Critical Analysis of Declared

Services
CA. Manindar Kakarla

MEANING & SCOPE

Service:-

means any activity carried out by a

person for another for consideration, and
includes a declared service. {U/s
65B(44)}

Declared

Service:- declared as such under

section 66E {U/s 65B(22)}

Continuing
Section

66E contains 9 services:

Renting of immovable property

Construction services

Temporary transfer of Intellectual property

Information Technology Services

Services of the passive nature

Temporary leasing or hiring of goods

Activities in relation to HP or IP.

Works contract services

Service portion involved in supply of food or drinks

Continuing
Article

366(29A)

Service

definition U/s 65B(44) also excludes

these deemed sales.

such transfer, delivery or supply of any goods

which is deemed to be sale within the
meaning of clause (29A) of article 366 of the
Constitution

RENTING OF IMMOVABLE
PROPERTY SERVICE

Scope
Renting

of Immovable Property (Section 65B(41)):

renting means allowing, permitting or granting

access, entry, occupation, use or any such facility,
with or without the transfer of possession or control

includes letting, leasing, licensing or other similar

arrangements in respect of immovable property

Includes

the following other services of previous

regime
Mandap

Keeper Services

Convention
Short

Services

Term Accomodation Services

Constitutional Validity
RENTING

OF IMMOVABLE PROPERTY SERVICES:

Effective from 01.06.2007.

Struck down levy in Home Solutions Retail India Ltd

vs. UOI, 2009 (237) E. L. T 0209 (Del):

Retrospectively amended to include renting also.

Upheld the retrospective amendment in M/s Home

Solution Retail India Ltd & Others vs UOI and Ors,
2011 (21) S.T.R. 109 (Del.)

Presently pending before SC in Retailers

Association of India vs. UOI 2012(26)STRJ96(SC)
stay granted for 50% of the tax dues.

Continuing

Mandap & Convention Services

Upheld

in TN Kalyana Mandapam Onrs Asso.Vs. UOI,

2006(3)STR260 (S.C.)

Service intended to be taxed need not be a service

as per common understanding.

Residuary power cannot be questioned as long as

there is no encroachment.

Short

Term Accomodation Services:

Struck down levy in Kerala Classified Hotels & Resorts

Asso. vs. UOI, 2013-TIOL-533-HC-Kerala-ST:

Relied on Godfrey Philips India Ltd vs. UOI, 2005TIOL-10-SC-LT-CB.

Taxes on luxuries (entry 62) means the activity of

Valuation
Refundable

Deposits collected are not subject to

service tax.
Notional

interest on such deposits not includible

Magarpatta Township Dev & Const. Co.Ltd vs. CCE,
2014(33)STR53(Tri-Mumbai)

Reimbursements

towards electricity, water charges are

not includible in value. ICC Reality (India) P.Ltd.
vsCCE, 2013 (32) S.T.R. 427 (Tri. - Mumbai)

Each

co-owner is a separate assesse.

Abatement & Exemptions

Bundled

services involving food supply & renting of

function hall

Taxable value is 70% of total amount charged.

No CENVAT Credit on goods falling under

Chapter 1to22. {Entry 4 of Notfn. 26/2012-ST
dt.20.06.2012}

Accommodation

services

Taxable value is 60% of the gross amount.

No CENVAT Credit on inputs and capital goods.

{Entry 4 of Notfn. 26/2012-ST dt.20.06.2012}

Renting to educational institutions is exempt {Entry 9

of Notfn. 25/2012-ST dt.20.06.2012}

RESTAURANT & CATERING

SERVICES

Meaning & Scope

Section

66E(I):

service portion in an activity wherein goods, being

food or any other article of human consumption or any
drink (whether or not intoxicating) is supplied in any
manner as a part of the activity.
Description

of services covered within its scope:

Outdoor Catering Services

Mandap Keeper Services along with food supply.

Restaurant Services

Constitutional Validity
Clause (f) of Article 366(29A):
a

tax on the supply, by way of or as part of any

service or in any other manner whatsoever,

of

goods, being food or any other article for human

consumption or any drink (whether or not
intoxicating),

where

such supply or service, is for cash, deferred

payment or other valuable consideration, and

such

transfer, delivery or supply of any goods

shall be deemed to be a sale of those goods by
the person making the transfer, delivery or supply and

purchase of those goods by the person to whom

Continuing

K. Damodaraswamy Naidu & Othrs vs. UOI, AIR

1999 SC 3909

Article 366(29)(f) permits the State to impose a tax

on supply of food and drink.

It is not relevant that the supply is by way of a

service or as part of a service.

Held VAT is payable on entire value.

Tamil

Nadu Kalyana Mandapam Owners Association

vs. UOI, 2004-TIOL-36-SC-ST :

Upheld the levy on catering services stating that

Continuing
Levy

was struck down by Kerala Classified Hotels

and Resorts Association vs. UOI, 2013-TIOL-533HC-Kerala-ST.

