COMMENTS
ON
“SERVICE TAX – RECENT AMENDMENTS MADE VIDE FINANCE (NO.2) ACT, 2004”
Compiled and prepared by :
Shailesh P.Sheth
Advocate
Mumbai Office: Rajkot Office:
Maskati Mahal, 3rd Floor, 201, Trade Centre, 2nd Floor,
Kantilal Sharma Marg, Sardarnagar Main Road,
(Lohar Chawl), Rajkot –360 002.
Mumbai – 400 002.
Telephone:22005096 Tel: 2695280
Telefax: 22005087
e.mail:
The information contained in these documents is based on available published material and is indicative of the changes in respective laws only. Similarly, the comments offered on the various amendments are the personal views of the author and same should not be construed as legal or professional advice. Before acting on the issues involved in it, it is suggested to seek professional advice.
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I N D E X
CHAPTER 1 - INTRODUCTION
CHAPTER 2 - LEVY OF SERVICE TAX ON NEW SERVICES
CHAPTER 3 - AIRPORT SERVICES
CHAPTER 4 - BUSINESS EXHIBITION SERVICES
CHAPTER 5 - CONSTRUCTION SERVICES
CHAPTER 6 - FORWARD CONTRACT SERVICES
CHAPTER 7 - INTELLECTUAL PROPERTY SERVICES
(OTHERTHAN COPYRIGHT)
CHAPTER 8 - OPINION POLL SERVICES
CHAPTER 9 - OUTDOOR CATERER’S SERVICE
CHAPTER 10 - PANDAL OR SHAMIANA SERVICES
CHAPTER 11 - SURVEY AND EXPLORATION OF MINERAL, OIL AND GAS SERVICES
CHAPTER 12 - TRAVEL AGENTS (OTHER THAN AIR/RAIL TRAVEL AGENTS)
CHAPTER 13 - TRANSPORT OF GOODS BY AIR
CHAPTER 14 - TV & RADIO PROGRAMME PRODUCTION
SERVICE
CHAPTER 15 - TRANSPORT OF GOODS BY ROAD SERVICE
CHAPTER 16 - EXPANSION OF SCOPE OF EXISTING TAXABLE
SERVICES
CHAPTER 17 - BANKING AND FINANCIAL SERVICES
CHAPTER 18 - BUSINESS AUXILIARY SERVICES
CHAPTER 19 - CABLE SERVICES
CHAPTER 20 - COMMISSION OR INSTALLATION SERVICE
CHAPTER 21 - STOCK BROKERS
CHAPTER 22 - TOUR OPERATORS
CHAPTER 23 - SCHEME OF EXEMPTIONS & ABATEMENTS
CHAPTER 24 - CONCLUSION
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ABBREVIATIONS:
CEA - Central Excise Act, 1944
CER - Central Excise Rules, 2002
CCR - Cenvat Credit Rules, 2004
CG - “Capital Goods” as defined under Rule 2(a) of CCR
CETA - Central Excise Tariff Act, 1985
Act - Finance Act, 1994 [as amended last by the Finance (No.2) Act, 2004]
Input - “Input” as defined under Rule 2(k) of CCR
CBEC - Central Board of Excise & Customs
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CHAPTER:1
INTRODUCTION
1.1 The levy of Service tax was introduced in the year 1994 vide Chapter V inserted in the Finance Act, 1994 (“the Act”). The levy was initially restricted to only three services viz. Telephone, General Insurance and Stock Broking. However, since then, the coverage of the levy has been expanded year after year netting in more and more services. Vide the Finance (No.2) Act, 2004 (“the Act of 2004”) the levy has been extended to 13 new services as well as bringing into the net some more services by amending the definition of certain existing taxable services w.e.f. 10.09.2004. With this, total 76 services have been effectively covered under the levy as on 10.09.2004.
1.2 The ever-widening scope of the levy has not remained confined only to the number of services. The Government has been steadily increasing the rate of Service tax also. The introductory rate of 5% in 1994 was raised to 8% effective from 14.05.2003 and has further been enhanced to 10% w.e.f. 10.09.2004. In addition to this, Education Cess @ 2% on the amount of Service tax has also become effective from 10.09.2004. Therefore, the total quantum of tax payable on the taxable services will be 10.2% on and from 10.09.2004.
1.3 Besides expanding the scope of the levy to certain new services the Finance Minister, vide his Budget Speech, had also announced the “Integration of Tax on Goods and Services” by proposing the extension of credit of service tax and excise duty across goods and services.
