Presentation

on
Service Taxation in India
(including Recent Developments)




Organized By By
Jodhpur Chapter of ICSI Dr. Sanjiv Agarwal
@ Jodhpur FCA, FCS,
10
th
September 2013 Jaipur
Dr. Sanjiv Agarwal
1
This Presentation covers

Overview of Taxation of Services in India
Selective Approach (Positive)
Shift to Comprehensive Approach (Negative)
Charge of Service Tax
Services under Negative List
Bundled Services
Reverse Charge Mechanism
Abatements



2
3
Indian Economy An Overview
Indian economy is the 11
th
largest economy in the world
and the third fastest growing even in todays recession,
after China and Indonesia (Present growth rate around
5.5%)
World is presently facing recession-II but Indian economy
is still a growth economy
Inflation food, lifestyle
Agriculture, services and industry are the major sectors of
Indian economy. Contribution of different sectors in
March, 2012 was :
Agriculture 19%
Services 59%
Industry 22%
(likely to be @ 64% in March, 2013)



4
GDP COMPOSITION IN MARCH, 2012
Agricult ure
19%
Indust ry
22%
Service
Sect or
59%
Brief Overview of Services / Service Tax
Share of Services in GDP
5
Share of services in GDP tracked
Year % of GDP
1950 15
1970 33
1980 36
1994 40
1995 41
2000 47
2005 53
2010 57
2012 59

In 2011-12 and 2012-13 , services have grown by over 9% which is
more than GDP growth rate


Indian GDP to grew at 5.8 percent in 2012-13 and growth expected at
6.0-6.5 percent in 2013-14
Tax Policy clarity in tax Laws, stable tax regime, non-adversarial tax
administration, fair mechanism for dispute resolution, independent
judiciary
Need to raise tax GDP ratio which is presently around 6-7 percent.
Service Tax contributes 11.50 percent of the gross tax revenue
Service sector growth @ 9%, much higher than the GDP growth itself.
Contribution of services sector in GDP at 64% including construction
sector.
6

Year No of new
services
Total No of
services
Total collection
(Rs. in crore)
1994 3 3 407
2001 - 26 2612
2005 13 72 14199
2008 7 103 51301
2010 3

112

58000

2012

0

120 97509
2013 - All 132697 (RE)
131884 (A)
2014 - All 180141 (BE)
8
Taxonomy of Indian Taxation
TAXATION POWERS OF UNION

Income Tax on income, except
agricultural income
Excise Duty on goods manufactured
Custom Duty on imports
Service Tax on specified services
Central Sales Tax on inter-state sale of goods
Stamp Duty on 10 specified instruments


Introduced in India in 1994 as a simple, modest tax with just three
services.

Service tax an indirect tax.

Approach to Service Tax Selective as against comprehensive one.

Desirable from revenue, equity and economic view point.

Governed by Finance Act, 1994 and a dozen of rules.

Legislative dependence on over 25 other laws.

Scattered and heterogeneous large mass of service providers as
well as wide spectrum of services.

Jurisdictional application.

9
Selective Approach to Service Tax

Taxation by choice
Service not defined but taxable service defined.
> 120 taxable services [section 65(105)]
Resulted in distortions / prejudice
Untapped tax potential
Economically unjustified
Issues Classification, Illogical definitions,
Constitutional challenges, deemed services etc.
10
Shift to Comprehensive Approach

W.e.f. 1
st
July, 2012

Finance Act, 2012 A land mark Act to shift from selective
positive approach to negative approach.

It took 18 years to shift from selective approach (positive) to
comprehensive approach (negative ) to tax services

All services to be taxed other than services specified in
the negative list and exempted services Section 66B.


11

New Law of Taxation of Services

Negative list (17 in number) specified through
statutory provisions Section 66D.
Service defined for the first time.
Negative List and declared services also
defined.

12
13
All Services
(including declared Services
(-)
Specific Exclusions
(-)
Negative List Services
Exemptions
Taxable Services

( - )
Present Taxation of Services
(=)
Section 65 Old definitions of Services / Taxable
Services
Section 65A Classification of Services
Section 66 Charge of Service Tax
Section 66A Charge of Service Tax on Services
received from outside India.

Import of Service Rules, 2006
Export of Service Rules, 2005
14
New Provisions in Service Tax under
Negative List

Section 66 B deals with charge of service tax
on or after Finance Act, 2012
Section 66 C provides for determination of
place of provision of service.
Section 66 D comprises of negative list of
services
Section 66 E comprises of the services which
constitute declared services
Section 66 F provide principles of interpretation
of specified description of services
or bundled services
15
All services Taxable
[section 65B (44)]
Declared services Taxable
(section 66E)
Services covered under Not Taxable
negative list of services
(section 66D)
Services exempt under Mega Exempted
Notification No. 25/2012-ST
dated 20.6.2012
Other specified Exemptions Exempted


16
Service Tax Law made shorter by about 40 percent
Effective rate of Service Tax @ 12.36 percent w.e.f. 01.04.2012
including education cess.
Definition of service finds place in statutory provisions
All services taxed including a set of services called declared
services
Negative list of services containing 17 broad service categories out
of Service Tax ambit.
Withdrawal of many existing exemptions / abetments or their
rationalization
17
Place of provision of service rules determine the location of service
and become be basis of taxation.
Withdrawal of export of service rules and import of service rules in
view of place of provision of service rules coming into operation.
Concept of taxable territory and non- taxable territory introduced
Taxation of Service to be determined by provision of service in
taxable territory and non taxable territory.
Basis of charge of Service Tax shifted under new section 66B.
Classification of service criteria replaced by new section 66F on
interpretation principles of specified description of services or
bundled services.