Two

High Courts upheld the levy

Indian Hotels & Restaurant Association vs. UOI,

2014-TIOL-498-HC-MUM-ST

Hotel East Park vs. UOI, 2014-TIOL-758-HCChattigarh-ST

Valuation
Rule

2C of VALUATION Rules:

Supplies in a Restaurant Taxable value is 40% of

total amount charged.

Supplies by Outdoor Caterer Taxable value 60%

of total amount

No CENVAT Credit on goods classifiable under

Chapter 1 to 22.
Issues

for Consideration:

Rule 2C uses the word Restaurant alone

Whether lounge, eating joints, canteens etc can
take this abatement?

Is Rule 2C assessment mandatory?

Abatement & Exemptions

Entry

4 of Notification 26/2012-ST:

Bundled service involving supply of food & drinks

along with renting of premises Taxable value of
70%

Condition:
Catering

same as applicable to Rule 2C.

services for students (Entry 9)

Services

of Non-AC restaurants, eating joints, mess.

(Entry 19)

Canteen

maintained under Factories Act having AC

facility.(Entry 19A)

Circular

173/8/2013-ST

TEMPORARY LEASING OR
HIRING OF GOODS

Coverage:
Covers

two entries of the Declared Services

Temporary transfer or permitting the use or

enjoyment of any intellectual property right
(clause c)

Transfer of goods by way of hiring, leasing,

licensing or in any such manner without
transfer of right to use such goods (clause f)

VAT/ST

levy is mutually exclusive

Transfer of right to use

BSNL

VS. UOI, 2006(002) STR 161(SC):

1.

There must be goods available for delivery;

2.

There must be a consensus ad idem as to the

identity of the goods;

3.

The transferee should have a legal right to use

the goods;

4.

During the period of transfer, such legal right of

transferee should be to the exclusion of even
the transferor.

5.

Having transferred the right to use the goods

during the period of such transfer, the owner
cannot again transfer the same rights to others

Continuing
GS

Lamba & Sons vs State of Andhra Pradesh,

2012-TIOL-49-HC-AP-CT:

Tax is on transfer of right to use goods but not on

delivery of goods.

Delivery of goods is not the essential condition

but may be one of the elements of transaction.

Goods must be made available for effective use of

transferee.

the effective or general control does not mean

always physical control.

It means the right to decide the manner, method,

modalities and time of use of goods.

Some Examples on Right to

Use
Description of
Transaction

Vehicle given on hire

by a person
to a
company along with
driver on payment of
charges
per
month/mileage basis
Hire charges collected
by banks for the facility
of bank lockers

Analysis to Determine the Nature of

Transaction

Vehicle is under effective control of company.

Cannot be used for any purpose other than
for lessee.

May individually constitute a transaction of

transfer of right to use,
But is part of a composite banking services
provided by bank.
The substance is a bailment contract.

Continuing
Description of Transaction
Erection of
pandals/shamiana on land
building essentially
involving supply of
materials on rent
Lease of bus to a STC

Transfer of shuttering
material

Analysis to Determine the Nature of

Transaction
Such erection do not constitute transfer of
effective control or possession.
The pandal is allowed only for specified
purpose.

Complete control over the vehicle is

transferred.
Goods are completely dedicated for use
by builders during the period of lease
which is not on temporary basis.

Intellectual Property Rights

Why

is the question of Constitutional Validity

arose?:

Malabar

Gold Pvt. Ltd vs. CTO, 2012-TIOL-1032-HCKERALA-VAT.

License to use trademark under franchise

agreement amounts to transfer of right to use.

Would not make any difference even if right to

grant such licenses in other places is completely
retained.

Principle of exclusivity of use is not applicable.

Continuing
AGS

Entertainment Pvt Ltd & otrs vs UOI, 2013-TIOL521-HC-MAD-ST

Considered various film copyright models viz.

Outright assignment, Lease, Percentage of
share, Profit share.

Held that in all such transactions, as long as

there is no complete relinquishment of rights, it
is only a temporary transfer

Producer retains the right to transfer in other

areas with respect to same rights and other
rights everywhere.

Continuing
What

about assignments in perpetuity

Assigning a particular right globally

in perpetuity viz television rights,
Internet rights

Vehemently argued that VAT is

leviable.

Madras HC declined to express any

view.

All conditions of BSNL case for

Exemptions
Copyrights

in original literary, dramatic, musical, artistic

works and cinematograph films are exempted. {Notfn
25/2012-ST}

Amended

to exempt only copyrights in cinematograph

films for exhibition in a cinema hall or cinema theatre.
{Notfn 2/2013-ST}

Construction & Other Works

Contract Services

Scope
Two

entries covers the entire gamut of construction

services.

Entry

66E(b):

construction of a complex, building, civil structure

or a part thereof,

including a complex or building intended for sale to

a buyer, wholly or partly,

except where the entire consideration is received

after issuance of completion certificate by the
competent authority.

