Workshop on MVAT & Service Tax Point of Taxation, Export and Import of Services, Valuation of Services Rules, 2006 BY

Faculty: CA Manish Gadia

on Saturday 21 January, 2011 st

At STPAM Library-104, Vikrikar Bhavan, Mazgaon, Mumbai-10

Organised By The Sales Tax Practitioners' Association of Maharashtra Jointly with

The Chamber of Tax Consultants Bombay Chartered Accountant Society and All India Federation of Tax Practitioners

CA Manish Gadia

Point of Taxation CA Manish Gadia 1.

INTRODUCTION Section 68(1) of the Finance Act, 1994 read with Rule 6(1) of the Service Tax Rules, 1994 (STR) provided that the service tax shall be paid to the credit of the Central Government by the 5th / 6th of the following month immediately following the calendar month in which there is receipt of payment of the value of taxable services. However, in view of the transition to GST and to align the payment mechanism of services and that of goods the system of payment of service tax has been changed drastically leading to various complexities and issues. The Point of Taxation Rules, 2011 (PTR) has been introduced keeping in mind the aforesaid transition. The PTR has been introduced vide Notification No. 18/2011 – ST dated 1st March, 2011. The said Rules are applicable w.e.f 1st April, 2011 however an option was given to the assessees to adapt to the said Rules w.e.f 1st July, 2011 and to continue making payment on receipt basis upto 30th June, 2011. Thus, w.e.f 1st July, 2011 all the assessees have to follow the PTR. However, during the course of said transition in cases where either the provision of service are completed or the invoices are issued (i.e. any of the one) upto 31st March, 2011 or 30th June, 2011, as the case may be, the provisions of the said rule were not applicable i.e. Service Tax is payable as and when the payments are received.

2.

POINT OF TAXATION 2.1. General Rule: Earlier the payment of service tax was only when there was receipt of payments. Now, w.e.f. 1st April, 2011 or 1st July, 2011, as the case may be,  If invoice is issued within 14 days of the completion of service then the point of Taxation shall be the receipt of Payment or Issue of Bill, whichever is earlier.  If invoice is not issued within 14 days of the completion of service then the Point of Taxation shall be deemed to be the date of completion of such service.

Page 2 of 31

CA Manish Gadia 2.2. The Circular F. No. 341/34/2010 – TRU dated 31.3.2011 issued by the Tax Research Unit of the Department of Revenue, Ministry of Finance (TRU Circular) illustrates the application of this rule as follows: S. Date of No. completion of service

Date of invoice

Date on which payment recd.

Point of Taxation

Remarks

1.

April 10, 2011

April 20, 2011

April 30, 2011

April 20, 2011

Invoice issued in 14 days and before receipt of payment

2.

April 10, 2011

April 26, 2011

April 30, 2011

April 10, 2011

Invoice not issued within 14 days and payment received after completion of service

3.

April 10, 2011

April 20, 2011

April 15, 2011

April 15, 2011

Invoice issued in 14 days but payment received before invoice

4.

April 10, 2011

April 26, 2011

April 5, 2011 (part) and April 25, 2011 (remaining)

April 5, Invoice not issued in 14 days. 2011 Part payment before and completion, remaining later April 10, 2011 for respective amounts

2.3. Completion of Service: Clarification1 on „Completion of Service‟ is issued clarifying that completion of service would include not only the physical part of providing the service but also the completion of all other auxiliary activities that enable the service provider to be in a position to issue the invoice. Such auxiliary activities could include activities like measurement, quality testing, etc which may be essential pre-requisites for identification of completion of service. The test for the determination whether a service has been completed would be the completion of all the related activities that place the service provider in a situation to be able to issue an invoice. However such activities do not include flimsy or irrelevant grounds for delay in issuance of invoice.

2.4. Issuance of Invoice: Invoices shall be issued, as per Rule 4A (1) of the STR, within 14 days of the completion of taxable service or receipt of any payment towards the value of such taxable service, whichever is earlier. Such invoices or bills or challans must be serially numbered and duly signed by the assessee or a person authorized by him containing the following details: 1

Circular No. 144/13/2011 – ST dated 18th July, 2011

Page 3 of 31

CA Manish Gadia (i) name, address and registration number of service provider; (ii) name and address of service receiver; (iii) description, classification and value of taxable service; (iv) service tax.

3.

APPLICABLE RATE OF TAX IN CASE OF CHANGE IN EFFECTIVE RATE OF TAX Rule 4 of the PoT Rules provides when a service is deemed to have been provided in cases where there is a „change of effective rate of tax‟ which would also include change in that portion of value on which tax is payable in terms of an exemption notification or rules made in this regard. The TRU Circular clarifies as follows: “change in the effective rate of tax shall also include change in that portion of value on `which tax is payable in terms of an exemption notification or rules made in this regard. It may be noted that an exemption has been granted in value for various services vide Notification No. 1/2006-ST dated 01.03.2006 which has the effect of payment of tax only on a part of the value. Similarly either the values or the rates at which tax is payable are provided under rule 6(7, 7A, 7B or 7C) of the Service Tax Rules, 1994 as well as the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. Thus, whenever these values or the composition rates are changed, it would have the same effect as the change in the rate of duty. It is hereby further clarified that the rate of tax shall also include any other notification which is issued, rescinded or amended and has the effect of altering the taxability of any service.”

The rate applicable for payment of Service Tax in case of change in rate of Service Tax is tabulated as under: PROVISION

ISSUE OF

RECEIPT OF

OF SERVICE

INVOICE

PAYMENT

Before

After

After

APPLICABLE RATE

Date of Invoice or Receipt of Payment, whichever is earlier – New Rate

Before

Before

After

Date of Issue of Invoice – Old Rate

Before

After

Before

Date of Receipt of Payment - Old Rate

After

Before

Before

Date of Invoice or Receipt of Payment, whichever is earlier - Old Rate

Page 4 of 31

CA Manish Gadia

4.

After

Before

After

Date of Receipt of Payment - New Rate

After

After

Before

Date of Issue of Invoice - New Rate

POINT OF TAXATION IN CASE OF INTRODUCTION OF NEW SERVICES Situations as to when Service Tax is not applicable: When the new services are bought under the tax net for the first time and if,  Invoice is issued and payment to the extent of such invoice is received before introduction.  Payment is received before introduction and invoice is issued within 14 days of receipt of payment or provision of service, whichever is earlier. Date of provision of service has no relevance.

5.