18

Under new reverse charge mechanism, onus of paying Service Tax
will be shared by service provider and service receiver in case of
specified services.
Service Tax on taxable services provided by service provider located in
Jammu & Kashmir state liable under reverse charge.
Change in valuation rules in relation to works contracts and outdoor
catering / supply of food.
Payment of Service Tax on receipt basis for all service providers being
individuals / firms / LLPs, if aggregate value of taxable services in
previous year does not exceed Rs. 50 lakh.



19

Criteria for Rs 10 lakh threshold exemption changed to invoices
Time limit for appeal by assessees to Commissioner (Appeals)
reduced from 3 months to 2 months
Revision Application Authority and Settlement Commission
provisions made applicable to service tax.
Special Audit of Service tax assesses by CAs /CWAs
Recovery of tax dues legal smartness (Circular dated
1.1.2013)


20
Changes in Budget / Finance Act, 2013

Stability in negative list maintained with only a few changes.

Vocational courses offered by institutes affiliated to the State Council of
Vocational Training and testing activities in relation to agriculture and
agriculture produce to be in the negative list.

Service Tax to be levied on all restaurants which are air conditioned. The
condition of liquor license done away with (held unconstitutional by Kerala
High Court recently )

Certain exemptions curtailed / withdrawn in relation to auxiliary education
service and renting by educational institutes, transportation of goods by
railway / vessel, vehicle parking to general public, repair or maintenance of
government aircrafts, charitable activities etc. (w.e.f. 1.4.2013)


21
Recent Amendments in Service Tax
Changes in Budget / Finance Act, 2013

Penalty u/s 77(a) (in case of non-registration) shall be restricted to a
maximum of Rs. 10,000.

Abatement reduced w.e.f. 1.3.2013 from 75% to 70% in case of luxury
apartments / residential complexes and others (with carpet area of
2000 sq. ft. or more or value of Rs. 1 crore or more).

New provisions for revised punishments for offences u/s 89, making
certain offences cognizable and others non cognizable and bailable.

New Section 78A inserted to impose penalty on directors and officials
of company for specified willful actions / offences.



22
Recent Amendments in Service Tax
Changes in Budget / Finance Act, 2013

Power to arrest provided u/s 91 where Service Tax default is more than Rs. 50
lakhs.

Resident public limited companies also allowed to seek advance ruling from
Advance Ruling Authority (w.e.f 1.3.2013)

Stay orders of Cestat to have a maximum period of 365 days (180+185) upto
which stay granted will be operational even when assessee is not at fault.; Stay
to get vacated after 365 days.

Voluntary Compliance Encouragement Scheme, 2013 (VCES) introduced as a
one time amnesty measure to effect compliance and recovery and provide
amnesty from interest and penalties (last date 31.12.2013).

Service Tax appeal forms ST-5,6,7 amended w.e.f. 1.6.2013

23
Recent Amendments in Service Tax
Service' has been defined in clause (44) of the section 65B
and means

any activity

For a consideration

carried out by a person for another

and includes a declared service (66E)

24
25
The New Taxability Concept
Taxable
3.
Exemptions
(39)
1. Non -
Taxable
territory
(POPS)
2. Negative
list (17)
SERVICE FOR A CONSIDERATION
E - MAGIC TEST
E: Employee
M: Money
A: Actionable claim
G: Goods
I: Immovable property
C: Court Fee

9

D
E
C
L
A
R
E
D

S
E
R
V
I
C
E
S

26
Clause 44 of section 65B defines service it includes a declared service.

There are 9 categories of services or activities as declared services implying that
on all such nine declared services, Service Tax shall be payable

Does not include any such transfer, delivery or supply of any goods which is
deemed to be a sale within the meaning of Article 366(29A) of the Constitution of
India.

What is declared services is defined in section 65B(22) to mean any activity
carried out by a person for another person for a consideration and declared as
such under section 66E of the Act.

They are amply covered by the definition of service but have been declared with a
view to remove any ambiguity for the purpose of uniform application of law all
over the country

Activity must be for a consideration (nexus / reciprocity)
Activity includes both activity as well as non-activity
Consideration includes both monetary and non
monetary consideration.
Two persons are involved
Service provider
Service receiver
Only services provided by one person to another are
taxable
Person natural as well as artificial
27
Activity
Not defined in the Act
In common understanding, activity includes
An act done
A work done
A deed done
An operation carried out
Execution of an act
Provision of a facility etc.
Activity could be active or passive and forbearance to act
Agreeing to an obligation to refrain from an act or to tolerate an
act or a situation - listed as a declared service u/s 66E


28
Consideration
Means everything received or recoverable in return for a
provision of service which includes -
Monetary payment
Non-monetary payment
Deferred consideration

Under Indian Contract Act, 1872, consideration means -
When, at the desire of the promisor, the promisee or any other person
has done or abstained from doing, or does or abstains from doing, or
promises to do or to abstain from doing, something, such act or
abstinence or promise is called a consideration for the promise


29
Activity for a Consideration
Activity should be carried out by a person for a
consideration
Activity without consideration like-
Donation
Gifts
Free charities
outside the ambit of service
Charity for consideration would be service and
taxable unless otherwise exempted
30
Person-65B(37)
"person" includes,
an individual,
a Hindu undivided family,
a company,
a society,
a limited liability partnership,
a firm,
an association of persons or body of individuals, whether incorporated
or not,
Government,
a local authority, or
every artificial juridical person, not falling within any of the above

31
'Service' does not include -
any activity that constitutes only a transfer in title of goods or immovable
property by way of sale, gift or in any other manner.