1.4 In pursuance of this announcement, Cenvat Credit Rules, 2004 (“the CCR”) have been introduced w.e.f. 10.09.2004 in supersession of Cenvat Credit Rules, 2002 and Service tax Credit Rules, 2002. CCR, in effect provides the facility, both to the manufacturer and Service Provider, to avail cenvat credit of the excise duty paid on inputs and capital goods and service tax paid on the specified Input Services. Simultaneously, the concept of “Input Service Distributor” – somewhat similar to “First Stage Dealer”/ “Second Stage Dealer” prevalent under the Cenvat Credit Scheme – has also been introduced vide the CCR enabling the distribution of Service tax credit amongst various locations where the payment against taxable services have been made by the Head Office.
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CHAPTER : 2
LEVY OF SERVICE TAX ON NEW SERVICES:
2.1 New Services:
Following new services have been brought under the levy vide Finance Act, 2004 w.e.f. 10.09.2004:
(i) Business Exhibition Services
(ii) Airport Services
(iii) Transport of goods by air
(iv) Survey and exploration of minerals
(v) Opinion poll services
(vi) Intellectual property services (other than copyrights)
(vii) Forward contract services
(viii) Pandal or shamiana services
(ix) Outdoor catering services
(x) TV and radio programme production services
(xi) Construction services (commercial and industrial building or civil structures)
(xii) Travel agents (other than air/rail travel agents)
(xiii) Transport of goods by road by Good Transport Agency.
2.2 Expansion of scope of existing Taxable Services:
Besides the above, the definitions of certain existing Taxable Services have been amended as explained herein-below so as to expand the scope and coverage thereof vide the Act of 2004 w.e.f. 10.09.2004:
(i) Commission and installation service to include erection service
(ii) Stock brokers to include sub-brokers
(iii) Cable operators to include multi-system operators
(iv) Business auxiliary service to include activities relating to procurement of inputs, production of goods (not amounting to manufacture) or provision of services on behalf of a client.
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(v) Banking and Financial Services to include core banking activities like lending, issue of pay order, demand draft, Cheque etc. Commercial concerns providing such services have also been included within the scope of “Service providers” as defined vide Section 65 (12) of the Act.
(vi) Tour operators to include such package tour operators who organize tours involving different modes of transport.
2.3 Withdrawal of Exemptions:
The exemption hitherto available in respect of the following taxable services have been withdrawn w.e.f. 09.07.2004:
(i) Broadcasting services provided by Cable Television Operators (Notification No.8/2001-ST dated 09.07.2001 rescinded by Notification No.7/2004-ST dated 09.07.2004)
(ii) Business Auxiliary Services provided by a Commission Agent except in relation to sale or purchase of agricultural produce. [Notification No.13/2003-ST dated 20.06.2003 amended by Notification No.8/2004-ST dated 09.07.2004]
(iii) Maintenance or repair of Computers, Computer systems or Computer peripherals [Notification No.20/2003-ST dated 20.08.2003 rescinded by Notification No.7/2004-ST dated 09.07.2004]
(iv) Mandap Keeper Services (including catering services) provided by Hotels [Notification No.12/2001-ST dated 20.12.2001 as amended by Notification No.8/2004-ST dated 09.07.2004
(v) Services relating to safe deposit lockers or security or safe vaults provided by Security Agencies [Notification No.56/98-ST dated 07.10.1998 rescinded by Notification No.07/2004-ST dated 09.07.2004]
2.4 In the ensuing chapters, various aspects of the aforesaid changes have been discussed.
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CHAPTER : 3
AIRPORT SERVICES
3.1 Statutory Provisions:
(a) Section 65 (3a) to 65 (3d) of the Finance Act, 1994 (“the Act”) define the terms like “Aircraft”, “Aircraft Operator”, “Airport” and “Airports Authority”.
(b) Also, relevant are the provisions of the Airports Authority of India Act, 1994 and Aircraft Act, 1934 providing the definitions of certain relevant terms like Airport, Aerodrome, Civil Enclave and adopted for the purpose of levy of Service Tax on Airport Services.
(c) Section 65 (105)(zzm) defines the term “Taxable Service” to mean any service provided to any person by airports authority or any person authorized by it, in an airport or civil enclave.
(d) Section 67 of the Act defines the term “Value of Taxable Services” as the gross amount charged by the Service provider for the services rendered by him.
3.2 Scope of the Levy:
The various services provided in an airport or Civil Enclave are taxable under this category. The liability to pay the Service tax is on the service provider, namely, Airports Authority of India, or any person authorized by it providing such service to any person. The value, for the purpose of taxable service is the gross amount charged by the service provider for services rendered by him.
3.3 Inclusions:
Following services, amongst others, are covered under this category viz:
i) Security, transit facilities, landing charges, terminal route navigational facility charges in respect of services provided to the Airlines and cargo/passenger handling.
ii) As the tax would be on the gross amount charged, the charges like royalty, licence fees etc. collected by AAI from other service providers at the Airport like ground handling, security, common user terminal services etc would be chargeable.
