel taxable under “Air Transport of Passengers Embarking for International Travel Services” (c) Renting of Aircraft to Aircraft Operator. (d) Transport of accompanied passenger baggages (e) Transport of items not covered under goods (f) Courier Services (g) Transportation of goods outside India (W.e.f. 01.04.2011): The goods are transported from a place located outside India to a final destination which is also situated outside India. (Notn No.8/2011 – ST dt. 01.03.2011)
N
N
4.
Valuation: Taxable Value of the Services provided by an aircraft operator shall exclude the value of air freight already included in the value determined u/s 14 of the Customs Act, 1962 for the purpose of charging customs duties. (Notification No.9 /2011 – ST dt. 01.03.2011)
7
Indirect Tax Laws – CA Final
15. Who are chargeable to service tax under “Transport of Goods by Rail”? Discuss Exemptions. [Sec 65(105)(zzzp)]
M 10
1.
Taxable Service: Service provided by any person in relation to transport of goods by rail.
2.
Taxable Activities / Persons (M 10): any person (including w.e.f. 01.01.2012, Government Railways also) (Notification No.38 /14.06.2011)
3.
Non–Taxable Activities / Exemptions: (a) Giving containers on hire (b) Transport of the following goods by rail shall be exempt from tax. Few examples are: (i) Defence / Military Equipments (ii) Railway Equipments / materials (iii) Postal Mail bags (iv) Relief material for victims of natural calamities (v) Kerosene Oil meant for supply through Public Distribution System (Notification No.8/2010 dt.27.02.2010 & Notification No.34/2010 dt. 22.06.2010)
N
(c) Transportation of goods outside India (W.e.f. 01.04.2011): The goods are transported from a place located outside India to a final destination which is also situated outside India. (Notn No.8/2011 – ST dt. 01.03.2011)
N
4.
Abatement: W.e.f. 01.01.2012, abatement of 70% of Gross Amount Charged is allowed in respect of transport of goods by rail (whether in containers or otherwise) if CENVAT credit not availed and no exemption is claimed. (Notification No.39 & 40 /14.06.2011)
16. Transport of Goods through pipeline or other conduit attracts levy of service tax without any exceptions. Discuss. [Sec 65(105)(zzz)] 1.
Taxable Service: Service provided relating to transport of goods other than water, through pipeline or other conduit.
2.
Taxable Activities / Persons: Services in relation to — (a) Transport of Petroproducts, LPG, Chemicals, Coal Slurry etc. (b) Goods other than Water [Goods as defined u/s 2(7) of the Sale of Goods Act, 1930 i.e. movable property other than actionable claims and money]
3.
Non–Taxable Activities / Persons: (a) Transport of Water (b) Supply of goods through Pipeline / Conduit in the course of sale, without charging separately for delivery
4.
Meaning: Transport through Pipeline or Conduit is done for transporting petroleum and other petroleum products, Natural Gas, LPG, Chemicals, Coal Slurry and other similar products.
17. Transportation of documents using courier invites levy of service tax. Elucidate. [Sec 65(105)(f)]
M 04, M 06, RTP
1.
Taxable Service: Service provided to a Customer by a courier agency in relation to door-to–door transportation of time sensitive documents, goods or articles.
2.
Taxable Activities / Persons: Services in relation to — (a) Integrated services like transportation, warehousing, packing, inventory management relatable to door to door transportation and undertaken by the Courier Agency. (b) Speed Post services provided by Government Department. (c) Express Cargo Services provided by some transporters. [RTP] (d) Angadias providing courier services
3.
Non–Taxable Activities / Persons: Exclusions: Transferring money. [Banking and other financial services]
4.
Meaning: Courier Agency means any person engaged in [Section 65(33)]— the door to door transportation of time-sensitive documents, goods or articles utilizing the services of a person, either directly or indirectly, to carry or accompany such documents, goods or articles.
Courier Agency Services includes “Door–to–Door” transportation of documents, even when the customer goes to the courier agent’s office and delivers his documents, goods or articles. [Appeal against this decision, dismissed by the Supreme Court. 2006 (4) STR J115 (SC)] [Vijayanand Road Lines [2006(1) STR 113 (Bang.-Tri.)]]
8
N
Taxable Services
18. Organisations providing Mailing List Compilation and Mailing Services are liable to pay service tax in respect of such services. Elucidate. [Sec 65(105)(zzzg)] RTP 1.
Taxable Service: Service in relation to Mailing List Compilation and Mailing Service by any person to any other person.
2.
Taxable Activities / Persons: (a) Compilation and providing information from Telephone Directories. (b) Despatching goods to customers. (c) Mailing list compilation or mailing done for or on behalf of the client.
3.
Non–Taxable Activities / Persons: (a) Activity of E-Mailing (Internet Telephony Services) (b) Courier Services (c) Service Provided by GTAs
4.
Meaning: Mailing list compilation and mailing services include [Section 65(63a)]— (a) Compilation and providing detailed list containing name, address and other information from any source and (b) Sending document, information, goods or any other material in a packet by addressing, stuffing, sealing, metering or mailing for or on behalf of any person. Note: These services are generally provided to Banks, Insurance Companies, Listed Companies, Real Estate Agents, Mail Order Business Companies.
17.4 Financial Services / Management Services 19. Banks are also liable to pay service tax in respect of some of their services. Discuss. [Sec 65(105)(zm)] Is Service Tax payable on Entry & Exit Load charged by mutual fund from the investor?
RTP. N 09 RTP
1.
Taxable Service: Any service provided to any person by a Banking Company / Financial Institution / Non-Banking Financing Company (NBFC) / Any Other Body Corporate or Commercial Concern, related to Banking and Financial Services
2.
Taxable Activities / Persons:
(a) Financing Activities: • Financial Leasing services including Equipments Leasing and Hire Purchase. • Lending, Overdraft Facility, Bill Discounting Facility • Letter of Credit, Providing Bank Guarantee (b) General Banking Activities: • Operation of Bank Accounts • Issue of Pay Orders / Demand Drafts / Cheques • Transfer of money including Telegraphic Transfer, Mail Transfer and Electronic Transfer • Safe Deposit Lockers, Safe Vaults • Provision and transfer of information and data processing i.e. Internet Banking etc.; (c) Merchant Banking and Services provided as a Banker to an Issue (d) Securities broking, Forex Broking including Purchase or Sale of Foreign Currency including Money Changing. (e) Advisory or Auxiliary Financial Services: • Advisory services on Investment and Portfolio Research. • Advice on Mergers and Acquisition; Corporate Restructuring. • Market Analysis and Intelligence. (f) Asset Management including — Portfolio Management, Fund Management, Pension Fund Management, Custodial Services, Depository Services, Trust Services, Cash Management (g) Foreign Exchange Broking and Purchase and Sale of Foreign Currency, including Money Changing by a forex broker or an authorized dealer in foreign exchange or an authorized dealer in foreign exchange or authorized money changer. [RTP]
Note: Money Changing, Purchase / Sale of Foreign Currency taxable even if consideration is not specified separately.
9
Indirect Tax Laws – CA Final (h) Depository services & Electronic Access to Securities Information by Central Depository Services (India) Ltd. (RTP, M 08) (i) Business Chit Funds [Circular No. 96/6/2007– ST / 034.04 / 23.08.07] – However, Refer contrary
decision in A.P.Federation of Chit Funds Vs UOI (A.P.) 13 STR 350
(j) Service Charges for maintenance of NOSTRO Accounts (Report No.24/ ST/ 2010–11 dt. 26.07.2010) (k) Inter–Bank Transactions: Services provided by a Bank / Money Changer to any bank (including a bank located outside India or money changer) shall be exempt from service tax. (Notification No.27/2011 dt. 31.03.2011) 3.
N
Non–Taxable Activities / Exemptions (M 10): (a) Activities of the Postal Department (b) Simple Chit funds [Circular No. 96/6/2007– ST / 034.04 / 23.08.07] (c) Credit Card services (d) Services provided by Reserve Bank of India (e) Commission received for services rendered in relation to collection of duties or taxes levied by Central Government / State Government. [F.No.137/26/2007–CX.4 / 05.12.08] (Note: Commission received from
RBI is not exempt, since RBI is not Government of India)
(f) Interest on Overdraft / Cash Credit and Discount on Bills / Cheques / Demand Drafts discounted, if they are separately disclosed in the challan or any other document issued by the Bank. [Notfn No.29/2004]. [However,
charges other than interest (i.e. processing fee, lease management fee, administration charges) are fully taxable].
(g) Services provided by one Scheduled Bank to another in relation to Inter–Bank Transactions of purchase and sale of foreign currency. [Notfn No. 19/2009] (RTP) 4.
Abatements: Business Chit Funds: 30% of Gross Amount Charged.
5.