Sale of developed plots is a service (Narne Constructions Pvt. Ltd. v UOI
2013 (29)STR 3 (SC)

a transfer, delivery or supply of goods which is deemed to be a sale of goods
within the meaning of clause (29A) of article 366 of the Constitution

a transaction only in money or actionable claim

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

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

32
This scope shall not apply to

a) functions performed by M.P., M.L.A., Members of
Panchayats / Municipalities who receive any consideration
in performing the functions of that office as such member;
or
b) duties performed by any person who holds any post in
pursuance of the provisions of the Constitution in that
capacity; or
c) duties performed by any person as a Chairperson or a
Member or a Director in a body established by the Central
Government or State Government or local authority and
who is not deemed as an employee before the
commencement of this section.


33
34
For the purpose of scope of service -
(a) an unincorporated association or a AOP and a member thereof shall be
treated as distinct persons;
(b) an establishment of a person in the taxable territory and any of his other
establishment in a non-taxable territory shall be treated as establishments of
distinct persons.
(c) A person carrying on a business through a branch or agency or
representational office in any territory shall be treated as having an
establishment in that territory

Draft Circular (F. No. 354 /127/2012-TRU dated 27.7.2012) issued for clarification
on certain activities / facilities / reimbursements to employees by the employers
(a) Treatment of supplies made by the employer to employees
Amount deducted from salary / paid for service provided by the employer to
employee is for consideration and hence taxable
Employer who provides some services free of cost (e.g. crche, gymnasium or a
health club) are not liable to tax
(b) Treatment of reimbursements made by the employer to the employee
Reimbursements of expenditure incurred on behalf of the employer in course
of employment would not amount to a service, hence non-taxable






35
(c )Treatment of supplies and reimbursements made by the
employer to ex-employees/ pensioners

Same tax treatment for ex- employees of the company
Reimbursement of expenses on behalf of
company non-taxable ?
Facilities for consideration taxable
Facilities free of cost - non taxable ?
36
Directors services to the company are taxable w.e.f 1.7.2012
Sitting fees, commission, bonus, etc. are subject to service
tax
W.e.f. 1.7.2012 upto 6.8.2012, service tax to be deposited by
the directors while from 7.8.2012 vide Notification No.
45/2012, Service Tax on such services will be deposited by
the company under reverse charge
WTDs /MDs /EDs who are under contractual employment
with the company and receive salary or remuneration from
the company will not be covered - considered as employees
of the company


37
Interest paid on loan by director to company, dividend on shares, other
professional charges on account of services not rendered as a director
(in professional capacity) are not liable to Service Tax under reverse
charge
In case of nominee director, the nominating company who receives fees
will be liable to pay service tax
The invoice / receipt to be issued by the directors within 30 days
In case of nominee directors, the invoice will be issued by the
nominating company if payment made to such Company
In the case of Government nominees, the services shall be deemed to
be provided by the Government but liable to be taxed under reverse
charge basis (support service)

38
Partnership firm is not a distinct legal entity apart from the
partners under the Partnership Act, 1932
Partner is not an employee of the firm -contract of
employment requires two distinct firms, viz., employer and
employee
Partners are the real owners of the assets of Firm to the extent
of their share
Salary paid to partner is only profit known by a different
name
It is only a transaction in money
Incomes received from firm treated as income from Profits
and Gains of Business or Profession under I T Act, 1961
Partnership Act, 1932 can not be over-looked


39
Non commercial construction for non-government purpose
Private roads (not meant for general public)
Residential construction of more than one unit
Commercial artists/performers
Film actors/ directors /reality show judges
Tourism boats
Board directors sitting fee
Non-compete fee
Arbitrators to business entities
Discourses and lectures/ yoga classes
Public parking
to be contd..


Banking services to Government
Unrecognized IPRs
Services to RBI
Hotel telephone calls
Video library facilities by hotels
Matrimonial sites
Astrologers
Laundry services
Works contracts for movable properties
All sub-contracts except exempted works contracts
On board catering and other facilities
Executive Lounge at railway station/ airport
41
Section 66B (W.e.f 1.7.2012)

There shall be levied a tax at the rate of twelve per cent
on the value of all services, other than those services
specified in the negative list, provided or agreed to be
provided in the taxable territory by one person to
another and collected in such manner as may be
prescribed

42
Essential ingredients for charge of Service Tax

There should be a service involved
Such service should not be one included in the negative list
as defined in section 66D.
Services should be provided or agreed to be provided.
Services should be provided in the taxable territory only.
Services should be provided by one person to another
person.
Tax shall be levied on value of services so provided or
agreed to be provided.
Collection shall be in prescribed manner.
43
44
What is Negative List

Defined in new section 66D

Section 66D specifies seventeen 17 broad categories of services.

Effective from 1-7-2012

If an activity meets the characteristics of service , it is taxable
unless specified in Negative List.

Based on socio-economictax criterion drawn from seven sectors,
viz. financial sector, transportation , construction & real estate,
education, health care, Government services






45
Services by Government or a local authority excluding the following
services to the extent they are not covered elsewhere

Services by the Department of Posts by way of speed post, express
parcel post, life insurance and agency services provided to a person
other than Government;

Services in relation to an aircraft or a vessel, inside or outside the
precincts of a port or an airport;

Transport of goods or passengers; or

Support services provided to business entities

contd..
Services by government as sovereign functions (grant of
licensing rights or government audit, passport etc.)