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3.4 Exclusions:
(a) The rental/lease charges would not be subjected to service tax.
(b) Services provided to Armed Forces of Union would not be taxable.
3.5 Exemption/Abatement:
Refer Chapter 23
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CHAPTER : 4
BUSINESS EXHIBITION SERVICES:
4.1 Statutory Provisions:
(a) Section 65 (19a) of the Act defines the term ‘Business Exhibitions’
(b) Section 65 (105)(zzo) defines the term Taxable Service to mean services provided to an exhibitors, by the Organiser of a business exhibition in relation to Business Exhibition.
(c) Section 67 of the Act defines the term the “Value of Taxable Services” as the gross amount charged by the Service provider for services rendered by him.
4.2 Scope of the levy:
The services provided in relation to “Business Exhibition” are covered under this category. “Business Exhibition” has been defined as an “Exhibition” to market, to promote or to advertise or to show cause any product or service intended for the growth in business of the producer or provider of such product or service [S.65 (19a)]
The liability to pay Service tax under this category is on the organizer of business exhibition [S.65 (105)(zzo)]. The Service tax will be payable on the gross amount charged by the organizer to the exhibitor (S.67).
4.3 Inclusions:
Following services, amongst others, would be covered under this category:
i) Events like Trade fairs, road shows, fashion shows etc. organized by the organizers;
ii) Display show-cases kept in Airports, Railway stations, Hotels, Theaters, etc.
4.4 Exclusions:
i) Display of goods in shopping malls or shopping centers to enable the customers to select and purchase if no separate charges are collected by the shop-keepers in respect thereof;
ii) Services rendered by an Event Manager to an Organizer in relation to planning, promoting, organizing etc. of the events like Trade fairs etc. Such Services would be taxable under “Event Management Services”.
iii) Services rendered in relation to a circular, label, documents, hoardings or any other audio-visual representation of a product or service such services would be covered under “Advertisement Services”.
iv) Art galleries renting out galleries for exhibition of art, paintings etc.
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4.5 Exemption/Abatement:
Refer Chapter 23.
4.6 COMMENTS:
4.6.1 The imposition of levy on “Business Exhibition Services” appears to be the fall-out of the judgement of the Appellate Tribunal in the case of Indian Trade Promotion Organization Vs C C E – 2004 (163) ELT 163. Drawing the distinction between “Business activities” and “Business Function”, the Tribunal, in this case, held that the renting out of premises by ITPO to participants of trade fairs as well as the Election Commission for counting of votes do not come in the category of service provided by “Mandap Keeper” and cannot be charged to Service tax thereunder. It was further held that trade fairs are temporary markets and the use of the stalls of ITPO for trade fairs was for business as such, and not for ceremony.
4.6.2 However, such activities as being undertaken by ITPO and other such persons would now be covered under the taxable category of “Business Exhibition Services”.
But, renting out premises to the Election Commission for the official purposes like voting, storing of ballot boxes, counting of ballots etc would still remain outside the scope of the levy.
4.6.3 As the levy is in relation business exhibition ultimately intended for the growth in business of the producer of the product or the provider of Services, the commercial nature of the activity is inherent. Therefore, if any exhibitions are organized to create social awareness, say, in respect of pollution, etc. and are not run on commercial lines, the services in relation to the same would not be taxable under this category.
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CHAPTER : 5
CONSTRUCTION SERVICES:
5.1 Statutory Provisions:
(a) Section 65 (30a) of the Act defines the term ‘Construction Service’.
(b) Section 65 (105)(zzq) defines term the “Taxable Service” to mean the services provided to any person by a commercial concern, in relation to construction service.
(c) Section 67 of the Act defines the term “Value of Taxable Services” as the gross amount charged by the Service provider for services rendered by him.
5.2 Scope of the levy:-
The services in relation to (i) the construction of a new building or civil structure or a part thereof or (ii) repair, alteration or restoration of, or similar services in relation to, building or civil structure are taxable under this category provided the same are primarily used or occupied or engaged or intended to be used or occupied or engaged in commerce or industry are covered under this levy. The liability to pay Service tax is cast upon the “Commercial Concern” providing “Construction Services” to any person [S.65 (105)(zzg)]. The Service tax will be payable on the gross amount charged to the service-recipient by such Commercial concern.
5.3 Inclusions:
The following persons, amongst others, would be covered under this category:-
i) Persons engaged in constructing shopping centres, multi-complex theaters, commercial complexes etc.
ii) Persons engaged in the construction of office or industrial premises;
iii) Local Government bodies engaged in the construction for commercial purposes i.e. letting out shops constructed;
iv) Persons engaged in the repairs, restoration, renovation or alteration of any commercial / industrial building or civil structure;
v) Contractors engaged by the Estate builders for the purpose of construction of Building/civil structure for the purposes of commerce or industry;