POINT OF TAXATION IN CASE OF CONTINUOUS SUPPLY OF SERVICES 5.1. Payment of Service Tax: Point of Taxation in case of Continuous Supply of Service shall be as explained in Para 2 above. However, where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the service receiver to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service. 5.2. Issuance of Invoice: Invoice / bill / challan under Rule 4A (1) of the STR, in cases of Continuous Supply of Services, is to be issued within 14 days of the date when each event specified in the contract, which requires the service receiver to make any payment to service provider, is completed. 5.3. Specified Services under Continuous Supply: The provision of following taxable services shall be treated as Continuous Supply of Service irrespective of the period of service provision contract i.e. even if the contract for service provision is less than 3 months then also following services shall be considered as Continuous Supply of Service:  Commercial or Industrial Construction [Sec 65(105)(zzq)]  Residential Complex Construction Services [Sec 65(105)(zzzh)]  Telecommunication Services [Sec 65(105)(zzzx)]  Internet Telecommunication Services [Sec 65(105)(zzzu)]  Works Contract Services [Sec 65(105)(zzzza)] Page 5 of 31

CA Manish Gadia 5.4. Illustrations: Date of Part Date

of

Completion Receipt of

Date of

Servi

Invoice

ce

Service of

Remarks

Tax

as specified Payment

Liabili

in contract

ty arises in

6.

25th July

2nd

27th

July

Since Invoice is issued within 14

2011

Augus

July

2011

days, Issue of Invoice or Receipt of

t 2011

2011

25th July

27th

2nd

July

Since Invoice is issued within 14

2011

July

Augus

2011

days, Issue of Invoice or Receipt of

2011

t 2011

25th July

2nd

16th

July

Since the invoice is issued after 14

2011

Augus

Augus

2011

days, the date of whole or part

t 2011

t 2011

payment, whichever is earlier

payment, whichever is earlier

completion of service

POINT OF TAXATION IN CASE OF SPECIFIED SERVICES OR PERSONS 6.1. Individuals / proprietary firms / partnership firms: POT shall be on receipt of payment in case of Individuals, Proprietary Firms or Partnership Firms for providing below-mentioned services  Consulting Engineer‟s Services [Section 65(105)(g)]  Architect‟s Services [Section 65(105)(p)]  Interior Decorator‟s Services [Section 65(105)(q)]  Practicing Chartered Accountant‟s Services [Section 65(105)(s)]  Practicing Cost Accountant‟s Services [Section 65(105)(t)]  Practicing Company secretary‟s Services [Section 65(105)(u)]  Scientific or Technical Consultancy Services [Section 65(105)(za)]  Legal Consultancy Services [Section 65(105)(zzzzm)] 6.2. Export of Services: POT shall be on receipt of payment for Services exported as per Export of Services Rules, 2005. However, if the payment for exports is not received within the period specified by the RBI (currently it is 12 months), then the Point of Taxation shall be as applicable as per Para 2.1 above.

Page 6 of 31

CA Manish Gadia 6.3. Receiver of Services U/s. 68(2): Generally service providers are liable to pay tax but section 68(2) provides that in certain circumstances person other than service provider is liable to pay tax. For e.g. in case of GTA, sponsorship service, import of service, etc. In case of person liable to pay service tax under section 68(2). Point of Taxation shall be the date of payment. However, if the payment is not made within 6 months of the date of invoice, then the Point of Taxation shall be as applicable as per Para 2.1 above. 6.4. Associated Enterprises:  Service provider is located outside India: Point of Taxation shall be the earliest of:  Date of credit in the books of account of the service receiver or  Date of payment.  Service provider is located within India: Point of Taxation shall be as applicable as per Para 2.1 above.

7.

POINT OF TAXATION IN CASE OF COPYRIGHTS, ETC. Point of Taxation shall be:  If the amount of consideration is ascertainable at the time of performance i.e. when the agreement is made - the date of such agreement  If the amount of consideration is not ascertainable at the time of performance - at each time when a payment, in respect of such use or the benefit, is received or an invoice is issued, whichever is earlier

8.

ADJUSTMENT OF EXCESS SERVICE TAX PAID [RULE 6 (3)] Rule 6(3) is substituted as follows – Where an assessee has issued an invoice, or received any payment, against a service to be provided which is not so provided by him either wholly or where the amount of invoice is renegotiated due to deficient provision of service, or any terms contained in a contract, the assessee may take the credit of such excess service tax paid by him, if the assessee.-

 has refunded the payment or part thereof, so received for the service provided to the person from whom it was received; or  Has issued a credit note for the value of the service not so provided to the person to whom such an invoice had been issued.

Page 7 of 31

CA Manish Gadia

Export and Import of Services CA Manish Gadia 1.

Introduction Import or Export means transaction across borders of two or more countries by crossing the custom frontier of these countries.

2.

Background Service tax was introduced w.e.f. 1st July 1994 vide Finance Act, 1994 (The Act). Sec 64 of the Act provided for Applicability of service tax to whole of India except the state of Jammu and Kashmir. In effect it covered all the specified services which are provided in India.

2.1.

Export of Service

2.1.1. 1st July 1994 to 27th February 1999 It can be said that during this period there was no concept of Export of service. 2.1.2. 28th February 1999 to 8th April 1999 Vide Notification no. 2/1999-ST dated 28.02.1999 government exempted specified services for which payment was received in convertible foreign exchange. There was no condition for repatriation of convertible foreign exchange received. 2.1.3. 9th April 1999 to 28th February 2003. Notification no. 2/1999-ST was rescinded by Notification No. 6/1999-ST dated 09.04.1999. Vide this notification government now exempted those specified services for which payment is been received in convertible foreign exchange in India and that the same has not been repatriated or sent outside India. 2.1.4. 1st March 2003 to 19th November 2003 Notification No. 6/1999 was rescinded by Finance Act, 2003 vide Notification No. 2/2003, dated 01.03.2003. However with Circular No. 56/2003-ST dated 25.04.2003, department clarified that  service tax is a destination based consumption tax and  Export of services would continue to remain tax free even after withdrawal of Notification No. 6/99, if the payment of specified services is been received in convertible foreign exchange in India and that the same has not been repatriated or sent outside India. Thus services not actually consumed or received in India is to be treated as export Services.  Secondary services which are used by the primary service provider for the export of services, Since the secondary services ultimately gets consumed/merged with the services that are being exported no service tax would be leviable on such secondary services. Page 8 of 31

CA Manish Gadia 2.1.5. 20th November 2003 to 14th March 2005 Notification no. 21/2003-ST dated 20.11.2003 was issued whereby exemption was provided to those specified services for which payment is been received in convertible foreign exchange in India and that the same has not been repatriated or sent outside India. In other words condition given in Notification No. 6/1999-ST dated 09.04.1999 was restored again. 2.1.6. 15th March 2005 onwards Export of Service Rules, 2005 was introduced w.e.f. 15th March, 2005 vide notification No. 9/2005-ST, dated 03.03.2005. 2.2.