Excludes corporations formed under Central Acts or State
Acts or various Government companies registered under
Companies Act, 1956 or autonomous institutions set up by
a Special Acts

Government Department needs to be registered and to pay
tax on support services of
Renting of immovable properties
Speed post, express parcel, life insurance.
Transport of goods and/ or passengers
Services in relation to vessel or aircraft
contd..
46
For other services, Government not liable to pay
service tax as tax paid by service recipient in reverse
charge (N. No. 30)

Business Entity

Any person ordinarily carrying out activities relating
to business / commerce/ profession /industry
47
Support services" means
infrastructural,
operational,
administrative,
logistic,
marketing or
any other support of any kind comprising functions that
entities carry out in ordinary course of operations
themselves but may obtain as services by outsourcing
from others for any reason whatsoever
shall include advertisement and promotion,
construction or works contract, renting of immovable
property, security, testing and analysis;
Services provided by Government security agencies are covered
under support service - under reverse charge, service receiver is
liable to tax.
48
All services provided by RBI are in Negative List

Service Provided to RBI is taxable unless covered
in negative list.

Service provided by banks to RBI taxable unless
covered in Negative List or exempted services
49
Services by diplomatic mission of any country located in
India
Does not cover services provided by any office or
establishment of an International organization (Section 3
of United Nation Privileges & Immunities Act ,1947)
Example- UNESCO, UNICEF, IMF, IBRD etc.
Notification No. 27/2012-ST dated 20.6.2012 conditionally
exempts service provided by any person
for the official use of a provision of a foreign diplomatic mission or
consular post in India
for personal use or use of the family member of diplomatic agents
or career consular officers posted in India
50
services relating to agriculture by way of
(i) agricultural operations directly related to production of any agricultural
produce including cultivation, harvesting, threshing, plant protection
or seed testing;
(ii) supply of farm labour;
(iii) processes carried out at an agricultural farm including tending,
pruning, cutting, harvesting, drying, cleaning, trimming, sun drying,
fumigating, curing, sorting, grading, cooling or bulk packaging and
such like operations which do not alter the essential characteristics of
agricultural produce but make it only marketable for the primary
market;
(iv) renting or leasing of agro machinery or vacant land with or without a
structure incidental to its use;
(v) loading, unloading, packing, storage or warehousing of agricultural
produce;
(vi) agricultural extension services;
(vii)services by any Agricultural Produce Marketing Committee or Board or
services provided by a commission agent for sale or purchase of
agricultural produce;
contd
51
Agriculture -Section 65 B(3)
Cultivation of plants and rearing of all life-forms of animals
except the rearing of horses, for food, fiber, fuel, raw
material or other similar products

Agriculture Produce -Section 65B(5)
any produce of agriculture on which either no further
processing is done or such processing is done as is usually
done by a cultivator or producer which does not alter its
essential characteristics but makes it marketable for primary
market (E.g. Plantation crops like rubber, tea or coffee but
does not include potato chips or tomato ketchup)
Scope of testing to include all types of testing, not just seeds
(W.e.f 10.5.2013 )



52
Trading of goods is not a taxable service, it being a sale and
not a service.
If a transaction is a sale, it is not a service and vice versa
Transfer of title in goods is crucial
Activities of a commission agent / clearing and forwarding
agent who sells goods on behalf of another for a commission
are not trading of goods (Title of goods does not pass)
Forward contracts are in the nature of trading of goods.
Future contracts are not in the nature of trading of goods

contd .


53
Goods - Section 65B(25)
goods" means
every kind of movable property
other than actionable claim, and
money
includes securities, growing crops, grass, and
things attached to or forming part of the land
which are agreed to be severed before sale or
under the contract of sale
54
55
process amounting to manufacture or production of goods" means a process
on which duties of excise are leviable under section 3 of the Central Excise
Act, 1944 or the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 or
any process amounting to manufacture of alcoholic liquors for human
consumption, opium, Indian hemp and other narcotic drugs and narcotics on
which duties of excise are leviable under any State Act for the time being in
force.

Covers manufacturing activity carried out on contract or job work basis where

Transfer of title of goods is not involved
Duties of excise are leviable on such process under the respective Acts

W.e.f 10.5.2013, manufacture of perfumery, cosmetics etc will also be covered



56
What is Excisable Goods
excisable goods means goods specified in the First Schedule
and the Second Schedule to the Central Excise Tariff Act, 1985
as being subject to a duty of excise and includes salt

Mobility and marketability are essential conditions

Goods includes any article, material or substance which is
capable of being bought and sold for a consideration and such
goods shall be deemed to be marketable.
57
Exemption to Service - Clause 30 (N. No. 25/2012-ST)
Carrying out an intermediate production process as job work in
relation to -
(a) agriculture, printing or textile processing;
(b) cut and polished diamonds and gemstones; or plain and studded jewellery
of gold and other precious metals, falling under Chapter 71 of the Central
Excise Tariff Act ,1985
(c) any goods on which appropriate duty is payable by the principal
manufacturer or
(d) processes of electroplating, zinc plating, anodizing, heat treatment, powder
coating, painting including spray painting or auto black, during the course of
manufacture of parts of cycles or sewing machines upto an aggregate value of
taxable service of the specified processes of one hundred and fifty lakh
rupees in a financial year subject to the condition that such aggregate
value had not exceeded one hundred and fifty lakh rupees during the
preceding financial year

Selling of space or time slots for advertisements other than
advertisements broadcast by radio or television

This entry in negative list should qualify the following tests
involves selling of space (in case of print media)
involves selling of time slots ( in case of electronic media)
purpose of selling time slots / space to be for advertisements
(publicity / sales promotion, awareness etc.)
excludes broadcast by radio or television ( i.e. broadcast will be
taxable)
Webcast is not a broadcast


contd .