INTEREST on Financial Leasing Services: 90%
Value of services provided in relation to Purchase / Sale of Foreign Currency (including money changing) by a FOREX Broker / Authorised Dealer in FOREX / Authorised Money Changer / Persons under Banking & Financial Service: (W.e.f. 01.04.2011) [Rule 2B of the Service Tax (Determination of Value) Rules, 2006] Situation
Value
Foreign Currency is purchased by the service provider by exchanging with Indian Rupees
(Buying Rate – RBI Reference Rate) × Total units of Foreign Currency
Foreign Currency is sold by the service provider by exchanging with Indian Rupees
(Selling Rate – RBI Reference Rate) × Total units of Foreign Currency
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For Example: • Situation I: US $ 1000 sold by a customer at the rate of ` 45/US $. RBI Reference rate for US $ is ` 45.50 for that day. Taxable Value = (45.50 – 45) × 1000 = ` 500 • Situation II: ` 70,000 sold by a customer at the rate of ` 70/GBP. Hence total GBP given the dealer is GBP 1,000. RBI Reference rate for one GBP is ` 69 for that day. Taxable Value = (70 – 69) × 1000 GBP = ` 1,000
In case the RBI reference rate is not available for a currency, then the value shall be 1% of the gross amount of Indian Rupees provided or received by the money changer. If both the currencies exchanged are not Indian Rupees, the value shall be 1% of the lesser of the two amounts the money changer would have received by converting any of the 2 currencies into Indian Rupees at the RBI reference rate existing at that time. (Notification No/1/2011 – ST dt. 01.03.2011) 6.
Alternate rate of Tax payable by Forex Dealer including Money Changing: In case of services relating to purchase or sale of Forex / Money Changing / Authorised Dealer, the service provider shall have an option to pay service tax at the following rates: Gross Amount of Currency Exchanged (GAC)
Rate applied on GAC
Upto ` 1 Lakh
0.1% of GAC (Minimum: ` 25)
` 1 Lakh – ` 10 Lakhs
` 100 + (0.05% of GAC – ` 1 Lakh)
> ` 10 Lakhs
` 550 + (0.01% of GAC – ` 10 Lakhs), Maximum – ` 5,000
Condition: The Service Provider shall exercise such option for a financial year and such option shall not be withdrawn during the remaining part of that financial year. (Notification No.26/2011 dt. 31.03.2011)
10
N
Taxable Services 7.
Meaning (a) Financial Leasing: A lease transaction satisfying the following conditions: • Two Parties: The lease contract is entered into between two parties for leasing of a specified asset. • Purpose of Lease: Contract should be for use and occupation of the asset by the lessee. • Lease Payments: The lease payment should cover the full cost of the asset together with the interest charges • Ownership: Lessee should be entitled to own or has the option to own the asset at the end of the lease period after making the lease payment.
(b) Simple Vs Business Chit Fund: No Separate Amount is charged from the members of the Chit for conducting the chit, whereas in case of Business Chit Funds, the promoter charges a separate amount for the services provided.
20. Explain, with the help of a decided case law, if any, whether the chit fund activity falls within the expression “cash management” under “banking and other financial services”? RTP 1.
Principle: The Honourable A.P.High Court in A.P. Federation OF Chit Funds v. UOI 2009 (13) S.T.R. 350 (A.P.), has decided the following with respect to Business Chit Funds:
(a) As statutory definition of ‘Cash Management’ or even ‘Asset Management’ is absent, the wider interpretation either by seeking to include or exclude any other transaction or business (chit fund activity in given case) is not permissible. (b) Therefore, it is amply clear that in the absence of any such inclusive definition available in the statute, the Chit Funds would not fall within the scope of “Banking and Other Financial Services”. (c) The entire action of the Department of levying the service tax by way of a circular is not permissible under the law. 2.
Conclusion: In the light of the foregoing reasons, High Court set aside the Circular No. 96/7/2007-S.T dt. 23-8-07. As a result, the High Court held that the chit fund activity does not fall within the expression “cash management” and not taxable under “banking and other financial services”.
Students’ Note: As there is a circular and a contradictory case law on the same issue of chit funds, the students are advised to specify both the views in the exam. SIGNIFICANT LEGAL DECISIONS Inclusions under “Banking and other Financial Services” Levy of ST on Hire Purchase and Equipment Leasing – Valid • Levy of Service Tax on Hire Purchase & Equipment Leasing is constitutionally valid, as they are activities of long term financing. • Even though, the above activities are deemed as “Sale” as per Constitution, such deeming provision will not exclude the levy of service tax on such services. [Association of Leasing and Financial Services Vs UOI (2010) 20 STR 417 (SC)] [Madras Hire Purchase Association Vs. Union of India 2010 (17) S.T.R. J25 (S.C.)] Hire Purchase Finance services are NOT covered under Banking and Financial Services. In the case of Hire purchase, title to goods vests with the Company whereas in case of Hire purchase finance agreement, it vests with purchaser. Note: Financing the purchase of asset is not covered under Banking and Financial Services. [Bajaj Auto Finance Ltd. (2008) 10 STR 433 (SC)] Relevant date for ST rate for leasing services – Date of Original Contract: Rate of Service tax will be the rate prevailing on the date on which contract is entered into. Collection of hire amounts cannot be subjected to Service tax based on the rate prevailing on the date of collection. [Art Leasing Ltd. [2007 (8) STR 162 (Bang.-Tri.)]] Exclusions from “Banking and Other Financial Services” A Manufacturer normally sells goods produced. However, he also gives the goods on lease to customers due to their financial constraints. He charges interest on the unpaid amount, but does not charge documentation fee, lease management fee etc. Decision: Such interest is not liable as it is charged as a compensation for the unpaid amount. The transaction is not considered as leasing services as it is not a regular service of the manufacturer. [Thermax Ltd. [2007 (8) STR 487 (Tri.-Mumbai)] Core Banking Activities are not covered under Banking and Financial Services and therefore, processing fees for working capital limits are not taxable. [State bank of India [2 STR 204 (Bang.-Tri.)] Non Banking Financial Service (NBFC) should be a Company and with principal business of receiving deposits/lending. Mere certificate of registration/ licence as NBFC issued by RBI is insufficient in absence of proof of principal business being receiving deposits/lending. [Karvy Consultants Ltd. 2006 (001) STR 0007 A.P.]
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Indirect Tax Laws – CA Final
21. Banking and Other Financial Services N 09 X Bank Ltd., furnishes the following information relating to services provided and the Gross Amount received: Particulars ` Lakhs Particulars ` Lakhs Merchant Banking Services 8 Interest on overdraft and cash credits 2 Asset Management (including portfolio management) 3 Banker to the issue 5 Service charges for services to the Government of India 1.5 Locker rent 2 Repayment of Financial Lease made by the customer to the Bank is ` 80 Lakhs, which include Principal of ` 50 Lakhs. Compute the Value of Taxable Service under “Banking and Other Financial Services” under the Finance Act, 1994 and the Service Tax Liability of X Bank Ltd., considering the rate of service tax at 10.3%. Determination of Value of Taxable Service and Service Tax Liability Particulars Value (` ) Reason Merchant Banking Services 8,00,000 Specifically included Asset Management (including Portfolio Management) 3,00,000 Specifically included Assumed as commission received for collection of Service Charges for services to Government of India Nil taxes / duties for the Government and so exempt. Interest exempt if separately mentioned in the Interest on Overdrafts and Cash Credits Nil challan (Notfn. No.29/2004) Banker to the Issue 5,00,000 Specifically included Locker Rent 2,00,000 Specifically included Total: 80 Lakhs; Principal: 50 Lakhs; Interest: ` 30 Amount received under Financial Leasing 3,00,000 Lakhs. Abatement– 90% of Interest: ` 27 Lakhs Total Taxable Service 21,00,000 Service Tax @ 10% 2,10,000 Add: Education Cess @ 2% 4,200 Add: SHEC @ 1% 2,100 Total Service Tax Liability 2,16,300
22. The Assessee used to finance the purchase of vehicles manufactured by a leading Automobile Company which used to sell the vehicles through its distributors. Assessee financed part of the vehicle cost to the purchaser of vehicle after getting an agreement with the purchaser providing the right of repossession of the vehicle in case buyer of the vehicle defaulted in paying installment.. Immediately on sale, purchaser of the vehicle became the owner and vehicle was registered in his name. The Department seeks to levy service tax in the category of “Banking and other Financial Services.” Examine whether Department’s stand is correct in terms of legal provisions and case law. M 09 Refer the decision in Bajaj Auto Finance Ltd (2008) 10 STR 433 (SC) Conclusion: The above arrangement is in the nature of Hire Purchase Finance and hence it is not taxable
23. With reference to Banking and Other Financial Services, state whether service tax is applicable in the following cases: RTP Services provided by SBI to the CBDT in relation to collection of Advance Income-Tax. Discount charged by SB Ltd., an NBFC, on Bill Discounting provided by it. Such discount is shown separately in the bill issued. Rich Bank, a Scheduled Bank, purchases foreign currency from Generous Bank, another Scheduled Bank.
Exempt as it relates to collection of taxes and duties on behalf the Government Exempt based 22.09.2004
on
Notification
No.29/2004
dt.
Inter–Bank transactions of Purchase and Sale of Forex is exempt, provided they are Scheduled Banks
24. Companies engaged in credit rating of instruments issued by Corporates are liable to pay service tax on the services rendered by them. Comment. [Sec 65(105)(x)] M 03, M 06 Bonds issued by MNO Ltd. have been given ‘AAA’ rating by ‘SIMIL’ a credit rating agency. Is ‘SIMIL’ liable to pay any service tax for rendering such a service? RTP 1.
Taxable Service: Service provided to any person by a Credit Rating Agency in relation to credit rating of any financial Obligation, Instrument or Security.
12
Taxable Services 2.
Taxable Activities / Persons: Services in relation to — (a) Services in relation to Credit Rating of any financial obligation, instrument or security including Surveillance Activity. (b) Goods other than Water [Goods as defined u/s 2(7) of the Sale of Goods Act, 1930 i.e. movable property other than actionable claims and money]
3.