Import of Service

2.2.1. 1st July 1994 to 27th February 1999 All specified services provided in India were taxable under service tax. 2.2.2. 28th February 1999 to 15th August 2002 Notification No 1/99-ST dated 28th February 1999 amended Rule 6(1) by inserting second proviso to Service Tax Rules, 1994. The amended rules provided that in the case of a person who is a non-resident or is from outside India, does not have any office in India and is liable to pay service tax on taxable services provided in India then the service tax thereon shall be paid by such person or on his behalf by any other person authorised by him. 2.2.3. 16th August 2002 to 31st December 2004 Notification No. 12/2002 – ST dated 1st August 2002 (effective from 16th Aug 2002) inserted Rule 2(1)(d)(iv) in Service tax Rules, 1994 which provided for person liable for paying the service tax as a person who is a non-resident or is from outside India, does not have any office in India, the person receiving taxable service in India. This was position upto 31st December 2004. 2.2.4. 1st January 2005 to 15th June 2005 Notification No. 36/2004-St dated 31st December 2004 notified taxable services vide insertion in Rule 2(1)(d) of Service Tax Rules, 1994 which interalia defined person liable to pay service tax in relation to any taxable service provided by a person who is a non-resident or is from outside India, does not have any office in India, the person receiving taxable service in India. 2.2.5. 16th June 2005 to 17th April 2006 On 16th June 2005 an explanation was inserted to Section 65(105) which read as under,

Explanation-For the removal of doubts, it is hereby declared that where any service provided or to be provided by a person, who has established a business or has a fixed establishment from which the Page 9 of 31

CA Manish Gadia

service is provided or to be provided, or has his permanent address or usual place of residence, in a country other than India and such service is received or to be received by a person who has his place of business, fixed establishment, permanent address or, as the case may be, usual place of residence, in India, such service shall be deemed to be taxable service for the purpose of this clause;” Until insertion of above explanation there was no provision in the act to tax a service recipient. This was the first step in this direction to insert the same within the statute. 2.2.6. 18th April 2006 onwards Finance Act, 2006 inserted Section 66A on18th April 2006. Pursuant to insertion of said section government deleted explanation to Sec 65(105). At the same time government introduced Taxation of services (provided from outside India and received in India) Rules, 2006 vide Notification No. 11/2006-ST, dated 19.04.2006.

3.

Why classification and rules to identify Export / Import of Service is needed. Depending on the flow of transaction these can be classified in to Import or Export. In case of goods the term is relatively simpler. This is so because there is physical movement of goods which are easily identifiable. However in case of services due to its intangible nature identifying its flow is quite difficult.

4. 4.1.

Rules to identify Export / Import of Service are needed. Provisions for identifying Export of Services Export of Service Rules, 2005 introduced w.e.f. 15th March 2005, provides for a particular service to be treated as Export of service These Rules had broadly categorized all taxable service into following three categories, are explained as under,

Page 10 of 31

CA Manish Gadia

Export of Services

Location of Immovable Property

Place of Performance

Location of recipient of service2

[Rule 3(1)(i)] [Rule 3(1)(ii)] Specified services provided Services Wholly / Partly in relation to an Immovable performed outside India property situated outside India Provided In relation to business or commerce Recipient of service is located outside India

[Rule 3(1)(iii)]

provided otherwise

Recipient of service is located outside outside India at the time of provision of service

List of classification for each service applicable from 1st April, 2011 is given in Annexure 1 4.2.

Taxability of services covered under Rule 3(1)(ii) are decided on the location where services are performed. From 1st March, 2008 in respect of following three services location of goods or immovable property in respect of which service has been provided is situated outside India at the time of provision of service provided through Internet or telephony, then even if services are performed wholly in India then also this will be treated as export of service.

(a) Management, maintenance or repair [Sec 65(105)(zzg)] (b) Technical inspection and certification [Sec 65(105)(zzi)]. 4.3.

Supply of Tangible goods for use service became taxable from 16 th May, 2008 and it has been classified under rule 3(1)(iii) of the Export of Service Rules, 2005 i.e. recipient of Service shall be located outside India, then such taxable service shall be treated as export of taxable service subject to the condition that the tangible goods supplied for use are located outside India during the period of use of such tangible goods by such recipient.

4.4.

Certain services will be recategorised w.e.f. 1st April, 2011 summary of the same is given below.

2

Such recipient has commercial establishment or any office relating thereto, in India, such taxable services provided shall be treated as export of service only when order for provision of such service is made from any of his commercial establishment or office located outside India.

Page 11 of 31

CA Manish Gadia Services Special Services provided by Builders Credit Rating Agency Service Market Research Agency Service Technical Testing and Analysis Service Transport of Goods by Aircraft Service Transport of Goods by Road Service Opinion Poll Agency Service Transport of Goods by Rail Service Rail Travel Agent Service Health Check up and Treatment Service

4.5.

Criterion prior to 1st April, 2011 Location of Recipient of Service Place of Performance Place of Performance Place of Performance Place of Performance Place of Performance Place of Performance Place of Performance Location of Recipient of Service Location of Recipient of Service

Criterion w.e.f. 1st April, 2011 Location of Immovable Property Location of Recipient of Service Location of Recipient of Service Location of Recipient of Service Location of Recipient of Service Location of Recipient of Service Location of Recipient of Service Location of Recipient of Service Place of Performance Place of Performance

Apart from satisfying above conditions given in Rule 3(1) of the Export of Service Rules, 2005, depending upon service provided service provider shall satisfy following condition given in Rule 3(2) also to claim service as export of service. 1. Payment for such service [*]3 is received by the service provider in convertible foreign exchange.

4.6.

For the purpose of Export rules India includes installations, structures and vessels in the continental shelf of India and the exclusive economic zone of India4.

4.7.

Rule 4 of the ESR provide that any taxable service may be exported with out payment of service tax.

4.8.

Rule 5 of ESR gives power to Central Government to grant rebate of service tax paid on such taxable service or service tax or duty paid on input services or inputs, as the case may be, used in providing such taxable service.

3

Words “Provided outside India” omitted by the Export of Services (Second Amendment) Rules, 2007, w.e.f. 01.06.2007 4 Inserted vide Notification No. 25/2009-ST Dated: 19th August, 2009.

Page 12 of 31

CA Manish Gadia 4.9.

Provisions for identifying Import of Services Section 66A read with Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 (hereinafter referred to as Import Rules) defines which services will be liable to service tax under reverse charge mechanism. Import of Services

Location of Immovable Property

Place of Performance

[Rule 3(i)] Specified services provided in relation to an Immovable property situated in India

[Rule 3(ii)] Services Wholly / Partly performed in India

Location of recipient of service [Rule 3(iii)] Recipient of Service is located in India for use in relation to Business or Commerce

Apart from above classification there are no other conditions to be satisfied. 4.10. Taxability of services covered under Rule 3(1)(ii) are decided on the location where services are performed. From 1st march, 2008 in respect of following three services location of goods or immovable property in respect of which service has been provided is situated in India at the time of provision of service provided through Internet or telephony, then even if services are performed wholly outside India then also this will be treated as import of service. (a) Management, maintenance or repair [Sec 65(105)(zzg)] (b) Technical testing and analysis [Sec 65(105)(zzh)]5 , and (c) Technical inspection and certification [Sec 65(105)(zzi)]. 4.11. Supply of Tangible goods for use service became taxable from 16th May, 2008 and it has been classified under rule 3(1)(iii) i.e. recipient of Service shall be located in India, then such taxable service shall be taxable service subject to the condition that the tangible goods supplied for use are located in India during the period of use of such tangible goods by such recipient. 4.12. Certain services will be recategorised w.e.f. 1st April, 2011 summary of the same is given below.