58
Taxable Non-taxable
Sale of space or time for
advertisement to be broadcast on
radio or television
Sale of space for advertisement in
print media
Sale of time slot by a broadcasting
organization
Sale of space for advertisement in bill
boards, public places (including
stadia), buildings, conveyances, cell
phones, automated teller machines,
internet
Aerial advertising
Presentation made in person
59
Not covered in Negative List Covered In Negative List
Printing & Publishing of yellow pages,
business directory and trade catalogues
etc.
Spaces allotted in buses and public
transport system public transport system
to run display of advertisement
Advertisement services to Government
departments
Private circulation of magazines / journals
Purchase of time slots from broadcaster
and sold to advertising agency
Telephone directories
Preparing advertisement for display
during a movie in theatre
Clubs, associations, professional bodies
etc. member's list / directories
Services provided by advertisement
agencies in relation to preparation of
advertisement
Internal directories / business information
Commission received by advertisement
agencies from broadcasting or publishing
companies
60
Advertisement means
any form of presentation for promotion of,
or bringing awareness about,
any event,
idea,
immovable property,
person, service,
goods or actionable claim through
newspaper, television, radio or any other means
but does not include any presentation made in person;
Services provided by advertisement agencies relating to preparation
/ designing etc of advertisements are taxable.
Print media includes newspaper and books.
61
Only covers toll charges for access to road and bridge

Includes National highways or state highways

Toll on other roads not in negative list

Collection charges or service charges paid to any toll
collection agency are not covered under negative list (are
business auxiliary services)

Does not include services used for providing such service
62
Betting or Gambling means
putting on stake something of value,
particularly money,
with consciousness of risk and hope of gain on the outcome of a game
or a contest,
whose result may be determined by chance or accident, or on the
likelihood of anything occurring or not occurring

Betting is a form of wagering contract in which money or moneys worth is
made payable by the parties on the result of an uncertain event, usually a
game or sport

Gambling means playing game of chance for money or risky action
undertaken with the hope of success

Lottery is a game of chance (e.g. lottery, bingo, lotto etc.) which may
include online games

contd .



63
Auxiliary services for organizing or promoting betting or
gambling events are not covered in negative list
State subject covered in list II
Actionable claim
In Union of India & Others v. Martin Lottery Agencies Ltd
(2009) 14 STR 593 (Supreme Court), it was held that service tax
can not be levied on sale of lottery ticket
In Martin Lottery Agencies Ltd. v. Union of India (2007) 8 STR
561 (Sikkim), it was held that petitioner was not rendering
services in relation to promotion of clients goods and service
tax liability did not arise
64
Entertainment event if it is intended (may not
necessarily provide) to provide any one or more of
the following to the recipients / viewers / audience
recreation
pastime
fun , or
enjoyment

contd .


65
This could be by way of
exhibition of cinematographic film
circus
concerts
sporting events
pageants
award functions
dance performance
musical performance
theatrical performances drama, ballets or any such
event / programme.
contd .


66
Amusement facility means

a facility where fun
recreation is provided by means of rides
gaming devices
bowling alleys in amusement parks
amusement arcades
water parks
theme parks
such other places
but does not include a place within such facility where
other services are provided
contd .


67
Amusement means entertainment, diversion, pastime,
sport etc.
Theatrical performances need not be performed in
theatre
Standalone amusement ride in a mall fun or recreation
by means of ride covered under amusement excluded
Membership of club which provides amusement facilities
- excluded
Event manager for organizing an entertainment event or
entertainment is not covered in this category
68

Provided by Electricity Transmission or
Distribution utility
Covers both
Transmission
Distribution
Installation of gensets or similar equipment by
private contractor for distribution - taxable
Charges collected by developer or a housing
society for distribution of electricity within a
residential complex - taxable but excluded if it
acts as a licensed authority
69
Service by way of -
i. Pre-school education and education up to higher
secondary school or equivalent
ii. Education as a part of a prescribed curriculum for
obtaining a qualification recognized by law
iii. Education as a part of an approved vocational education
course

Conduct of degree courses by colleges, universities
or institutions which lead to grant of
qualifications recognized by law



contd .


70
Approved vocational education course
a course run by an industrial training institute or an industrial training
centre affiliated to the National / State Council for Vocational Training,
offering courses in designated trades as notified under the Apprentices
Act, 1961 , or
a Modular Employable Skill Course, approved by the National Council of
Vocational Training, run by a person registered with the Directorate
General of Employment and Training, Ministry of Labour and
Employment, Government of India, or
a course run by an institute affiliated to the National Skill Development
Corporation set up by the Government of India ( w.e.f. 10.5.2013)



to be contd .


71
Education upto higher secondary school or equivalent are
in negative list.
Services provided to or by ( w.e.f. 1.04.2013) an educational
institution for Auxiliary educational services and renting
of immovable property exempted under mega
notification

Negative list will not include
Private tuitions
Education as a part of prescribed curriculum for
obtaining qualification recognized by law of a foreign
country
Services provided to educational institutions
Placement services

contd .



72
Education related services not in negative list but exempt
from tax under Notification No. 25/2012-ST dated
20.06.2012
Auxiliary education services if provided to educational
institutions
Transportation of students to / from institutions
Provision of mid-day meal in schools
Admission related services to educational institutes where
education services are exempt.
Coaching / training in recreational activities of arts,
culture or sports.
73
Exemption upto 31.03.2013

Service Provider Service Receiver Taxability
Educational Institution Educational Institution Exempt
Educational Institution Non Educational Institution Exempt
Non Educational Institution Educational Institution Exempt
Non Educational Institution Non Educational Institution Taxable
74
Exemption w.e.f. 01.04.2013 -
Educational Institution Educational Institution Exempt
Educational Institution Non Educational Institution Taxable
Non Educational Institution Educational Institution Exempt
Non Educational Institution Non Educational Institution Taxable
Renting coves all types of arrangements in relation to
immovable property with or without its transfer of possession
or control and whether wholly or partly. It would cover /
include
allowing
permitting
granting access / entry / occupation
use of facility
letting
leasing
licensing, or
other similar arrangements
(such as right to use, sub-lease, space sharing etc.)
contd .