Non–Taxable Activities / Persons: (a) Rating of Non-Financial Instruments. (b) Information and advisory services rendered by Credit Rating Agencies. (c) Non–Credit Rating Agencies, Market Research Rating Agencies.
4.
Meaning: Credit Rating Agency refers to persons [Section 65(34)] —
(a) Activity: Engaged in the business of Credit Rating. (b) Rating done in respect of — (i) Debt Obligation (Bonds, Commercial Papers, Fixed Deposits, Debentures) or (ii) Any Project / Programme requiring finance (Debt or otherwise) (iii) Any Financial Obligation / security. (c) Purpose: To provide pertinent information to potential investors or any other person about the relative safety of timely payment of interest and principal
25. Who is a Stock Broker? Must he pay service tax on all his activities? [Sec.65(105)(a)] M 03, M 05, RTP Services rendered by a Stock Broker of Delhi Stock Exchange to a broker of Chennai Stock Exchange. N 02 The business auxiliary service provided by a sub-broker, to a stock-broker in relation to sale or purchase of securities listed on a registered stock exchange. RTP 1.
Taxable Service: Service provided by a Stock Broker in connection with the sale or purchase of securities listed on a recognized stock exchange.
2.
Taxable Activities / Persons: Services in relation to following activities done at Stock Exchanges / Trading Terminals located at various locations [M 03] —
(a) Own Trading: Transactions made by the Stock Broker on his account for an Investor, in the same stock exchange. (b) Arbitrage Transactions: Transaction between stock brokers of two different stock exchanges in order to profit from price difference between two markets. (c) Jobbing: Carrying on purchase / sale of securities in the same Stock Exchange on behalf of another Stock Broker of the same stock exchange. (d) Transactions in listed securities including futures and derivatives (e) Trades done on Stock Exchanges / Trading Terminals by Stock Brokers / Sub Brokers. (f) Consultancy and Advisory Services 3.
Non–Taxable Activities / Persons: (a) Underwriters, Non–Members, Members of Unrecognized Stock Exchange, Stock Exchanges, Portfolio Managers (b) Off Market Deals, Dealing in Unlisted Securities, Transaction ion Commodity Stocks, Services by Sub–brokers.
4.
Meaning: (a) Stock Broking Services: All services provided in connection with Sale or purchase of securities listed on a Recognized Stock Exchange. (b) Stock broker refers to Stock Broker includes Sub–Brokers and those registered or who have applied for Registration under SEBI Rules/ Regulations. [Section 65(101)] [M 05]
17.5 Promotional Services 26. What is a Business Auxiliary Service? Discuss in detail the scope and exemptions under the Service Tax Law for Business Auxiliary Services. [Sec 65(105)(zzb)] M 04, M 07, M 08, RTP Briefly explain the exemption from Service Tax available in relation to the Inputs used for Providing Business Auxiliary Service during manufacture/processing of Alcoholic Beverages RTP 1.
Taxable Service: Services provided by any person to a client in relation to Business Auxiliary Service.
13
Indirect Tax Laws – CA Final 2.
Taxable Activities / Persons:
(a) Promotion or Marketing of — •
Goods produced or provided by or belonging to client (including sale of such goods),
•
Service provided by the client [w.e.f. 01.07.2010 excluding Games of Chance]
L
(b) Customer Care Service provided on behalf of the client, (c) Procurement of Goods or Services, which are inputs for the client, [RTP] (d) Production or processing of goods for or on behalf of, the client, (e) Provision of service on behalf of the client, (f) Services incidental or auxiliary to the above activities. (g) Commission Agents except those covered by specific services i.e. Rail Travel Agents, Life / General Insurance Agent etc. (h) Mutual Fund Companies [Liable for services provided to them by Mutual Fund Agents – Reverse charge] (i)
Manufacture of Non–Excisable Goods
(j) Mere canvassing advertisements for publishing in media, on commission basis. [C.No.96/6/07–ST dt.23.08.07] (k) Ship Brokers 3.
Non–Taxable Activities / Exemptions:
(a) W.e.f. 01.07.2010, Promoting / Marketing Games of Chance organized, Conducted or Promoted by the client. This includes lottery, lotto, bingo etc. (Note: Service in relation to promotion or marketing of games of chance is
removed from scope of Business Auxiliary Service and is classified as separate taxable service u/s 65(105)(zzzzn))
(b) Activities amounting to manufacture u/s 2(f) of Central Excise Act, 1944 (c) Services in relation to job work — •
Amounting to Manufacture of Excisable Goods.
•
Not amounting to Manufacture and — (i)
Goods processed or produced using raw materials or semi–finished goods supplied by the client; and
(ii) Goods produced or processed by the job worker are returned back to the client; (iii) Such goods are for use in or in relation to manufacture of any other goods covered by First Schedule to the Central Excise Tariff Act and not covered by any exemption or NIL Rate of duty. (d) Service Tax on processing of goods: Service Tax shall not be levied on Job Work when the processing amounts to manufacture of excisable goods. Even if the excisable goods are exempt under Central Excise Law, service tax cannot be charged since exemption does not make a good non–excisable. (Trade Notice dated 15.07.2011)
C
(e) Services providing by a Sub-Broker (or) an authorized person to the Stock Broker. [Notification No 44 / 2011-ST., dt 19.09.2011]
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(f) Services in relation to Job Work on Jewellery. (g) Services in relation to manufacture of Pharmaceutical Products, Medicines, Perfumery, Cosmetics or Toilet Preparations containing Alcohol, which are charged to Excise duty under Medicinal & Toilet Preparations (Excise Duties) Act, 1955. [Notfn No.32/2009 dt. 01.09.2009] (h) Following services in relation to Agriculture, Printing, Textile Processing or Education [RTP] — • Procurement of Goods / Services which are inputs for the client; • Production or processing of goods for or on behalf of the client; • Provision of service on behalf of the client; • Service incidental or auxiliary to the above activities. (i)
Services provided by Commission Agents in relation to Agricultural Produce.
(j) Wholesale Purchase at discount, and resale at Retail Price by Dealers/ Wholesalers. (k) Services provided by Brand Ambassadors (l)
Business Auxiliary Services rendered by Sub–Broker to Stock Broker in relation to sale / purchase of listed securities
(m) Commission to Directors / MDs if Employer–Employee relationship exists [C.No.115/09/2009–ST/ 31.07.2009] 14
Taxable Services (n) Deduction from reinsurance premium paid: [Circular No.120(a)/2/2010-ST., Dated: 16-04-2010] •
•
Meaning: Insurance company pays premium to the reinsurance company for reinsurance services. However, a part of the above premium is deducted as administrative charges by the payer insurance company (i.e. the expenses on the policy are shared between both companies) Taxability: Such deductions (by the payer) are not liable for tax (it is not business auxiliary service)
(o) Maintenance of Computer Software (covered by Management, Maintenance or Repair Services) (p) Inputs used in Processing or Manufacture of Alcoholic Beverages [Notfn No.39/2009-S.T., dt 23.9.09] (a) Exemption is available for inputs (excluding capital goods) used in the service. (b) No CENVAT credit is taken for such inputs (c) Documentary proof specifically indicating the value of inputs exists (d) Where the service provider also manufactures or processes alcoholic beverages, on his own account or through other arrangements, he shall maintain a separate record of receipt, production, inventory, dispatch of goods and also financial transactions. (q) Specified Services: Electroplating, Zinc Plating, Anodizing, Heat Treatment, Powder Coating, Painting including Spray Painting or Auto Black, subject to following conditions: [Notfn No. 42/2009-S.T., dt. 12.11.2009] • The aggregate value of taxable service in relation to above Processes ≤ ` 150 Lakhs in Preceding FY, • Maximum Exemption available: Aggregate First Clearances ≤ ` 150 Lakhs from 1st April of the Current FY, • Where the service provider undertakes the above process in relation to manufacture of goods leviable to Central Excise duty, he shall maintain separate accounts for such services and the above exempt services. (r) Exemption for News Agency: Indian News Agency are exempt subject to following conditions: • It is set up in India solely for collection and distribution of news • News agency shall be specified u/s 10(22B) of Income Tax Act, 1961 • It applies or accumulates its income for collection and distribution of news and does not distribute its income to its members. (Notification No.13/2010 dt.27.02.2010) 4.