5

From 1st April, 2011 this service has been recategorised under location of recipient of service.

Page 13 of 31

CA Manish Gadia Services Special Services provided by Builders Credit Rating Agency Service Market Research Agency Service Technical Testing and Analysis Service Transport of Goods by Aircraft Service Transport of Goods by Road Service Opinion Poll Agency Service Transport of Goods by Rail Service Rail Travel Agent Service Health Check up and Treatment Service

Criterion prior to 1st April, 2011 Location of Recipient of Service Place of Performance Place of Performance Place of Performance Place of Performance Place of Performance Place of Performance Place of Performance Location of Recipient of Service Location of Recipient of Service

Criterion w.e.f. 1st April, 2011 Location of Immovable Property Location of Recipient of Service Location of Recipient of Service Location of Recipient of Service Location of Recipient of Service Location of Recipient of Service Location of Recipient of Service Location of Recipient of Service Place of Performance Place of Performance

List of classification for each service applicable from 1st April, 2011 is given in Annexure 1 4.13. For the purpose of Import of Services India includes installations, structures and vessels in the continental shelf of India and the exclusive economic zone of India6. 4.14. Air transport of passengers embarking in India for International journey and Transport of persons by a cruise ship embarking in any port in India. Reverse charge mechanism shall not applicable. Circular B1/4/2006-TRU dated 19th April 2006 clarifies that the said two services have not been mentioned in the said categorization of services, since “service tax in such cases is charged from the service provider in India. 4.15. Reverse charge mechanism: Rule 4 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 provide that the recipient of taxable services provided from outside India and received in India shall make an application for registration and for this purpose, the provisions of section 69 of the Act and the rules made there under shall apply. 4.16. Service received by individuals for personal use Where the recipient is an individual and such service is received by him otherwise than for the purpose of use in any business or commerce, he will not be taxed under reverse charge mechanism.

6

Amended vide Notification No. 22/2009-ST Dated: 7th July, 2009. Previously “India” includes the designated areas in the Continental Shelf and Exclusive Economic Zone of India as declared by the notifications of the Government of India in the Ministry of External Affairs numbers S.O.429 (E), dated the 18th July, 1986 and S.O.643(E), dated the 19th September 1996;

Page 14 of 31

CA Manish Gadia 4.17. Rule 5 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 provide that the taxable services provided from outside India and received in India shall not be treated as output services for the purpose of availing credit of duty of excise paid on any input or service tax paid on any input services under CENVAT Credit Rules, 2004.

5. 5.1.

Judicial Rulings Export of Service

5.1.1. TNT INDIA PRIVATE LIMITED versus COMMISSIONER OF SERVICE TAX, BANGALORE [2007 (7) S.T.R. 142 (Tri. - Bang.)] Tribunal in this case held as under

That during the period 15th March, 2005 to 15th June, 2005, if courier is delivered outside India and the service provider and service recipient is India and amount is received in Indian currency than also same transaction should be treated as export of taxable service under Rule 3(2) of Export of service Rules, 2005 and service tax should not be payable on the same. This case is also followed in following cases,  U.B.Xpress (South) (P.) Ltd. Vs. Commissioner of Central Excise, Coimbatore. [2008 (15) STT 242] (AHD-CESTAT).  PROFESSIONAL COURIERS Versus COMMR. OF SERVICE TAX, CHENNAI [2008 (10) S.T.R. 125 (Tri. - Chennai)].

5.1.2. BLUE STAR LTD. versus COMMISSIONER OF CENTRAL EXCISE, BANGALORE [2008 (11) S.T.R. 23 (Tri. - Bang.)] In this case Tribunal held true the contention of the appellant that service of commission agent provided to foreign principal is an Export of Service under export of service Rules, 2005, even thou the services are performed in India. Relevant extract of the said case law is produced herein under,

5.1.3. ABS INDIA LTD. Versus COMMISSIONER OF SERVICE TAX, BANGALORE [2009 (13) S.T.R. 65 (Tri. - Bang.)] In this case the court held that companies in two different countries are to be treated as separate legal entities even though one company is a subsidiary of another company. The transactions between these two companies are to be analysed as between two different person. 5.1.4. NATIONAL ENGG. INDUSTRIES LTD. versus COMMR. OF C. EX., JAIPUR [2008 (11) S.T.R. 156 (Tri. - Del.)] In this case, Tribunal held as under

Page 15 of 31

CA Manish Gadia 2. The relevant facts of the case in brief are that the appellant is the agent of General Motors Corpn. USA (in short “GMC”) and had provided services of sourcing them the contract from Indian Railways. Under Rule 3 of Export of Services Rule, 2005, export of service is exempted from Service tax. The appellant wrongly paid Service tax on the commission got from M/s. General Motors Corpn. through Indian Railways and claimed the refund of tax. The adjudicating authority rejected the refund claim because it is hit by Rule 3(1)(b) of the said Rules. The Commissioner (Appeals) upheld the adjudication order. 3. Ld. Advocate on behalf of the appellant placed the copy of the contract between the parties. He submits that it is revealed from the Purchase Order of Indian Railways that the appellant would get the commission in foreign-exchange. But the Indian Railways deducted the appellant’s commission in their bills raised to GMC for the purpose of releasing less foreign exchange from Reserve Bank of India for payment. Therefore, the appellant received the commission from M/s. GMC through Indian Railways in Indian rupees in lieu of foreign exchange. He submits that it is clearly evident that the payment received by the appellant in Indian rupees in lieu of foreign-exchange and therefore, there is no violation of Rule 3(1)(b) of the Rules.  Nipuna Services Ltd. Vs. Commissioner of Central Excise, Cus and ST (A-II) Hyderabad. [2009 (14) STR 706] (Tri-Bang).  M/S Suprasesh General Insurance Services & Brokers Pvt Ltd Vs Commissioner Of Service Tax, Chennai [2009-TIOL-338-CESTAT-MAD] 5.1.5. CST, Ahmedabad Vs M/S B A Research India Ltd [2009-TIOL-1981CESTAT-AHM]

The facts of the case in brief are that the respondents are engaged in the business of conducting clinical trial for their clients in India and outside India and providing service under the category of "Technical Testing and Analysis". The services provided by the respondents to their foreign clients were wholly performed in India and did not merit exemption under export of Service Rules, 2005. The Tribunal observed that, It is very much clear that the performance of the service is not complete until the testing and analysis report is delivered to its client. when such reports were delivered to the clients outside India it amounts to taxable service partly performed outside India. 5.2.