Continuing
Entry

66E(h): Service portion in the execution of a

works contract

Works

Contract u/s 65B(44):

means a contract wherein transfer of property in

goods involved in the execution of such contract

is leviable to tax as sale of goods and

such contract is for the purpose of carrying out

construction,
installation,

erection,

commissioning,

completion, fitting out, repair, maintenance,

renovation, alteration

of any movable or immovable property or for

Builder Services
In

Magus Construction Pvt Ltd vs UOI,

2008(11)STR225(Gau.), held that no levy of
Service Tax on builder constructing and selling a
completed flats.

Deeming

Fiction is brought w.e.f. 01.07.2010.

In

the previous regime, deeming fiction is

applicable to builder or any other authorised by
him.

Now

it is applicable for all persons.

Circular

151/2/2012-ST clarified that levy is

effective from 01.07.2010

LCS

City Makers Pvt Ltd vs. CST, 2012-TIOL-

Constitutional Validity of Deeming

Fiction
G

S Promoters vs UOI, 2013-TIOL-813-HC-P&H-ST:

Petitioner argued that explanation widens the levy

beyond the concept of service and amounts to
levy on self service.

Held that measure of levy is different from

character of levy.

Argument of Self Service rejected stating that

levy is on service but not SP.

As long as there is no encroachment, Parliament

power cannot be questioned.

Continuing
Maharashtra

Chamber of Housing Industry vs. UOI,

2012(25)STR305(Bom):

Contended that amendment is beyond legislative

competence & encroaches entry 49 of list II

Levy of ST for entering into AOS before completion

certificate is for uniform application of law.

As long as there is no encroachment, Centre power

is unquestionable.

What

about entry 6 of List III Transfer of property

other than agricultural land, registration of deeds and
documents

Continuing
L&T Ltd vs UOI, 2013-TIOL-46-SC-CT-LB
Para 115:
It may, however, be clarified that activity of
construction undertaken by the developer
would be works contract only from the
stage the developer enters into a contract
with the flat purchaser. The value addition
made to the goods transferred after the
agreement is entered into with the flat
purchaser can only be made chargeable to

Thinks to ponder
Both

the cases stated that levy cannot

be questioned as long as there no
encroachment of State List.

Only

entry 54 & entry 49 are alone

tested.

But

transaction involving transfer of

property are covered by entry 6 of List
III.

L&

T case recognizes the concept of

self service upto the date of

Valuation
Rule

2A(i) provides for regular valuation i.e.

deducting the value of material from the GAC.

Wherever

regular valuation is not possible, Rule

2A(ii) provides for valuation:

Original works: 40% of TAC

Works contract for maintenance, repair,

reconditioning, restoration, servicing of any
goods 70% of TAC.

Other works contracts 60% of TAC.

TAC

is total of GAC + FMV of material & services

supplied free of cost amount charged for such
goods & services-VAT/CST

Continuing
Original

Works means

all new constructions;

all types of additions and alterations to

abandoned or damaged structures on land that
are required to make them workable.

erection, commissioning or installation of plant,

machinery or equipment or structures, whether
pre-fabricated or otherwise;

Exemptions Entry 12
Services provided to the Government or
local authority by way of erection,
construction,
maintenance,
repair,
alteration, renovation or restoration of a

civil structure or any other

original works meant predominantly
for a non-industrial or non-commercial
use;

historical monument, archaeological

site or remains of national importance,

Entry 13
Services provided by way of erection, construction,
maintenance, repair, alteration, renovation or
restoration of,

road, bridge, tunnel, or terminal for road

transportation for use by general public;

building owned by an entity registered under

section 12 AA of the Income tax Act, 1961 and
meant predominantly for religious use by general
public;

pollution control or effluent treatment plant,

except located as a part of a factory; or

electric crematorium;

Entry 14
Services by way of erection or
construction of original works pertaining
to, airport,

port or railways;

single

residential unit otherwise as a

part of a residential complex;

low-

cost houses up to a carpet area

of 60 square metres per house in a
housing
project
approved
by
competent authority empowered

Services of Passive Nature

Meaning and Scope

Covers

activities of the nature of agreeing to

the obligation

to refrain from an act

to tolerate an act or situation.

to do an act.

May

include the following

Non-Compete Fee

Liquidated damages

Forfeiture of shares, deposits

Continuing

Activity carried out for consideration presupposes

contractual relationship.

The phrase activity carried out for consideration

presupposes contractual relationship.

Agreements in restraint of trade

Void under section 27 of IC Act.

Exception is the restraint pursuant to sale of

goodwill of such business.

Cancellation Charges Agreeing to the obligation to

tolerate an act.

Continuing

Forfeiture of Deposit when adjusted against

Outstanding consideration

Accidental damages not relatable to provision of

service {Rule 6(2)(vi)}

Demurrage

Charges includible as per Valuation Rules

{6(1)(x)}
Liquidated

Damages

Recognized as penal charges under Section 74 of IC

Act.

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