Abatements: (a) Eligible Service: Services in relation to processing of Parts and Accessories used in manufacture of Cycle, Cycle Rickshaws and Hand Operated Sewing Machines. (b) Extent of Exemption: 30% of Gross Value (i.e. tax payable only on 70% of Gross Amount) (c) Condition: • Gross Amount is inclusive of cost of inputs and input services, whether or not supplied by the client. • Service provider does not claim CENVAT credit of Excise Duty and Service Tax paid on inputs and input services. SIGNIFICANT LEGAL DECISIONS Inclusions under Business Auxiliary Service
Providing comprehensive service for market development, marketing, sales and other connected services is taxable under Business Auxiliary Services. [Glaxo Smithkline Consumer Healthcare Ltd., [2007(7) STR 334 (Tri.Del.)]] Sourcing customers for loans given by financial institutions amounts to promotion of services rendered by clients (such Financial institutions) and taxable under Business Auxiliary Services. [Bridgestone Financial Services (8) STR 505 Tri.-Bang] Production of Alcoholic Beverage on Job Work Basis: When a Contract Bottling Unit (CBU) undertakes the complete process of manufacture of alcoholic beverage under an arrangement with the Brand Owner, then such activity will not attract Service Tax. However, if the activity undertaken by CBU is not manufacture, Service Tax is applicable. (M 10) [CBEC F.No.249/1/2006–CX.4 dt. 27.10.08] Promotion of any service, whether or not taxable is covered under Business Auxiliary Services. [The Financers (2008) 11 STR 140 (Tri–Chennai)] Middleman’s Services: Services provided by middleman abroad in finding prospective buyers, their requirement and informing assessee about same in relation to marketing or sale of goods produced by them were covered under Business Auxiliary Services. [Nahar Spinning Mills (2009) 14 STR J163 (SC)] Procuring orders – Business Auxiliary: Service of Procuring orders comes under business auxiliary services and not under clearing and forwarding agency services. [Larsen & Toubro Ltd 3 STR 321] Exclusions from Business Auxiliary Service Contract Hatching of Eggs: Contract hatching of eggs would not fall in any of the taxable services i.e. business auxiliary service, or support service. [CBEC Lr. F.No.137 / 92 / 2008–CX.4 dt.29.7.2008]
15
Indirect Tax Laws – CA Final
27. Examine whether manufacture of Non-Excisable Goods for or on behalf of a client attracts service tax or not.
N 10, RTP
Solution: Write Pt.Nos. 2(i), 3(b), 3(c), 3(d) and 3(e) in above Question.
28. With reference to Business Auxiliary Services, state whether service tax is applicable in following cases:
RTP
Services by Commission Agent in relation to Agricultural Produce exempt. Jute is an agricultural produce.
Services provided by commission agents in relation to sale of Jute. Commission received by Distributors for distribution of Mutual Fund Units.
Such Distributors are in the nature of Commission Agents and hence liable for Service Tax.
29. Good Luck Agencies is engaged in the Purchase of Lottery Tickets in bulk from the State Government and sell them subsequently on behalf of the Government. However no service tax is paid on the said activity. The Department has sought to levy service tax under the category of ‘Business auxiliary service’ Section 65(19) as service in relation to Promotion or Marketing of service provided by the client. Discuss briefly with a decided case law, whether the action of the department is correct in law. RTP, N 09 Principle and Conclusion: Lottery tickets are considered as actionable claims and are not goods. Therefore, Purchase of lottery tickets in bulk from State Government and their subsequent sale cannot be considered as Promotion / Marketing of client’s goods. So, it is not liable for Service tax. [Martin Lottery Agencies Ltd. 2007 (008) STR 0561 Sikkim]
30. Mr. Yes is the owner of a Collection Centre with facilities and trained employees for collection of human blood, urine and stool samples for biological testing. He sends the samples collected to its principal lab for actual test to be done. The Assessee received 25% of the price charged by the principal lab as commission for the work of collection etc. The Revenue wants to charge service tax on such collection service as it amounts to promotion or marketing of services provided by its principal lab. Mr.Yes seeks your advise in this regard with reference to case laws, if any. M 10, M 09 1.
Principle: As per the Court Ruling in Dr.Lal Path Lab (P) Ltd 2007 (8) STR 337 (P&H)
(a) Activity of the assessee is confined to a Collection Centre with facilities and trained employees for drawal of blood samples, and forwarding the same to Principal Lab. (b) Merely because any incidental service is rendered by the assessee like putting across or dropping of name of the Principal Company, it would not be considered as providing “Business Auxiliary Service” i.e. promotion or marketing services of the principal lab. 2.
Conclusion: Therefore, services of the Assessee Mr. Yes, is neither taxable under “Technical Testing and Analysis” (since it is specifically excluded), nor can the collection taxed under “Business Auxiliary Services” since there is no promotion or marketing activity involved.
31. Examine the validity of following statements – Hindustan Infosystems is engaged in study, analysis, design and programming of information technology software. The said services are taxable under ‘Business Auxiliary Services’. RTP 1.
The statement is incorrect. The services of study, analysis, design and programming of information technology software are taxable under the category of ‘Information Technology Software Services’ as amended by Finance Act 2008.
2.
Prior to this amendment, any information technology software service was taxable under ‘business auxiliary service’.
32. The term ‘Business Auxiliary Service’ was inserted by Finance Act, 2003 which came into force on 1.7.2003. The Parliament by Finance Act, 2008 inserted an explanation in the relevant sub-clause (ii) of Section 65(19) stating that for the purpose of the sub-clause – “Service in relation to promotion or marketing of service provided by the client includes any service provided in relation to marketing of games of chance, organised, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bingo.” Discuss, whether the explanation appended to sub-clause (ii) of Section 65(19) is clarificatory in nature so as to be constructed as having retrospective effect. You may take help of a decided case law, if any. M 10
16
Taxable Services 1.
Explanations are generally only clarificatory in nature and hence normally have a retrospective effect.
2.
However, in the instant case, the retrospective implication is not expressly spelt. If the intention of the law / amendment were to enforce the above clarification retrospectively, it would have been reflected by some means. Hence, prima facie, the amendment is only prospective.
3.
NV Marketing Pvt. Ltd 2009 (16) STR 725 (Tri. – Del.), MS Associates, 2009 (16) S.T.R. 770 (Tri. - Del.)
Authors’ Note: (a) The above Tribunal Decisions are only Prima Facie observations. The issue is not yet resolved. (b) The above question was asked during the year when the Promotion of Games of Chance were included as part of Business Auxiliary Service. However, as per Finance Act, 2010, Promotion of Lottery is excluded from Business Auxiliary and is now taxed separately.
33. What are the taxable services in relation to Public Relations Service? RTP [Sec 65(105)(zzzs)]
RTP
1.
Taxable Service: Service provided to any person in relation to managing the public relations.
2.
Taxable Activities: Strategic counseling based on industry, Media and Perception Research, Corporate Image Management, Media Relations and Media Training, Press Release and Press Conference, Financial Public Relations, Brand Support and Brand Levels, Retail Support and Promotions, Events Communications & Crisis Communications etc.
3.
Meaning: Public Relations Services are in relation image or communication management. [Section 65(86c)]
34. What activities fall within the ambit of Business Support Services and hence attracting service tax levy? Explain. [Sec 65(105)(zzzq)] RTP 1.
Taxable Service: Services provided by any person to any person in relation to Support Services of Business or Commerce, in any manner.
2.
Taxable Activities / Persons: Taxable Activities
N
(a) Evaluation of Prospective Customers;
(b) Telemarketing;
(c) Processing of purchase orders & fulfillment services
(d) Information and tracking of delivery schedules;
(e) MIS Reporting;
(f) Customer Relationship and Management Services;
(g) Managing distribution and logistics;
(h) Accounting and processing of transactions;
(i)
(j) Formulation of Customer Service and Pricing Policies;
Operational / Administrative Assistance in any manner
(k) Infrastructural Support Services (includes providing Office with Office Utilities, Lounge, Reception with competent personnel to handle message and secretarial services, Internet & Telecom Facilities, Pantry and Security) (l)
Transaction Processing, etc.
(m) Verifying correctness, fairness and authenticity of information furnished by persons applying for Bank Loan is taxable as Business Support Services. [SR Kalyanakrishnan 2008 (9) STR 255 (Tri–Bang.)]
17.6 Construction / Immovable Property / Repairs related Services 35. Explain in detail the taxability of services in relation to Commercial or Industrial Construction. Also list out the exemptions available in respect of such services. [Sec 65(105)(zzq)] 1.
Taxable Service: (a) General: Services provided to any person by any other person in relation to Commercial or Industrial Construction. (b) Deemed Service: Construction of a new building which is intended for sale, wholly or partly, by a builder or any person authorised by the builder before, during or after construction shall be DEEMED TO BE SERVICE provided by the builder to the buyer.
17
Indirect Tax Laws – CA Final (c) Exception to above deemed service: The above provision shall not be applicable if the builder or any person authorised by him does not receive any sum from or on behalf the prospective buyer, before grant of completion certificate by the competent authority under any law for the time being in force.
Impact: Agreement for Sale of Building is deemed as service and subject to Service Tax, if whole / part of the consideration is received before grant of completion certificate. Also, “Commercial or Industrial Construction Service” is renamed as “Commercial or Industrial Construction” (since sale is also deemed as service) 2.
Taxable Activities / Persons: (a) Commercial or Industrial Construction – Means • Construction of New Building or Civil Structure or a part thereof or • Construction of Pipeline or Conduit or • Completion and Finishing Services in relation to Building or Civil Structure or • Repair, alteration or restoration or similar services in relation to, building or Civil Structure, Pipeline or Conduit.
Note: The above building / Civil Structure / Pipeline / Conduit is used or to be used, or occupied / to be occupied or engaged / to be engaged primarily in Commerce or Industry or Work intended for commerce or industry. (a) Subcontractors and Persons directly engaged by the Property Owner. (b) Construction may be in full or Part (c) Post construction completion and finishing services like — • • • •
Glazing Plastering Painting Floor and Wall Tilling
• • • •
Wood and Metal Joinery Carpentry Fencing and Railing Construction of Swimming Pools
• • •
Wall Covering and Wall Papering Acoustic applications or fittings Other similar services
(d) Multipurpose Buildings such as Residential cum Commercial Construction, tax would be levied incase it is treated as a commercial property by the local / municipal laws. 3.