Import of Service One of the major controversies in recent times under service tax was date of applicability of reverse charge mechanism on Import of services. Various judicial rulings in this regard are:

5.2.1.

ADITYA CEMENT Versus COMMISSIONER OF C. EX., JAIPUR-II [2007 (7) S.T.R. 153 (Tri. - Del.)] Page 16 of 31

CA Manish Gadia In para 9 of this case Tribunal in its order dated 01.02.2007 held that “Central Government intended to tax the service receiver from nonresident, with effect from 1-1-2005, which, in corollary would be that no Service tax is payable by this category prior to 1-1-2005.” It is to be noted that the tribunal did not mention from when service receiver is liable to be taxed. It only mentioned about the intention of the government and that the service receiver is not liable to service tax before 01.01.2005. This was further held to be true by Rajasthan High Court on 26.02.2008 reported in [2008 (10) S.T.R. 228 (Raj.)]. 5.2.2.

FOSTER WHEELER ENERGY LTD. Versus COMMR. OF C. EX. & CUS., VADODARA-II [2007 (7) S.T.R. 443 (Tri. - Ahmd.)] In this case the Tribunal by its order dated 06.06.2007 held that the service recipient is liable to tax only w.e.f. introduction of Section 66A on 18.04.2006.

5.2.3.

VMT SPINNING CO. LTD. Versus COMMISSIONER CHANDIGARH [2008 (11) S.T.R. 64 (Tri. - Del.)] – Stay Order

OF

C.

EX.,

While passing the stay order, tribunal in its analysis held that definition clause of a statute is not to be read as a substantive provision of the relevant statute. It can be used as an aid or key to the interpretation of the substantive provisions of the statute. Relevant extract of the case law is produced below, 5.2.4.

HINDUSTAN ZINC LTD. Versus COMMISSIONER OF CENTRAL EXCISE, JAIPUR [2008 (11) S.T.R. 338 (Tri. - LB)] In this case the larger bench of Tribunal by its order dated 27.06.2008 followed the lead in Aditya Cement case and held that service receiver is not liable to pay service tax before 01.01.2005. However for a period after 01.01.2005 service receiver is liable to pay service tax. This Case law has been confirmed by Supreme Court of India by rejecting the special leave petition filed by department against this case. [2009-TIOL-117-SC-ST].

5.2.5.

INDIAN NATIONAL SHIP OWNERS ASSOCIATION Vs UNION OF INDIA, CENTRAL BOARD OF EXCISE & CUSTOMS, SUPERINTENDENT (PREVENTIVE), ADDL DIRECTOR (DGCEI) [2008-TIOL-633-HC-MUM-ST] In this case Bombay High Court by its decision on 11.12.2008 held that service recipient is liable to pay service tax when services are provided and used outside India i.e. after insertion of Section 66A w.e.f. 18.04.2006. The relevant para of the said case law is produced hereunder,

“12. Article 265 of the Constitution of India lays down that "no tax shall be levied or collected except by authority of law". Page 17 of 31

CA Manish Gadia

16. ……….according to scheme of the Finance Act, as it existed before 18-4-2006, the charge of service tax is on the person who is responsible for collecting the service tax. 17. ………… the fact that this rule is contrary to the provisions of Section 68 and other provisions of the Act, under this provision the recipient of the service became liable for paying the service tax provided the service was received in India……………the Act makes the person who is providing the service liable, the provisions in the Rules cannot be made which makes the recipient of the service liable. It is, thus, clear that the provisions of Rule 2(1)(d)(iv) are clearly invalid. 18. ……….If Rule 2(d)(iv) is taken to be rule framed pursuant to this provision, then a person who receives taxable service in India from a person who is non-resident or is from outside India becomes taxable and not service rendered outside India by a person who is non-resident or is from outside India………….” This case law of Indian National Ship owners Association by Mumbai High Court Supra was also confirmed by Delhi High Court in the case of Unitech Limited Vs. Commissioner of Service Tax, Delhi [2009-TIOL-293-HC-DELST]. This case law of Indian National Shipowners Association has been confirmed by Supreme Court of India by rejecting the special leave petition filed by department against this case. (2009-TIOL-129-SC-ST). 5.2.6.

INTAS PHARMACEUTICALS LIMITED Vs COMMR. OF S.T., AHMEDABAD [2009 (16) S.T.R. 748 (Tri. - Ahmd.)] In this case Tribunal decided that in respect of Technical testing and analyses services falling under place of performance criteria and service is fully performed outside India than service tax under reverse charge mechanism is not payable.

5.2.7.

F. No. 276/8/2009-CX8A dated 26th September, 2011 In view of the various judgments of the Hon‟ble Supreme Court, the service tax liability on any taxable service provided by a non resident or a person located outside India, to a recipient in India, would arise w.e.f. 18.4.2006, i.e., the date of enactment of section 66A of the Finance Act, 1994. The Board has accepted this position.

Page 18 of 31

CA Manish Gadia 6.

Issues 6.1.

M/s Phantom Ltd. desires to have ECB from a foreign bank. It directly approaches foreign bank to provide support in ECB matters. ECB is issued on 20th June 2005. For this M/s Phantom pays some fees to foreign bank. Similarly M/s Phantom raises another ECB in July 2007. Is M/s Phantom is liable to pay service tax under reverse charge mechanism, if yes for which period?

6.2.

In example 9.1 above, suppose Indian branch of the foreign bank approaches M/s Phantom for said ECB issue. Foreign bank arranges to share its fees with Indian branch, in this case, whether service tax will be payable under reverse charge mechanism, if Yes, by whom?

6.3.

Payment of Service tax under Import of Service Rules would be eligible for credit under Cenvat Credit Rule? If we refer to Rule 3(1)(ix) of CENVAT Credit Rules, 2004, it refers to “the service tax leviable under section 66” and not section 66A. Please clarify.

6.4.

Travel Agent is engaged in travel and tourism. It is registered as an air travel agent and a tour operator. It sells outbound tour packages to Indian customers say to US, Europe for a lumpsum of say Rs. 1,00,000/- (a part of which is received in convertible foreign exchange in India from the travellers‟ foreign currency say to the extent of Rs. 50000/-). Would Travel agent be entitled to any export exemption in respect of the above transaction?