75
Renting of certain kinds of property already covered in
the negative list
renting of vacant land, with or without a structure
incidental to its use, relating to agriculture.
renting of residential dwelling for use as residence
renting out of any property by Reserve Bank of India
renting out of any property by a Government or a local
authority to non-business entity

contd .


76
Residential dwelling not defined but includes residential
accommodation

Does not include hotel, motel, inn, guest house, camp site, lodge,
house boat or other place meant for temporary stay

Residential dwelling used partly as a residence and partly for non
residential purpose- treated as bundled service

Residential unit independent residential unit with specific
facilities for living, cooking and sanitation





contd .


77
Services by way of
(i) extending deposits, loans or advances in so far as the
consideration is represented by way of interest or
discount;
(ii) inter se sale or purchase of foreign currency amongst
banks or authorised dealers of foreign exchange or amongst
banks and such dealers;


contd .



78
Transactions in money outside the ambit of service
Any activity related to a transaction in money by way of its use or conversion by
cash or by any other mode, from one form , currency or denomination to another
form, currency or denomination would not be treated as a transaction in money if
a separate consideration is charged for such an activity
Service tax to be levied on service charges for transactions in money including of
charges for making of drafts, letter of credits issuance charges, service charges
relating to issuance of CDs/ CPs etc
Interest rate swaps and foreign exchange swaps are excluded being securities
(hence goods)


contd .


79
Only interest and discount are in negative list
Interest could be on
Money borrowed
Debt incurred
Deposit
Claim / obligation/ similar right
Service charge / fee/ commission not covered in negative
list (e.g. pre payment fee, late fee, cheque bounce charges)
interest on credit facility not utilized (commitment
charges ) not covered in negative list
Bill discounting only discount covered
contd .



80
Any charges over and above interest/ discount taxable
Purchase/ sale of foreign currency between banks and
authorized dealers under negative list
Examples of services in negative list-
Fixed deposits or saving deposits or any other such deposits
in a bank for which return is received by way of interest
Providing a loan or over draft facility for in consideration for
payment of interest
Mortgages or loans with a collateral security to the extent
that the consideration for advancing such loans or advances
are represented by way of interest
Corporate deposits to the extent that the consideration for
advancing such loans or advances are represented by way of
interest or discount



81
Tax on Money Remittance (Circular No. 163 dated 10.7.2012)
No service tax on foreign currency remitted to India from
overseas
Amount of remittance comprises money
Service excludes money transactions
Even fee for remittance is not taxable (POPS)
Sender of money outside India bank / company remitting
located outside India
Fee charged by Indian bank - remitter located outside India
(not taxable as per POPS)
82
Services by-
a stage carriage;
railways in a class other than
(i) first class; or
(ii) an AC coach; ( exempt upto 30.9.2012)
metro, monorail or tramway;
inland waterways;
public transport, other than predominantly for tourism
purpose, in a vessel, between places located in India;
and
metered cabs, radio taxis or auto rickshaws.

contd .


83
Covered under negative list Not Covered under negative list
Motor vehicles on hire to state
transport undertaking (more taken
12 passengers)
Motor vehicles to state transport
undertaking (upto 12 passengers)
Exemption to Transport of
passengers by a contract carriage
No exemption for Tourism,
conducted tours, chartered or hire
84
Services provided in relation to transportation of
goods is specified in the negative list
by road except the services of
(i) a goods transportation agency or
(ii) a courier agency
by aircraft or vessel from a place outside India up to the
customs station of clearance in India; or
by inland waterways (but agents covered)


contd .


85
Funeral
Burial
Crematorium
Mortuary
Transportation of deceased
86
87
Principles of Interpretation of specific description of services [section 66F]
Section 65A dealing with classification of taxable services omitted w.e.f.
1.7.2012
useful in deciding whether a service falls in negative list / exemptions /
declared services
composite v bundled service
bundled service
collection of services / tied up services
more than one service
element of one service combined with element of provision of other
service (s).
Examples - Mailing done by RTI, Air traveling and catering therein
Earlier issue which taxable service
Now whether any activity is a service or not a service.
88
Rule 1
Reference to main service can not be used for services used for providing
the main service
If some service is provided with reference to provision of main service,
it does not be come main service,
Related services do not take the colour of main service.
Examples
Provision of access to any road or bridge on payment of toll
Security services
IT related services
Contract commission
Transportation of passengers by rail
Air travel agency
Tour operators
89
Rule 2
Most specific description to be preferred over more general
description for services capable of differential treatment for
any purpose based on its description
Examples
Real estate agent for immovable property
If taxed as intermediary, his location is important
If taxed as immovable property, location of property is important
Outdoor catering by pandal & shamiana / convention to be taxed as
specific combined entry exist for abatement and not as individual
services
90
Rule 3
Taxability of naturally bundled services in ordinary course
of business
If various elements of a bundled service are naturally bundled
in the ordinary course of business, it shall be treated as
provision of a single service which gives such bundle its
essential character
Perception of service provider / service receiver
Trade practice
Example
Packaged hotel accommodation for convention delegates
may include
Hotel room accommodation
Breakfast
Tea / coffee during conference
to be contd
Access to gym / health club / pool
Internet
Business centre
Sight seeing
Could be considered as naturally bundled convention services as each
activity is taxable but does not provide essential character and taxed
accordingly
Indicators of naturally bundled services
There is a single price or the customer pays the same amount, no matter how
much of the package they actually receive or use
The elements are normally advertised as a package.
The different elements are not available separately.
The different elements are integral to one overall supply if one or more is
removed, the nature of the supply would be affected.
Each case to be individually examined
91
Bundled Services
Rule 4
Taxability of services not naturally bundled in ordinary course
of business
If various elements of a bundled service are not naturally
bundled in the ordinary course of business, it shall be
treated as provision of a service which attracts the highest
amount of service tax.
Examples
Renting of two floors or two portions of building by a common
agreement (treated as commercial use)
Management of event covering advertisement, promotion, space
booking, photography, videography, public relation etc.
92
Changes in Reverse Charge
Authority for reverse charge u/s 68(2) of Finance Act, 2012