Non–Taxable Activities / Full Exemption:
(a) Builders constructing building / civil structures for themselves for their own use (Self Use is not liable) (b) Services in respect of Construction of Roads (including Laying of a new road, Widening of narrow road to a broader road, Changing road surface), Airports, Railways, Transport Terminals, Bridges, Tunnels, Dams (c) Construction of Canals by Government or under Government projects. [C.No.116/10/2009, dt. 15.9.09]
(Refer next Question given below)
(d) W.e.f. 01.07.2010, Services of Commercial or Industrial Construction provided wholly within the Port or Other Port for construction, repair, alteration and renovation of wharves, quays, docks, stages, jetties, piers and railways, from the whole of service tax. (Notification No.38/2010 dt. 28.06.2010) (e) Laying of electric cables beyond the distribution point of Commercial Complex. (f) Residence of the Central Government employees by National Building Construction Corporation Ltd (NBCC) (since
such construction is for the personal use of the Central Government by way of renting them out to its employees).
(Circular No.332/16/2010 – ST dt. 24.05.2010)
(g) Completion and Finishing Services in respect of pipelines and conduits. (h) Constructions for use by Educational, Religious, Government, Charitable, Health, Sanitation or Philanthropic purposes and not for purposes of profit. (i) Construction of new residential complexes (j) Construction of shops in residential buildings [Considered under Construction of Residential Complex Service]. (k) Services in relation to construction of Port / Other Port [Notfn 25 / 2007 – ST dt. 22.05.2007]:
Note: Ineligible Services: Services of completion and finishing, repair, alteration, renovation, restoration, maintenance or repair provided in relation to existing port or other port not eligible for above exemption. (l) Maintenance or Management of Immovable Property (Management, Maintenance and Repair Services) 4.
Abatement / Partial Exemption: (Notification No.29/2010 dt. 22.06.2010): Particulars Abatement Taxable Where the Cost of Land is NOT • 75% 25% recovered Separately • Where the Cost of the Land is 67% 33% recovered separately [RTP]
18
Conditions Exemption Not applicable if completion and finishing services only are done. (Composite service is eligible) Gross Amount charged to include value of materials supplied/provided / used by Service Provider.
Taxable Services 5.
Meaning – Authority competent to issue completion certificate (Order No.01/2010 dt. 22.06.2010) (a) Government Authority (b) Architect registered with Council of Architecture (c) Licensed Surveyor of the local body of the city / (d) Chartered Engineer registered with the Institute town / village who is authorized under law to issue a of Engineers completion certificate for occupation of buildings.
36. A Private Agency has built a canal system on Build-Own-Operate-Transfer basis under a contract with the State Government. User Charges at commercial rates are levied by the private agency and the revenue so generated is utilised for servicing and repayment of the capital investment. Briefly write a note with reference to ‘commercial or industrial construction service’ under the Finance Act, 1994 whether the user charges collected by the private agency are liable to service tax. N 10 1.
Principle: As per the Circular No.116/10/2009 dt. 15.09.2009, the following principles are laid down: (a) “Commercial or Industrial Construction” is chargeable to service tax if the civil structure or the building developed is to be or is used, occupied or engaged either wholly or primarily for furtherance of commerce or industry. (b) Hence, if the canal system is built by private agencies and is developed as a revenue generating measure, then such construction should be charged to service tax.
2.
Conclusion: In the given, as the private agency has built the canal for servicing its capital investments, such construction shall be considered as “Commercial or Industrial Construction” and hence taxable.
37. Persons engaged in Construction of Residential Complexes are liable to pay service tax. Discuss highlighting exceptions and exemptions available to them. [Sec 65(105)(zzzh)] N 05, N 06, RTP 1.
Taxable Service: (a) General: Services provided to any person by any other person in relation to Construction of Complex. (b) Deemed Service: Construction of a new building which is intended for sale, wholly or partly, by a builder or any person authorised by the builder before, during or after construction shall be DEEMED TO BE SERVICE provided by the builder to the buyer. (c) Exception to above deemed service: The above provision shall not be applicable if the builder or any person authorised by him does not receive any sum from or on behalf the prospective buyer, before grant of completion certificate by the competent authority under any law for the time being in force.
Impact: Agreement for Sale of Building is deemed as service and subject to Service Tax, if whole / part of the consideration is received before grant of completion certificate. 2.
Taxable Activities / Persons: (a) Construction of Complex – Means • Construction of a new residential complex or part thereof; or • Completion and finishing services in relation to residential complex • Repair, alteration, renovation or restoration or similar services in relation to residential complex.
(Note: Refer the Definition of Residential Complex below) (b) Subcontractors and Persons directly engaged by the Property Owner (c) Construction may be in full or Part (d) Post construction completion and finishing services for both old and new residential complexes. (Same as given for
Commercial or Industrial Construction)
(e) Multipurpose Buildings such as Residential cum Commercial Construction, tax would be levied incase it is treated as a Residential property by the Local / Municipal laws. (f) Construction of shops in residential buildings [Considered under Construction of Residential Complex Service]. 3.
Non–Taxable Activities / Full Exemption: (a) Owners constructing building / civil structures for themselves for their personal use (either for self occupation or
for letting out on rent)
(b) Construction services provided for buildings having upto 12 Residential Units. (Reason: Refer the definition of Residential Complex below) – C.No.96/6/2007 dt. 23.08.07 (c) W.e.f. 01.07.2010, Construction of Complex provided in relation to Jawaharlal Nehru National Urban Renewal Mission and Rajiv Awaas Yojana. (Notfn No.28/2010 dt. 22.06.2010) (d) Laying of electric cables beyond the distribution point of Residential Complex (e) Maintenance or Management of Immovable Property (Management, Maintenance and Repair Services) 19
Indirect Tax Laws – CA Final 4.
Abatement or Partial Exemption: Same as given for “Commercial or Industrial Construction”
5.
Meaning:
(a) Authority competent to issue completion certificate: Same as given for “Commercial or Industrial Construction” (b) Residential Complex means Complex comprising of – • Building(s) having more than 12 Residential Units with Common Area (Stair Cases, Roads etc.); and • One or more of other facilities, located within the premises — (i) Park (ii) Lift •
(iii) Parking Space (iv) Community Hall
(v) Common Water Supply (vi) Common effluent treatment system
Layout plan should have been approved by the Municipal.
Inter–connected Flats – Not Separate: Two flats cannot be considered as a single unit simply because they are inter– connected. The agreements in respect of the two flats were separate and there were two different electric meters in respect of the two flats. [S.Rangarajan vs. Oyester Co–operative Housing Society Ltd (BOM) CA Journal May08 Page1888]
38. In case of Residential Complex Service [Sec.65(105)(zzzh)] unless the entire payment is paid by the buyer after completion of construction, the activity of construction would be deemed to be a taxable service. Is this true or false? M 11 Correct. If any part of the consideration is received by the builder or any person on his behalf from the buyer before the grant of completion certificate, then it shall be deemed to be a service and hence liable for Service Tax.
39. M/s M Construction Ltd., constructs builds and sells Premises / Flats in a building. During the course of development and construction of the building it enters into a flat purchase agreement in terms of which the buyers are allotted flats in the building. The buyers pay the consideration to M/s M Construction in instalments. The said ‘flat purchase agreement’ reflects the entire consideration for the purchase of flat. This agreement is registered and advance payments in instalments are collected. The contention of M/s M Construction is that the consideration is for the purchase and sale of the entire flat/premises and the company does not carry out any construction activity. Examine with a brief note whether the company is liable to pay service tax in terms of the Finance Act, 1994. N 09 1.
Relevant Provision: (a) Deemed Service: Construction of a new building which is intended for sale, wholly or partly, by a builder or any person authorised by the builder before, during or after construction shall be DEEMED TO BE SERVICE provided by the builder to the buyer. (b) Exception to above deemed service: The above provision shall not be applicable if the builder or any person authorised by him does not receive any sum from or on behalf the prospective buyer, before grant of completion certificate by the competent authority under any law for the time being in force.
2.
Analysis: Agreement for Sale of Building is deemed as service and subject to Service Tax, if whole / part of the consideration is received before grant of completion certificate. Conclusion: Hence, in the above case, M/s M Construction Ltd shall be liable for Service Tax even though it is treated as a sale contract, if part or the whole consideration is received before the completion certificate is given.
3.
40. Explain the Service Tax Liability in respect of Laying / Shifting of Cables (Circular No.123/05/2010 – ST dt. 24.05.2010) 1. 2. 3.
Nature of Service Shifting of overhead cables / wires for any reason – Laying of cables under or alongside roads Laying of electric cables between grids/sub–stations/ transformers
4.
Installation of transformers / sub–stations undertaken separately
5.
Laying of electric cables (a) Upto distribution point of residential or commercial complex (b) Beyond the distribution point of residential or commercial complex
6. 7.
Installation of street lights, traffic lights, flood lights or other electrical and electronic devices/devices providing electric connections Railway Electrification / Electrification along the railway track 20
Taxability Not Taxable Not Taxable Not Taxable Yes. Taxable under Erection, Commissioning or Installation Services.
Not Taxable Yes. Taxable under Commercial or Industrial Construction / Construction of Complex Yes. Taxable under Erection, Commissioning or Installation Services. Not Taxable
Taxable Services
41. Explain the levy of Service Tax on the services rendered by an Architect. [Sec 65(105)(p)] 1.
Taxable Service: Service provided by an Architect in his professional capacity to any person.
2.
Taxable Activities / Persons:
(a) Services rendered by Architects as Registered Private Surveyors. (b) Interior designing to the extent of architecture. 3.