Page 19 of 31

CA Manish Gadia

VALUATION OF TAXABLE SERVICE 1. Background Determination of value of taxable service was very simple till 17 th April, 2006. The gross amount charged by service provider for service provided or to be provided was only considered as value of taxable service. Any amount received by service provider from service recipient as reimbursement of expenditure was not taxable. In other words life of service tax payer was very simple and the value of taxable service could be calculated very easily but life of service tax payer is not so simple after amendment in section 67 on 18th April, 2006 and introduction of Service Tax (Determination of Value) Rules, 2006 vide Notification No. 12/2006- ST, dated 19th April, 2006. 2. Manner of determination of value – Section 67(1) and Rule 3 W.e.f. 18.04.2006 new Section 67(1) read with Rule 3 of Service Tax (Determination of Value) Rules, 2006 gives the method for determination of value of Taxable service, which has been explained in following chart except for determination of value of service for work contract service. Value of Taxable Service Consideration for service is Wholly in money ascertainable

Not wholly/partly in money

The gross amount charged

Consideration in money + Money value of Consideration in kind Service Tax payable

Not

a. Gross b. Where the value cannot amount be determined in charged to accordance with (a), provide then, equivalent money similar* value of such service to consideration which any other shall, be at least equal person to the cost of provision of such taxable service *Similar – “The expression “similar” is a significant expression. It does not mean identical but it means corresponding to or resembling to in many respects; somewhat like; or having a general likeness. The statute does not contemplate that goods classed under the words of „similar description‟ shall be in all respects the same….” Nat Steel Equipments Pvt. Ltd. V. Collector of Central Excise 1988 (034) ELT (8) (SC). a. Consideration includes any amount that is payable for the taxable services provided or to be provided. b. Money includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value; c. Gross amount charged includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment [and any amount credited or debited, as the case may be, to any account, whether called “Suspense account” or by any other name, in the books Page 20 of 31

CA Manish Gadia of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise]7. 3. Determination of value for works contract service8 - Rule 2A

Rule 2A of Service Tax (Determination of Value) Rules, 2006 gives the method for calculation of taxable value in respect of works contract service. The method given includes certain expenditure and excludes certain cost and taxes. Following are the inclusion and exclusion from the consideration for calculating work a. Exclusions: (i) (ii)

VAT paid on transfer of property in goods; Cost of value of property in goods transferred in execution of works contract.

b. Inclusions9: (i) (ii) (iii) (iv)

Labour charges for execution of the works; Amount paid to a sub-contractor for labour and services; Charges for planning, designing and architect's fees; Charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract; (v) Cost of consumables such as water, electricity, fuel, used in the execution of the works contract; (vi) Cost of establishment of the contractor relatable to supply of labour and services; (vii) Other similar expenses relatable to supply of labour and services; and (viii) Profit earned by the service provider relatable to supply of labour and services. 4. Determination of Value in relation to purchase or sale of Foreign Currency Sr Position upto 31st March No 2011 1 Option to pay service tax as per value determined under Sec 67 of Finance Act, 1994.

Position from 1st April 2011 Option to pay service tax as per value determined under Sec 67 of Finance Act, 1994 read with Rule 2B of Service tax (Determination of Value) Rules, 2006, which provides as under, (i) For a currency, when exchanged from, or to, Indian Rupees (INR), the value shall be equal to the difference in the buying rate or the selling rate, as the case may be, and the Reserve Bank of India (RBI) reference rate for that currency for that Time, multiplied by the total units of currency and where the RBI reference rate for a currency is not available, the value shall be 1% of the gross amount of Indian Rupees provided or received, by the

7

Applicable w.e.f. from 10th May, 2008. Applicable w.e.f. from 1st June, 2007. 9 Expenditure included for determination of value in Rule 2A is same as given in para 39 of “Gannon Dunkerley & Co. v. State of Rajasthan” - 1993 (66) TAXMAN 229 (SC). 8

Page 21 of 31

CA Manish Gadia person changing the money. [Notification No. 24/2011-Service tax, dated 31st March 2011.] (ii)In case where neither of the currencies exchanged is Indian Rupee, the value shall be equal to 1% of the lesser of the two amounts the person changing the money would have received by converting any of the two currencies into Indian Rupee on that day at the reference rate provided by RBI. 2

Service provider has the option to pay service tax @ 0.25% of the Gross amount of currency exchanged. [Rule 6(7B) of the Service Tax Rules, 1994.]

Service provider has the option to pay service tax as under (a) 0.1 per cent. of the gross amount of currency exchanged for an amount upto rupees 100,000, subject to the minimum amount of rupees 25; and (b) Rupees 100 and 0.05 per cent. of the gross amount of currency exchanged for an amount of rupees exceeding rupees 100,000 and upto rupees 10,00,000; and (c) rupees 550 and 0.01 per cent. of the gross amount of currency exchanged for an amount of rupees exceeding 10,00,000, subject to maximum amount of rupees 5000: the person providing the service shall exercise such option for a financial year and such option shall not be withdrawn during the remaining part of that financial year. [Rule 6(7B) of the Service Tax Rules, 1994 [Notification No. 26/2011-Service tax, dated 31st March 2011.]

3

Inter-Bank transactions of purchase or sale of foreign currency when undertaken by scheduled banks are exempted (Notification No. 19/2009-ST, dated 7.7.2009)

Inter-Bank transactions of purchase or sale of foreign currency when undertaken by any bank, including a bank located outside India, or money changer, by any other bank or money changer. [Notification No. 27/2011-Service tax, dated 31st March 2011.]

5. Valuation of Taxable Service under Composition Schemes

a. Valuation of taxable service for Air Travel Agent Service As per Rule 6(7) of Service Tax Rules, 1994 (as amended) option has been provided to Air Travel Agent to pay Service Tax @ 0.6% on basic fare for Domestic bookings and @ 1.2% on basic fare for International Bookings, of passage for travel by air, during any calendar month or quarter, as the case may be, towards the discharge of his service tax liability instead of paying service tax at the rate of specified in Section Page 22 of 31

CA Manish Gadia 66 of Chapter V of the Act. However the option once exercised by the assessee cannot be changed during a financial year under any circumstances. "basic fare" means that part of the air fare on which commission is normally paid to the air travel agent by the airline. b. Valuation of taxable service for Insurer As per Rule 6(7A) of Service Tax Rules, 1994 (as amended) option has been provided to an insurer carrying on life insurance business liable for paying the service tax in relation to the risk cover in life insurance provided to a policy holder to pay an amount calculated @ 1% of the gross amount of premium charged by such insurer towards the discharge of his service tax liability instead of paying service tax at the rate specified in section 66 of Chapter V of the Act: However such option shall not be available in cases where (a) the entire premium paid by the policy holder is only towards risk cover in life insurance; or (b) the part of the premium payable towards risk cover in life insurance is shown separately in any of the documents issued by the insurer to the policy holder. c. Valuation of Taxable Service for works contract Service. As per Rule 3(1) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 as amended, the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to 4% 10 of the gross amount charged for the works contract. It has been further clarified that gross amount charged for the works contract shall be the sum,(a) including(i) the value of all goods used in or in relation to the execution of the works contract, whether supplied under any other contract for a consideration or otherwise11; and (ii) the value of all the services that are required to be provided for the execution of the works contract; (b) excluding(i) the value added tax or sales tax as the case may be paid on transfer of property in goods involved; and (ii) the cost of machinery and tools used in the execution of the said works contract except for the charges for obtaining them on hire: Provided that nothing contained in this Explanation shall apply to a works contract, where the execution under the said contract has commenced or where any payment, except by way of credit or debit to any account, has been made in relation to the said contract on or before the 7th day of July, 2009. Further the above option shall be available only where the declared value of the works contract is not less than the gross amount charged for such works contract. The Above Rule is as amended vide Notification No.23/2009-ST dated 7th July, 2009. For contracts entered into prior to 7th July, 2009, service tax on free issue of material shall not be applicable. 10 11

Substituted for 2% vide Notification No 7/2008-ST dated 1st March, 2008. Before 7th July, 2009, Material issued without consideration was not to be included in the value of taxable service.