Person liable to pay tax Rule 2(1)(d) of Service Tax Rules, 1994

W.e.f. 1.7.2012, a new scheme of taxation is applicable whereby the
liability of payment of service tax shall be both on the service
provider and the service recipient (Notification No. 30/2012-ST,
dated 20.6.2012 )

The extent to which tax liability has to be discharged by the service
receiver specified in the notification.

93
Credit of tax paid can be availed by service
recipient if it is input service

The credit of tax paid by the service recipient
under partial reverse charge would be available
on the basis on the tax payment challan (but
invoice required)

Service provider under RCM may claim refund
of tax paid under rule 5(b) of CCR, 2004

94

Under Partial Reverse Charge (Proportional)

Renting of motor vehicles
Manpower supply & security services
Works contracts

Under Full Reverse Charge (100%)

Insurance related services by agents
goods transportation by road
sponsorship
arbitral tribunals
legal services
company director's services
services provided by Government / local authority excluding
specified services
services provided by persons located in non-taxable territory to
persons located in taxable territory.
95
Governed by Notification No. 30/2012-ST dated 20.06.2012
w.e.f. 1.7.2012
Liabilities of both the service provider and service receiver
are independent of each other
Reverse charge will not apply where the service receiver is
located in non-taxable territory
For three specified services provided by business entities
being company, society, cooperative society, trust etc,
reverse charge will not apply.
Reverse charge will also not apply where the service
recipient is any person or business entity not being a body
corporate in case of three specified services

96
Small scale benefit is available only to service provider
(not to service receiver), if entitled
Service receiver under reverse charge cannot avail
exemption of Rs. 10 lakh under Notification No.
33/2012-ST dated 20.06.2012
Valuation of services by services provider and service
receiver can be on different principles, if permitted by
law (e.g. works contract - Refer Notification No.
30/2012-ST, explanation II)
Liability to pay Service Tax for ongoing contracts will
be as per Point of Taxation Rules, 2011


97
In case of proportional reverse charge (manpower supply &
security, works contract and motor vehicle hire to carry
passengers), it is advisable that service provider should
charge Service Tax only on his portion of Service Tax in the
invoice and mention that Service Tax on balance amount is
payable by service receiver.

It is the statutory obligation on the service recipient to pay
Service Tax, whether under full or proportional reverse
charge

Service Tax under reverse charge has to be paid by cash vide
GAR Challan No. 7 and it cannot be paid by way of
utilization of Cenvat Credit.

98
In case of renting of motor vehicles to carry passengers
where abatement is also available, reverse charge basis is
proportional depending upon the abatement on the
condition that no Cenvat Credit has been availed. The
service provider should provide a certificate, either in the
invoice itself or separately.

In case of renting of motor vehicle to carry passengers,
reverse charge applies only where the motor vehicle is
provided with driver and service receiver is not engaged in
same business.

In case of director's services, the service provider should
not be employed (whole time) director. Employees are not
covered under the scope of Service Tax.



99
In respect of manpower supply and security services, works contract services
and renting of motor vehicles to carry passenger, reverse charge shall be
applicable only when following two conditions are satisfied

service receiver is a business entity registered as a body corporate, and
service provider is any one of the following entities
Individual
Hindu undivided family (HUF)
Firm (including limited liability partnerships)
Association of persons

If both the above conditions are not satisfied in respect of these three services,
Service Tax shall be payable by the service provider in ordinary course.

Security services means services relating to the security of any property,
whether movable or immovable, or of any person, in any manner and includes
the services of investigation, detection or verification, of any fact or activity

100
Service Provider Service Receiver
Individual Advocate / Firm / LLP

**Business entity with turnover > Rs 10
lakhs in preceding financial year
Arbitral Tribunal **Business entity with turnover > Rs 10
lakh in previous financial year


** Business entity may be an individual also
101
Sr. No Description of Service Service provider Service receiver
1. Services provided by an insurance
agent to any person carrying on
insurance business
Nil 100%
2. Services provided by a goods
transport agency in respect
of transportation of goods by road
Nil 100%
3. Services provided by way of
sponsorship
Nil 100%
102
Sr.No Description of Service Service provider Service receiver
4. Services provided by an arbitral tribunal Nil 100%
5. Services provided by individual advocate or
a firm of advocates by way of legal services
Nil 100%

5A. in respect of services provided or agreed
to be provided by a director of a company
to the said company ( w.e.f 7.08.2012)
Nil 100%
6. Services provided by Government or local
authority by way of support services
excluding,-
(1) renting of immovable property,
(2) postal services
(3) transport of goods / passengers
(4) air craft or vessel
Nil 100%
103
Sr.No Description of Service Service provider Service receiver
7.
Hiring of Motor Vehicle
(a) renting of a motor vehicle
designed to carry passengers on
abated value to any person not
engaged in the similar line of
business
(b) renting of a motor vehicle
designed to carry passengers on non
abated value to any person who is
not engaged in the similar line of
business
Nil




60%
100 %




40%
8.
Services provided by way of supply
of manpower for any purpose or
security services ( w.e.f 07.08.2012)
25% 75 %
104
Sr.No Description of Service Service provider Service receiver
9. Services provided in service portion
in execution of works contract