Non–Taxable Activities: (a) Services in relation to Landscape Designing and Developing (Interior Decorator’s Services). (b) Services of Valuation of property (Technical Inspection and Certification). (c) Services of art directors of films for setting up temporary structures. (d) Consulting Engineers, Construction Contractors, Interior Decorators (covered under their respective heads).
4.
Meaning: (a) Architect means [Section 65(6)] — Any person registered under the Architects Act, 1972 (including Commercial Concerns) engaged in rendering services in the field of Architecture (directly or indirectly).
(b) Architecture includes the following activities — (a) Designing or Planning of Construction of Buildings, Bridges, Dams etc. (b) Undertaking Technical Feasibility. (c) Preparing detailed drawings and getting them approved from concerned authorities. (d) Supervision of Construction etc.
42. Examine the applicability of service tax law to Real Estate Agent’s Services. [Sec 65(105)(v)] 1.
Taxable Service: Service provided to a Client by a Real Estate Agent in relation to a Real Estate.
2.
Taxable Persons:
(a) (b) (c) (d) (e)
Real Estate Agents, Real Estate Consultants Estate Brokers Consultants for Purchase / Sale / Let out Services, Legal Consultants for real estates Structural Consultants, Quality Consultants, Landscape Consultants,
M 04
(f) Security Advisors (g) Brokers engaged in sale and purchase of Orchids (a kind of flower plant) (h) Persons arranging for Film Studios on rent.
3.
Taxable Activities: (a) Services in relation to sale, purchase, leasing or renting, or real estate; (b) Advisory Services: • Real Estate related Financial, Legal and Technical Advisory Services; • Stamp Duty Advises; • Acquisition Advisory Services (including mode of financing the acquisition); (c) Consultancy: Consultancy in relation to Floor Space Index (FSI), Transferable Development Rights (TDR), Pest Control for Buildings / Properties and Use of Reinforced Cement Concrete (d) Real Estate Project Planning, (e) Providing Feasibility Reports, Conducting Techno–Economic Studies, Marketing of Real Estate Projects. (f) Enrolling members for any scheme of plantation companies where such members are given ownership of trees.
4.
Non–Taxable Activities: (a) Enrolling Members in Time Sharing Scheme for Resorts. (b) Evaluation of Life of Building by Engineers. (c) Interior Decoration. (d) Actual construction of any building, carried out by Builders / Developers (Construction of Residential Property / Commercial Property)
5.
Meaning:
(a) Real Estate Agent is [Section 65(88)] – A Person, Engaged in rendering any service in relation to sale, purchase, leasing or renting, of real estate and includes a Real Estate Consultant. 21
Indirect Tax Laws – CA Final (b) Real Estate Consultant is [Section 65(89)] – Any Person, rendering (directly or indirectly) advice, consultancy or technical assistance relating to Evaluation, Conception, Design, Development, Construction, Implementation, Supervision, Maintenance, Marketing, Acquisition or Management, of real estate. (c) Real Estate Property: Real Estate encompasses land along with any thing permanently affixed to the land, such as buildings, and includes Trees.
• •
Order Procurement for construction of houses & assistance in payments covered under Real Estate Agent’s Services. Real estate agent’s service includes services of Real Estate Consultant.[Indus Tubes Limited 2007 (007) STR 0238 (Tri.-Del)
43. Discuss in brief the service tax law as applicable to Interior Decorators. [Sec 65(105)(q)]
M 05
1.
Taxable Service: Service provided in relation to planning, design or beautification of spaces, by an Interior decorator to any person.
2.
Taxable Activities: (a) Beautification of Gardens, Landscape design and creation of all types of outdoor green spaces. (b) Services by way of Advice, Consultancy, Technical Assistance; (c) Services of Vastu / Feng Shui consultants.
3.
Non–Taxable Activities: (a) Sale of Furniture (b) Temporary Structures / Settings put up by Art Directors for Films (c) Artists, Painters, Carpenters, Persons furnishing the premises (d) Taxable under Specific Head: Civil Contractors, Architects, Civil Engineers, Persons providing Design Services
4.
Meaning: Interior Decorator means any person, engaged in the business of providing services relating to planning, design or beautification of spaces whether man-made or otherwise, by way of advice, consultancy, technical assistance or in any other manner. [Section 65(59)]
An isolated activity of providing advice to rearrange furniture not covered under “Interior Decorators” [Chandan Metal Products Pvt Ltd (2009) 14 STR 181]
44. R, an interior decorator by profession undertakes to do the interior designing and furnishing of the resident of a client. The contract includes provision of labour as well as materials. Discuss the scope of taxability of the services provided by him under the Service tax law. RTP 1. 2.
Service Tax is leviable on supply of materials, items of furniture etc. involved in the activity of rendering of Interior Decorator’s services. Thus, R has to ensure that the service charges are billed separately, or else, the service component of the bill is mentioned separately, so that service tax is payable only on the service element and not on the inputs.
45. Explain the taxability of Renting of Immovable Property Service [Section 65(105)(zzzz)] 1.
Taxable Services:
(a) W.r.e.f. 1.6.07, Service provided by any person to any other person by Renting of Immovable Property, (b) Any other Service in relation to such renting for use in the course of or for furtherance of business or commerce. 2.
Taxable Activities / Persons: (a) Renting, Letting, Leasing, Licencing or Other Similar arrangements of immovable property (b) In case of a building located in a complex or an industrial estate, letting out all common areas and facilities relating thereto, within such complex or estate (c) Allowing/ permitting use of space in an immovable property (even without transfer of possession or control) (d) Leasing out the Cinema Hall at a fixed rent to the exhibitor for screening the movie [taxable only when there is an arrangement with Distributor and fixed rent is to be paid under it] [C.No.109/03/2009 – ST / 23.02.2009] (e) Party let out for commercial purpose – deemed to be fully let out: Immovable property partly used for business or commerce and partly for residential purposes will be deemed to be used be business or commerce.
22
Taxable Services 3.
Non–Taxable Activities / Exemptions: (a) Renting of immovable property by / to a Religious Body; (b) Renting of immovable property to an Educational Body, imparting skill or knowledge or lessons on any subject or field, other than a Commercial Training or Coaching Centre; (c) Renting solely for Residential Purposes including Hotels, Resorts, Tents and Camps kept purely for accommodation. (d) Vacant land whether or not having facilities clearly incidental to the use of such vacant land. (e) Renting our of Vacant Lands used solely for – •
Agriculture and Farming
•
Animal Husbandry
•
Mining
•
Aquaculture
•
Forestry
•
Sports
•
Circus
•
Entertainment
•
Parking Purposes
4.
Specific Exemption / Abatement: [Notfn No.24/2007-ST / 22.05.2007] (a) Abatement: Property Tax actually Paid (and attributable to the rental period) (b) Service Tax is levied on Gross Rent Less Property Taxes actually paid and attributable to the rental period (c) Interest, penalty and other charges paid for delayed payment of property taxes are not eligible for deduction.
5.
Other Points: Commercial / Industrial Construction service or Works Contract service used for construction of Immovable property cannot be considered as Input service of Renting of Immovable Property services. [Circular No. 98/1/2008 – ST / 096.01 / 04.01.2008]
46. D Ltd. is engaged in providing services of renting of immovable property. In August 2011, its transactions are as follows:Particulars Amount(`) Rent Billed of the building (including property tax of ` 1,50,000) 12,00,000 Vacant land, given on lease for construction of building at a later stage 7,00,000 (Such building would be used for commercial purpose) Let out vacant land solely used for farming purposes 15,00,000 Let out land to Dharmesh Circus 2,25,000 On the basis of the above information, compute the Service Tax payable by D Ltd for August 2011. Note: All amounts are exclusive of service tax. Computation of service tax for D Ltd for August, 2011 `
Particulars
Building Rent
12,00,000
Less: Property tax (Note 1)
(1,50,000)
Vacant land, given on lease for construction of commercial building Value of taxable services
`
10,50,000 7,00,000 17,50,000 1,75,000
Service tax @ 10% = ` 17,50,000 × 10% Add:
Education cess payable @ 2% = ` 1,75,000 × 2%
3,500
Add:
Secondary and education cess payable @ 1% = ` 1,75,000 × 1%
1,750
Amount of service tax payable
1,80,250
Notes:
(a) As per Notification No. 24/2007 ST dated 22.05.2007, deduction of property tax is allowed from the gross amount to arrive at the value of taxable service of renting of immovable property, provided it is paid. (b) As per explanation 1 to section 65(105)(zzzz), immovable property does not include vacant land solely used for farming purposes and land used for circus. Hence, receipts of ` 15,00,000 and ` 2,25,000 are not liable to service tax.
23
Indirect Tax Laws – CA Final
47. Explain the taxability of Management, Maintenance or Repair Services [Section 65(105)(zzg)] 1.
Taxable Service: Service provided in relation to management, maintenance or repair provided to any person
2.
Taxable Activities / Persons:
(a) Management, Maintenace or Repair – Means any service provided by (i) any person under a contract / agreement (or) (ii) a manufacturer or any person authorised by him in relation to •
Properties: Management, Maintenance or Repair of Properties (Movable and Immovable). Property includes Information Technology Software.
•
Goods / Equipments: Maintenance, Repair or reconditioning / restoration / servicing of any Goods (including computer software) or Equipment, other than Motor Vehicles;
(b) Maintenance of Packaged Software (being goods) (c) Services provided during the Warranty Period by any person authorised by the manufacturer (even if there is no agreement between the manufacturer and the service receiver) (d) Maintenance or Management of Buildings, Airports, Railways, Parks etc. 3.