Page 23 of 31

CA Manish Gadia d. Valuation of Taxable Service for Transportation of passenger by Air Service tax applicable in respect of Transport of passengers by air service" is being proposed to be revised w.e.f. 1st April, 2011 as follows: Sr. No. 1

Particulars

Existing

Domestic (Economy)

2

Domestic (other than Economy)

3

International (Economy)

Rs. 100 Per Journey Rs. 100 Per Journey Rs. 500 Per Journey

From 1st April, 2011 Rs. 150 Per Journey 10% on Value of Ticket Rs. 750 Per Journey

6. The Gross amount charged is inclusive of Service Tax12 – Section 67(2)

When the service provided is inclusive of service tax payable, the value of such taxable service would be: Value of taxable service = Gross amount charged * 100 110.30 7. Power of Central Excise officer (CEO) – Rule 4

CEO has power to call for information and documents, by issuing Show Cause notice, to satisfy himself as regards the value as determined by the service provider is correct and as per the provisions of Act and Rules. He has to determine the exact quantum of value in the show cause notice. After giving reasonable opportunity of being heard to assessee he may determine the value of taxable service. As per para 4.1.6 of F.No. B1/4/2006 – TRU 19-04-06, verification of documents and information can be done only after the written instruction from the Divisional AC / DC of Central Excise. Commissioner approval is mandatory before issuing show cause notice for valuation matter. CEO has to use this power with extreme care and caution. 8. Inclusion in or exclusion from value of certain expenditure or costs – Rule 5

a. Inclusions in the value of taxable service- Rule 5(1) All expenditure or costs incurred by service provider in the course of providing taxable service should be included.

Value of the taxable service in relation to provision of telecommunication service shall be the gross amount paid by the person to whom telecom service is provided by the telegraph authority. b. Exclusion from the value of taxable service- Rule 5(2) “Pure agent” means a person who– 12

Gem Star Enterprises P. Ltd. V. CCE & C, Calicut 2007(7) STR 342 (Tri.- Bang)

Page 24 of 31

CA Manish Gadia (i) Enters into a contractual agreement with the recipient of service to act his pure agent to incur expenditure or costs in the course providing taxable service; (ii) Neither intends to hold nor holds any title to the goods or services procured or provided as pure agent of the recipient of service; (iii) Does not use such goods or services so procured; and (iv) Receives only the actual amount incurred to procure such goods services.

as of so

or

All expenditure or costs incurred by service provider as a pure agent of the recipient of service are to be excluded if all the following eight conditions are satisfied:

(i) (ii) (iii) (iv) (v)

(vi)

(vii) (viii)

The service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured; The recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service; The recipient of service is liable to make payment to the third party; The recipient of service authorises the service provider to make payment on his behalf; The recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party; The payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service; The service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and The goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

The above has also been confirmed by the Service Tax department vide Circular No. 119/13/2009-ST Dated 21st December, 2009. It has also been mentioned in the circular that divergent practices of records and documentation are being followed by CHA‟s. However, the exclusion shall still be valid subject to the fact that the above conditions are fulfilled and the nexus between the expenses and taxable service is proved. 9. Cases in which the commission, costs, etc., will be included or excluded- Rule 6(1) & 6(2)

Rule 6 (1) includes some specific items for calculating value of taxable service which are as under a. The commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock-broker to any sub-broker; b. The adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit; c. The amount of premium charged by the insurer from the policy holder; d. The commission received by the air travel agent from the airline;

Page 25 of 31

CA Manish Gadia e. The commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer; f. The reimbursement received by the authorised service station, from manufacturer for carrying out any service of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer; g. The commission or any amount received by the rail travel agent from the Railways or the customer; h. The remuneration or commission, by whatever name called, paid to such agent by the client engaging such agent for the services provided by a clearing and forwarding agent to a client rendering services of clearing and forwarding operations in any manner; and i. The commission, fee or any other sum, by whatever name called, paid to such agent by the insurer appointing such agent in relation to insurance auxiliary services provided by an insurance agent. Rule 6 (2) excludes some specific items for calculating value of taxable service which are as under a. Initial deposit made by the subscriber at the time of application for telephone connection or pager or facsimile (FAX) or telegraph or telex or for leased circuit; b. The airfare collected by air travel agent in respect of service provided by him; c. The rail fare collected by rail travel agent in respect of service provided by him; and d. Interest on loans. Items which were listed in Rule 6(1) & (2) were almost similar to which are listed in explanation 1 to old section 67 except the followings which were specifically to be excluded in earlier section and not given in Rule 6(2). a. The cost of unexposed photography films, unrecorded magnetic tape or such other storage devices if any, sold to the client during the course of providing service;13 b. The cost of parts or accessories, if any, sold to the customer during the course of service or repair of motor cars or two wheeled motor vehicles; c. The cost of parts or other material, if any, sold to the customer during the course of providing maintenance or repair service; d. The cost of parts or other material, if any, sold to the customer during the course of providing commissioning or installation. Notification No.12/2003 – ST. Dated 20th June, 2003, exempt cost of material sold by service provider to the recipient of service for providing taxable service, the above items not covered in Rule 6(2) has became more or less redundant after introduction of said notification. Even in case of BSNL V. Union of India [2006] 2 STR 161 (SC) Supreme Court has decided that service tax can not be leviable on sale of goods. Union does not have power to levy tax on sale transaction. Again Supreme Court in case of Imagic Creative Pvt Ltd. V. Commissioner of Commercial Taxes 2008 (9) S.T.R. 337 (SC) decided that Payment of Service tax and VAT mutually exclusive. 13

In case of Shilpa Color Lab V. CCE Calicut 2007 (5) STR 423 (Bang. – Tri.) decided that cost of unexposed photography films, unrecorded magnetic tape or such other storage devices if any, sold to the client during the course of providing service is not to be included in calculating the value of taxable Service.