50%

50%
10. Services provided by any person who
is located in a non-taxable territory
and received by any person located in
the taxable territory

Nil

100%
105
Service Provider Service Receiver Service Tax Payable by
Individual /HUF/
Partnership firm
/AOP
Business entity
body corporate
Joint
Individual /HUF/
Partnership firm
/AOP
Individual /HUF/
partnership firm
/AOP
100 % by service
provider
Business entity
Body Corporate /
Company
Individual /HUF/
Partnership firm
/AOP
100 % by service
provider

Business entity
Body Corporate
Business entity
Body Corporate
100 % by service
provider

106
107

Over and above full exemption to 39 categories of services vide
Notification No. 25/2012-ST dated 20.06.2012
Earlier there were a number of exemption notifications that
prescribed the abatements for various categories of services
(including 1/2006)
Abatements merged into a single Notification No 26/2012 - ST
dated 20/6/12
Valuation rules contain abatement for Works Contract and
Supply of Food Services


Sl. No. Description of taxable service Taxable
value(%)
Conditions
1 Financial leasing services including
equipment leasing and hire purchase
10 Nil
2 Transport of goods by rail (exempted upto
30.9.2012)
30 Nil
3 Transport of passengers, with or without
accompanied belongings by rail ( exempted
upto 30.9.2012)
30 Nil
4 Supply of food or any other article of
human consumption or any drink, in a
premises, including hotel, convention
center, club, pandal, shamiana or any place
specially arranged for organizing a function
70 CENVAT credit on any
goods classifiable under
chapter 1 to 22 of the
Central Excise Tariff Act,
1985 has not been taken
under the provisions of the
CENVAT Credit Rules, 2004.
108
109
Sl.
No
Description of taxable service Taxable
value(%)
Conditions
5 Transport of passengers by air, with or
without accompanied belongings
40 CENVAT credit on inputs or capital goods,
used for providing the taxable service, has
not been taken under the provisions of the
CENVAT Credit Rules, 2004.
6 Renting of hotels, inns, guest houses,
clubs, campsites or other commercial
places meant for residential or lodging
purposes
60 Same as above.
7 Transport of goods by road by Goods
Transport Agency
25 CENVAT credit on inputs, capital goods and
input services, used for providing the taxable
service, has not been taken under the
provisions of the CENVAT Credit Rules, 2004.
8 Services provided in relation to chit [
quashed by Delhi High Court in Delhi
Chit Fund case (2013) 39 STT 955 ]
70 Same as above.
110
Sl.
No
Description of taxable service Taxable
value(%)
Conditions
9 Renting of any motor vehicle
designed to carry passengers
40 Same as above.
10 Transport of goods in a vessel from
one port to another
50 Same as above.
11 Tour operator services
(i) provided by a tour operator in relation
to a package tour
25 (i) CENVAT credit on inputs, capital
goods and input services, used for
providing the taxable service, has not
been taken under the provisions of the
CENVAT Credit Rules, 2004.
(ii) The bill issued for this purpose
indicates that it is inclusive of charges
for such a tour.
Sl. No Description of taxable
service
Taxable
value(%)
Conditions
(ii) provided by a tour operator in
relation to a tour, solely arranging
or booking accommodation
10 (i) CENVAT credit on inputs, capital goods
and input services, used for providing the
taxable service, has not been taken under
the provisions of the CENVAT Credit Rules,
2004.
(ii) The invoice, bill or challan issued
indicates that it is towards the charges for
such accommodation.
(iii) This exemption shall not apply in such
cases where the invoice, bill or challan
issued by the tour operator, in relation to a
tour, only includes the service charges for
arranging or booking accommodation for
any person and does not include the cost
of such accommodation.
111
Sl. No Description of taxable service Taxable
value(%)
Conditions
(iii) Services, other than
services specified above in (i)
or (ii)
40 (i) CENVAT credit on inputs, capital
goods and input services, used for
providing the taxable service, has not
been taken under the provisions of the
CENVAT Credit Rules, 2004.
(ii) The bill issued indicates that the
amount charged in the bill is the gross
amount charged for such a tour.
112
Sl. No Description of taxable service Taxable
value(%)
Conditions
12. Construction of a complex,
building, civil structure or a
part thereof, intended for a
sale to a buyer, wholly or
partly except where entire
consideration is received after
issuance of completion
certificate by the competent
authority -

(i) For residential unit having
carpet area upto 2000 sq.
ft. or ( and w.e.f. 8.05.2013)
where the amount charged
is less than rupees one
crore;
(ii) For other than the (i)
above

25 (upto
28.02.2013)







25 ( w.e.f.
1.03.2013)


30 ( w.e.f.
1.03.2013)

(i) CENVAT credit on inputs
used for providing the taxable
service has not been taken
under the provisions of the
CENVAT Credit Rules, 2004.

(ii) The value of land is
included in the amount
charged from the
service recipient.
113
114
Draft Circular F. No.354 /146/2012 TRU dated 27.09.2012 (Air Travel)

Charges which are directly related to journey such as re-confirmation fee, date
change fee, seat upgrade fee, preferred seat charges etc. will be covered by
abatement

Charges which are not related to journey such as meal charges, escort charges etc.
will not be covered by abatement.

Excess baggage charge may be leviable to service tax without abatement

Pet charges may be leviable to service tax without abatement

For cancellation charges billed separately as administrative charge, abatement
will not be applicable


THANK YOU
FOR
YOUR
PRECIOUS TIME
AND
ATTENTION
Dr. Sanjiv Agarwal
FCA, FCS, Jaipur
asandco@gmail.com
sanjivservicetax@gmail.com
115