Non–Taxable Activities / Exemptions:
(a) Services provided in relation to Roads (i.e. Resurfacing, Renovation, Strengthening, Relaying and Filling of
potholes) [Notfn No. 24/ 2009 – ST / 27.07.2009]
(b) Repairs done without an agreement, if it is provided by any person (other than Manufacturer or Authorized Person) (c) Casual repairs by Unauthorized Person / Free Testing / Repair Camps. (d) Repairs to Motor Vehicles (covered under Authorized Service Station Service) (e) Services in relation to maintenance of “pay and use toilets” owned by municipal bodies. z
17.7 Intellectual Property Right Services 48. What is an Intellectual Property Right? Discuss the incidence of Service Tax on services in relation to Intellectual property right. [Sec 65(105)(zzr)] Explain whether Permanent transfer of Intellectual Property Rights is subject to Service Tax. N 10 1.
Taxable Services (M 07): Service provided in relation to Intellectual property service, by the Holder of Intellectual Property right to any other person.
2. 3.
Taxable Activities: Transferring temporarily or Permitting the Use or Enjoyment of any Intellectual Property Right. Non–Taxable Activities:
(a) Copyright Holder (b) Permanent transfer of Intellectual Property Right. (N 10) (c) Intellectual Property Rights not covered under Indian Law (like Integrated Circuits, Undisclosed Information) 4.
Specific Deduction from Service Tax: Cess paid u/s 3 of the Research and Development Cess Act, 1986 shall be deducted from Total Service Tax Payable on such service. [Credit is given for the Cess] [Notfn No.17/2004– ST], provided the following conditions are satisfied –
(a) Cess is paid • For General Cases: Within 6 Months from the date of invoice. • For Associated Enterprises: Within 6 Months from the date of credit in the books of account: (b) Cess is paid at the time or before the payment for the service. (c) Records are maintained to establish the linkage between the invoice or the credit entry and Cess payment challan. [Notification No 47/2011–ST., dt 19.09.2011] 5.
Meaning – Intellectual Property Right means any right to intangible property and includes Trade Marks, Designs, Patents or any other similar Intangible Property, under any law for the time being in force (excluding Copyright).
24
N
Taxable Services
49. Compute value of taxable service under “Intellectual Property Service” using the details given below: Particulars (1) Royalty for providing designs and patents @ 5% (2) Lumpsum royalty for permanent transfer of trademark (3) Royalty under brand licensing arrangement for use of brand name
N 10 `
20,00,000 25,00,000 15,00,000
Computation of Taxable Value under “Intellectual Property Services” Value (` )
Particulars
Reason
1. Royalty for providing designs & Patents @ 5%
20,00,000
The definition of Intellectual Property specifically includes patents and other intellectual property right registered under any Indian Law. Assumed that the rights are not permanently transferred.
2. Lumpsum royalty for permanent transfer of trademark
Nil
Permanent transfer of intellectual property right is specifically excluded from intellectual property service.
3. Royalty under Brand licensing arrangement for use of brand name
15,00,000
Brand name comes under the definition of “Trade Mark”. Hence, Brand licensing agreement is taxable. (C.No.249/1/2006 – CX.4 dt. 27.10.2008)
Total
35,00,000
Note: “Brand Licensing Agreement” refers to an agreement wherein the Brand Owners (BOs) allow their brand names to be used by other manufacturers and in return the BOs are paid an agreed sum as royalty.
50. Discuss the levy and scope of Franchise Services with reference to service tax law. [Sec 65(105)(zze)] 1.
Taxable Services: Franchise is an agreement by which franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trade mark, service mark or logo or any such symbol is involved. [Section 65(47)]
2.
Taxable Activities: (a) Granting of right by the franchisor – to sell or manufacture goods, to provide service or undertake any process identified with franchisor (b) Production under the brand name of Principal Manufacturer under a Licence Production Agreement (c) Granting of rights by the principal for rendering services identified with him.
Providing of coaching through Franchisee is taxable under Franchise Services. [Jetking Information Ltd. [2007 (7) STR 314 (Tri. Mumbai)]
17.4 Professional Services 51. Explain the Service Tax levy on services provided by Chartered Accountants [Sec 65(105)(s)] 1.
2.
N 02, N 05, M 03, M 09
Taxable Services: (a) All services provided by Practising Chartered Accountants in their professional capacity. (b) W.e.f. 01.05.2011, Services in relation to representation before Statutory Authorities shall also be liable for Service Tax. (Notification No.32/2011 dt. 27.04.2011) Non–Taxable Activities: Teaching, Placement etc. (not deemed as provided in professional capacity)
Billing, ledger keeping and meter reading carried out as an outsourced activity for E.B. do not fall under professional services within Chartered Accountancy services. [Jaded Siddappa & Co. 9 STR 239]
52. Mr. Ajay, a chartered accountant represents his client Mr. Vijay in a case relating to evasion of Income-tax before the Income-tax Appellate Tribunal. Mr. Ajay charges ` 25,000 as consideration for this service. Discuss whether Mr. Ajay is liable to pay service tax on such service. RTP W.e.f. 01.05.2011, Services in relation to representation before Statutory Authorities shall also be liable for Service Tax. (Notification No.32/2011 dt. 27.04.2011). Hence, Mr.Ajay shall charge service tax on above services.
25
Indirect Tax Laws – CA Final
53. Explain the taxability of Legal Consultancy Services. [Sec.65(105)(zzzzm)] 1.
N 10
Taxable Services:
(a) Services rendered by a Business Entity, to any person, in relation to advice, consultancy or assistance in any branch of law, in any manner; (b) Services rendered by any person, to any business entity, in relation to representational services before any court, tribunal or authority;
L
(c) Services rendered by an arbitral tribunal, to any business entity, in respect of arbitration. Explanation – “Arbitration” and “Arbitral Tribunal” shall have the meanings respectively assigned to them in the Arbitration and Conciliation Act, 1996;
2.
Non–Taxable Activities: (a) Individual Advocates and Proprietary Concerns are not liable for service tax. (b) Service by way of Appearance in Court, Tribunal or before any Authority is not covered. (N 10) (c) Services to any business entity, by an arbitral tribunal, in respect of arbitration. [Notification No 45 / 2011-ST., dt 12.09.2011]
54. Virat Kohil & Co., is providing legal consultancy services, for the 2nd consecutive year. The firm furnishes the following information on the services rendered, bills raised, amounts received relating to this service, for the year ended 31.3.2012: Particulars ` Free services rendered to poor people ( Value of the services computed on comparative basis) 40,000 Advances received from clients for which no taxable service has been rendered so far 5,00,000 Services billed to clients Gross amount ( Service tax has been charged separately in all the bills; the firm 12,00,000 follows mercantile system of accounting) The firm has received the following amounts during the year : Relating to taxable services rendered in March, 2011 (excluding Service tax at applicable rates and TDS under 5,44,680 section 194-J of the IT Act, 1961 to the tune of ` 45,320) Relating to taxable services rendered in current year 2011 (excluding Service tax at applicable rates and TDS under section 194-J of the IT Act, 1961 to the tune of ` 1,20,000) (*includes ` 50,000 for appearance fee 9,80,000 before Labour Court received from another firm) Service tax has been separately received for applicable items in ( iv ) above. You are required to compute the value of taxable services for the year ended 31.3.2012 and the Service tax payable, briefly explaining the treatment of each item above M 10. Assessee: Virat Kohli & Co.
Financial Year: 2011–2012
Computation of Service Tax Payable for the year ended 31.03.2012 Question
(i)
Free services
(ii) Advances received from clients for which no taxable service has been rendered so far (` 5,00,000 × 100 /110.30) (iii) Services billed to clients – Gross amount (iv) The firm has received following amounts – Relating to Previous FY Relating to Current FY Taxable value of Services Service Tax Payable @ 10% Add: EC @ 2% of Service Tax Add: SH&EC @ 1% of Service Tax Total Service Tax Payable
Taxable Value
NIL
4,53,309
12,00,000
NIL Nil 16,53,309 1,65,331 3,307 1,653 1,70,291
26
Reasons
When no consideration is received (either in monetary or non–monetary form) for provision of a taxable service, then there is no value, consequently no Service Tax as well. Advance received is taxable even though no taxable service has been rendered so far, as per Point of Taxation Rules,2011 As per PoT Rules, 2011, Point of Taxation shall be date of invoice, if it is before payment date. Hence, in this case, the Service Tax Liability shall be payable on bill basis. Since the ST would have been paid based on the billing, the receipt is not taxable again.
N
Taxable Services
17.8 Miscellaneous Services 55. Outline the provisions relating to “Site Preparation, Clearance, Excavation, Earthmoving and Demolition Services” under the Finance Act, 1994 [Sec 65(105)(zzza)] N 07 1.
Taxable Services: Service provided to any person in relation to Site Formation and Clearance, Excavation and Earthmoving and Demolition and such other similar activities by any person.
2.
Taxable Activities / Persons: (a) Activities done to make the land suitable for – • Construction of Buildings, Factory or Civil Structure; or • Mining or Laying of cables or pipes; or Such other activities.