Page 26 of 31

CA Manish Gadia 10. Actual consideration to be the value of taxable service provided from outside India - Rule 7 Where services are provided from out of India reverse charge mechanism shall be applicable and the recipient of service in India has to pay service tax. In this case value of service would be actual amount of consideration charged for the service provided. Where the services listed in Rule 3(ii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 are performed partly in India, value of service would be the total consideration paid by the recipient for such service including the value of service partly performed outside India. 11. ISSUES

11.1

Vivah charitable trust provides Hall for marriages on rental basis and issues receipt of Rs, 25,000 towards rental for marriage function and Rs. 75,000/towards donation to the corpus of the trust. The president of the trust now wants to know on which amount it should pay the service tax?

11.2

Online Stock Broking Ltd. (OSBL) is a brokerage house providing services to its clients who wants to trade in security market. For carrying out security transactions, OSBL charges following charges to its clients and such charges were separately disclosed in the bill or invoice issued to their clients. Brokerage Transaction Charges Stamp Duty Security transaction tax Other Charges

0.500% of the value of Securities 0.010% of the value of Securities 0.001% of the value of Securities 0.075% of the turnover 0.005% of the value of Securities

Before the introduction of valuation of taxable services, Company was paying service tax only on Brokerage. Management wants to know, out of the above component, which component would now attract service tax?

Page 27 of 31

CA Manish Gadia 11.3

Smart Coaching Classes provides coaching to Standard V to Standard X. They incur expenditure towards books, class bag and food. Theses charges they recover separately from every student, while they recover coaching fees. Management is of the view that service tax would be attracted only on the coaching fees and not on the charges recovered for books, bag and food. They seek your guidance.

11.4

M/s Tyrevala is engaged in the business of retreading old used tyres. During the course of retreading, material such as tread rubber, vulcanizing solution is used. M/s Tyrevala collected Rs. 10 Lakhs towards retreading charges from its customers which included Rs. 6 Lakhs towards material used in retreading. What will be the Service Tax liability of Tyrevala?

Page 28 of 31

CA Manish Gadia

Annexure 1 A. Classification based on location of Immovable property 1. Auctioneer Service. 2. Architect Service. 3. Commercial or Industrial Construction Service. 4. Construction of Complex Service. 5. Dredging Service. 6. General Insurance Service. 7. Hotel, etc. Services 8. Interior Decorator Service. 9. Legal Services. 10. Mandap Keeper Service. 11. Mining of Minerals, Oil or Gas Service. 12. Real Estate Agent Service. 13. Renting of Immovable Property Service. 14. Restaurant Services 15. Site Formation and Clearance, Excavation and Earth moving and demolishing service. 16. Special services provided by builder 17. Survey and Map making Service. 18. Work Contracts Service. B. Classification based on performance of service 1. Airport Services 2. Air Travel Agent Service. 3. Authorised Service Station Service. 4. Beauty Treatment Service. 5. Business Exhibition Service. 6. Cargo Handling Service. 7. Cleaning Activity Service. 8. Clearing and forwarding Service. 9. Club or Association Service. 10. Commercial Training or Coaching Service. 11. Commodity Exchange Service. 12. Convention Service. 13. Cosmetic and Plastic surgery services. 14. Courier Service 15. Custom House Agent Service. 16. Dry Cleaning Service. 17. Erection Commissioning and Installation Service. 18. Event Management Service. 19. Fashion Designing Service. 20. Forward Contract Service. 21. Health and Fitness Service. 22. Health Services 23. Internet Café Service. 24. Management, maintenance and repair service. 25. Other Port Service 26. Outdoor Caterer Service. Page 29 of 31

CA Manish Gadia 27. Packaging Activity Service. 28. Photography Service. 29. Pandal or Shamiana Contractor Service. 30. Port Service. 31. Processing or Clearing House Service. 32. Rail Travel Agent Service. 33. Rent-a-Cab Operator Service. 34. Security Agency Service. 35. Sound Recording Service. 36. Steamer Agent Service. 37. Stock Broker Service. 38. Stock Exchange Service. 39. Storage and Warehousing Service. 40. Survey and Exploration of Mineral , Oil and Gas Service. 41. Technical Inspection and Certification Service. 42. Tour Operator Service. 43. Transportation of Coastal Goods and goods transported through national waterways and Inland water 44. Travel Agent Service. 45. Underwriter Service. 46. Video Production Agency Service. C. Classification based on recipient of service 1. Asset Management Service. 2. Auctioneer Service (Other than immovable property related service). 3. Advertising Agency Service. 4. Automated Teller Machine Operations, Maintenance or Management Service. 5. Banking and Other Financial Service. 6. Brand Ambassador Services 7. Broadcasting Service. 8. Business Auxiliary Service. 9. Business Support Service. 10. Cable Service. 11. Chartered Accountant Service. 12. Company Secretary Service. 13. Computer Network Service. 14. Cost Accountant Service. 15. Consulting Engineer Service. 16. Credit Card, debit card, Charge card or other payment card related service 17. Credit Rating Agency Service. 18. Design Service. 19. Development and supply of contents service in telecom service 20. Electricity Exchanges 21. Franchise Service. 22. General Insurance Service (Other than immovable property related service). 23. Information technology Software Service 24. Insurance Auxiliary Service 25. Intellectual Property Service 26. Internet Telecommunication Service 27. Legal Consultancy Servie 28. Life Insurance Service 29. Mailing List compilation and mailing Service Page 30 of 31

CA Manish Gadia 30. Maintenance of medical records of business entity 31. Management Consultant Service 32. Management of investment in ULIP service 33. Manpower recruitment or Supply Agency Service 34. Market research Agency Service. 35. Opinion Poll Service. 36. Permitting Commercial use or Exploitation of any event 37. Permitting use of copyright in - (a) cinematographic films and (b) sound recording 38. Programme Producer Service 39. Promotion, marketing, organising or assisting in organising games of chance including lottery, Bingo or Lotto 40. Public Relation Management Service. 41. Recovery Agent Service. 42. Registrar to an Issue Service. 43. Sale of Space or time for Advertisement Service. 44. Scientific and Technical Consultancy Service. 45. Share Transfer Agent Service. 46. Ship Management Service. 47. Sponsorship Service. 48. Supply of tangible goods Service. 49. Survey and map-making Service (Other than immovable property related service). 50. Technical Testing and Analysis Service. 51. Telecommunication Service 52. Transport of Goods by Air Service. 53. Transport of goods other than water through pipeline or other conduit Service. 54. Transportation of Coastal Goods and goods transported through national waterways and Inland water 55. Transport of goods in container, by rail Service. 56. Transport of goods by Road Service.

Disclaimer:- The opinion and views expressed in this book are those of the compliers. The STPAM, CTC, BCAS and AIFTP does not necessarily concur with the same. While every care is taken to ensure the accuracy of the contents of this compilation, compiler and, The STPAM, CTC, BCAS and AIFTP are not liable for any inadvertent errors.

Page 31 of 31