(b) Drilling, Boring, Core Extraction Services for Construction, Geophysical, Geological or Similar purposes and other specified activities. (c) Specified Activities: • Soil Stabilization • Land Reclamation Work • Horizontal Drilling for the Passage of Cables or Drain Pipes • Contaminated Top Soil Stripping Work • Blasting and Rock Removal Work • Drilling and Boring • Clearance of Undergrowth • Overburden Removal • Demolition and wrecking of building, structure or road, streets for further construction activity or any other purpose. • Other development and preparation services of mineral properties and sites 3.
Non–Taxable Activities / Exemptions: (a) Services provided in relation to (a) Agriculture, (b) Irrigation, (c) Water Shed Development and (d) Drilling, Digging, Repairing, Renovating, Restoring of water sources or water bodies. (b) Construction / Site Preparation for construction of Roads / Airports / Railways / Transport Terminals / Bridges / Tunnels / Dams, Port or other Ports. [Notification No.17 / 2005 – ST dated 07.06.2005] (c) Services in relation to mining of Mineral, Oil or Gas. (d) Activities subsequent to site leveling activities (taxable under specific heads i.e. Commercial Construction, Construction of Residential Complex, Erection of Steel Structures etc.) (e) Site excavation, clearance etc. done for archeological purposes (no construction work or laying of pipes etc.)
56. D & Co. is engaged in the services of site preparation and clearance, excavation earth moving and demolition services. The gross amount received during the quarter ended 31-8-2011 for the services provided by them are given below: N 10 ` ` Particulars Particulars Core Extraction services for construction 1,80,000 Horizontal Drilling of passage of cables or drain pipes 1,00,000 Land Reclamation work 80,000 Soil Stabilization 90,000 Services in relation to Agriculture 2,00,000 Construction of Transport Terminals 55,000 Renovating or Restoring Water Sources 3,50,000 Calculate the value of taxable services under ‘Site preparation and clearance, excavation, earth moving and demolition services’ under the Finance Act, 1994 and the Service Tax payable at 10.3%. (Provide brief explanations where required.) Determination of Value of Taxable Service and Service Tax Liability Particulars Taxable Value (` ) Reason (a) Core Extraction Services for Construction 1,80,000 Specifically included (b) Land Reclamation Work 80,000 Specifically included (c) Services in relation to Agriculture Nil Exempt from service tax (d) Renovating or Restoring water sources Nil Exempt from service tax (e) Horizontal Drilling of passage of cables or drain pipes 1,00,000 Specifically included (f) Soil Stabilization 90,000 Specifically included (g) Construction of Transport Terminals Nil Exempt [vide Notn.14/2005 – ST] Total Taxable Service 4,50,000 Service Tax @ 10% 45,000 Add: Education Cess @ 2% 900 Add: SHEC @ 1% 450 Total Service Tax Liability 46,350 Note: Assumed that the assessee does not avail the exemption for Small Service Providers.
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Indirect Tax Laws – CA Final
57. Briefly discuss storage and warehousing of goods services and charge of service tax on such services. [Sec 65(105)(zza)] 1.
Taxable Services: Service provided by Storage and Warehouse keeper in relation to Storage & Warehousing services.
2.
Taxable Persons / Activities:
(a) Store Keeper, Warehouse Keeper Warehousing Corporation, State (b) Central Warehousing Corporations (c) Public Warehouses, Private Warehouses (d) Airport Authorities, Railways. (e) Inland Container Depots (f) Container Freight Station, Container Fuel Stations, (g) Storage Godown & Tankers operated by Private individuals.
(h) Crane Services. (i) Activities in relation to storage and warehousing. (j) Handling / Storage and warehousing of empty containers. (k) Terminal Charges charged by Airport Authorities of India. (l) Storage outside the port premises [Gujarat Chem. Port Terminal Co.Ltd.v.CC&CE (2005) 1 STT 98 (CESTAT)] (m) Storage of empty containers. (n) Storage of imported cargo outside the port premises.
3.
Non–Taxable Activities / Exemptions: (a) Food Corporation of India, Port Trust Authorities (b) Storage for Agricultural Produce and Cold Storages. (c) Clearing and Forwarding Services. (d) Cloak Room Services for passenger’s luggages provided at Railway Stationers, Transport Terminals. (e) Mere renting of space (Renting of Immovable Property services). (f) Services provided in Ports (Port Services). (g) Agencies giving Cylinder on hire.
4.
Meaning: Storage and Warehousing [Section 65(102)] —
(a) Storage and warehousing services for goods, including liquids and gases. (b) Exclusions: Storage of Agricultural Produce, Cold Storage (Refrigerated Place for storage of perishable products like food, vegetables, furs, milk, fish, meat etc.)
58. Sweet Sugar Mills is engaged in the manufacture of sugar. Government of India had issued directions under the Sugar Control Order for Sugar Companies to maintain buffer stock of sugar of certain quantity for a specified period. In order to compensate the Sugar Mill, the Government had extended buffer stock subsidy towards storage, interest and insurance charges in respect of the buffer stock of sugar actually held by the sugar mill. The department has issued a show cause notice to the assessee raising a demand of service tax on the ground that the amount received by the sugar mill as buffer subsidy is covered under the taxable service of ‘Storage and Warehousing’. Discuss briefly with reference to decided case law whether the action of the department is sustainable in law. M 11 1.
Situation: Assessee stored free sale sugar as buffer stock as per the Government’s directions. The Government paid grant as a compensation for such storage. Department wanted to levy service tax on such grant under storage and warehousing services.
2.
Decision: The assessee shall not be liable for service tax in respect of such grant under “Storage and warehousing service” as he stored only his own goods. Service to one self is not liable for service tax. Further, grant is only a compensation for rent, insurance, interest etc. [Nahar Industrial Enterprises Ltd. 2010 (19) S.T.R. 166 (P&H)]
59. Who is a Management or Business Consultant? Explain his taxable and non–taxable services. [Sec 65(105)(r)] Write short notes on Services provided in connection with the management of an organization by a Management Consultant having no professional qualification. N 08 1.
Taxable Services: Service provided in connection with management of any organization / business by a Management or Business Consultant to any person.
2.
Taxable Persons / Activities: (a) Advice, Consultancy or Technical assistance to an Organisation / Business in any areas of Management. (b) Service of implementing Computer Packages including ERP related services. (c) Maintenance of records, accounts, preparation of statutory returns etc. (Business Support Services)
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D
Taxable Services (d) Rendering Lectures / Briefs / Advice relating to upgradation of Human Resources of an Organisation (CBEC FAQs) (e) Compensation for Advice / Consultancy provided by the Directors to the Company [Circular No. 115/09/2009 – ST / 31.07.2009] 3.
Non–Taxable Activities / Exemptions: (a) Services rendered as a statutory requirement and not governed by any contractual relationship. (b) Services provided by ESI, PF and Industrial Law practitioners (c) ISO Certifications, Architect Services, Industrial Legal Consultancy, Tax Consultant
4.
Meaning: Management or Business Consultant is [Section 65(65)] –
(a) A person engaged in providing Any service in connection with the management of any organization or business and Includes advice, consultancy or technical assistance (b) Areas of Advice: Financial Management, Human Resources Management, Marketing Management, Production Management, Logistics Management, Procurement, Management of Information Technology Resources, Other Similar Areas (such as Business Restructuring, Amalgamation and Mergers, Business Takeover etc.) (c) Industrial Law Practitioners, Merchant Bankers performing statutory functions in merger or takeover assignment Taking over of management of an organization is not covered under Management Consultant Service. [Basti Sugar Mills Co. Ltd. 2007 (007) STR 0431 Tri.-Del] Activity of developing human resources at rural level for staff of charitable organizations or Government bodies is not Management Consultant Services.[Bharathiya Samruddhi Investments & Consultancy Services Ltd. 2007 (007) STR 0060 Tri.-Bang] “Management or Business Consultant” services include only the advisory services and not the actual performance of the managerial function. [Nirulas Corner House Pvt Ltd (2009) 14 STR 131]
60.
Examine the applicability of service tax law to Technical Testing and Analysis services. [Sec 65(105)(zzh)]
N 04
1.
Taxable Services: Service in relation to physical, chemical, biological or any other scientific testing or analysis Goods or Material or any Immovable Property, or Information Technology Software.
2.
Taxable Persons / Activities: (a) Clinical testing of Drugs and Formulations. (b) Water Testing by other than Government Laboratories. (c) Technical testing and analysis of Information Technology Software
3.
Non–Taxable Activities / Exemptions: (a) Testing or analysis service provided in relation to human beings or animals i.e Medical Testing and Diagnosis. (b) Services provided while determining the nature of disease, identification, prevention of disease or disorder in human beings or animals. [N 04] (c) Services in relation to water quality testing by Govt owned State or District level laboratory. (d) Technical Testing and Analysis of newly developed drugs (including herbal remedies and vaccine) on human participants, by Clinical Research Organisation (CRO). [Notfn. No. 11 / 2007] (e) Services provided by a Government owned State or District Level Laboratory in relation to testing and analysis of water quality [Notfn No. 6/2006] (f) Services provided by Central or State Seed Certification Agency notified under the Seeds Act, 1966 to any person (Notification No.10/2010 dt. 27.02.2010)
Activity of a Collection Centre for drawal of blood samples and to carry out essential processing (serum separation) of blood and forwarding samples to the principal lab through courier is not Covered under Technical Testing and Analysis Services since services are in relation to Human Beings. [Dr. Lal Path Lab (P) Ltd. 2007 (008) STR 0337 P&H]
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