Bombay Chartered Accountants’ Society Lecture Meeting on 23rd July 2003 at IMC, Churchgate
Bombay Chartered Accountants' Society
Lecture meeting
Wednesday, July 23, 2003
Subject: Recent Amendments in Service Tax
by
Puloma Dalal
Chartered Accountant
A Gist of a few important amendments made in Service Tax by the Finance Act 2003.
I] NEW SERVICES UNDER SERVICE TAX IN A NUTSHELL:
Effective from July 01, 2003 vide Notification No. 7/2003 - Service tax dated June 20, 2003
(Note: All the statutory provisions pertain to the Chapter-V of the Finance Act, 1994 as amended up to date)
1. BUSINESS AUXILIARY SERVICES:
STATUTORY PROVISIONS:
"Business Auxiliary Service" means any service in relation to :-
(i)promotion or marketing or sale of goods produced or provided by or belonging to the client' or
(ii)promotion or marketing of service provided by the client' or
(iii)any customer care service provided on behalf of the client; or
(iv)Any incidental or auxiliary support services such as billing, collection or recovery of cheques, accounts and remittance, evaluation of prospective customer and public relation services, and includes services as a commission agent, but does not include any information technology service.
- Explanation: For the removal of doubts, it is hereby declared that for the purposes of this clause "information technology service" means any service in relation to designing, developing or maintaining of computer software, or computerized data processing or system networking or any other service primarily in relation to operation of computer systems.
[Section 65(19)]
"Taxable service" means any service provided to a client, by a commercial concern in relation to business auxiliary service
Section 65(105)(zzb)
EXEMPTIONS:
Call Center: commercial concern providing assistance, help or information through telephone on behalf of another person;
Medical Transcriptions Center: commercial concern transcribing medical history, treatment, medical observation and the like.
- (Both exempt vide Notification No.8/2003, dated June 20, 2003 - effective date July 1, 2003)
Commission Agents in cases where consideration received by the agency is linked with quantum of sale or purchase of goods;
- (Exempt vide Notification No.13/2003, dated June 20, 2003 - effective date 01/07/2003);
Exclusion of information technology service :
This is available when the output service provided is in the nature of primarily in relation to operation of computer system or the operations mentioned in the explanation to the definition. Mere fact that a personal computer or a laptop is used by the service provider or when I.T. service is an input service, does not necessarily render the output service as information technology service.
- COMMERCIAL TRAINING & COACHING CENTERS:
STATUTORY PROVISIONS:
"Commercial Training or Coaching" means any training or coaching provided by a commercial training or coaching center;
[Section 65(26) ]
"Commercial Training or Coaching Center" means any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field other than the sports, with or without issuance of a certificate and includes coaching or tutorial classes but does not include preschool coaching and training center or any institute or establishment which issues any certificate or diploma or degree or any educational qualification recognised by law for the time being in force;
[Section 65(27)]
"Taxable service" means any service provided, to any person, by a commercial training or coaching center in relation to commercial training or coaching;
[Section 65(105)(zzc)]
SPECIFIC EXEMPTIONS:
Vocational training institute - a commercial training/coaching center imparting skills to enable trainee to seek employment, self-employment after training/coaching. Therefore institutes of typing/ short hand, tailoring, industrial training foreign language studies, TV/vehicle repairing, etc. are - all exempt.
Computer training institute providing coaching/training commercially relating to computer hardware/software;
Recreational training institute, imparting training relating to activities like dance, singing, martial arts, hobbies.
- (Exempt vide notification No. 9/2003 - Service Tax dated June 20, 2003; effective date July 1, 2003)
When services rendered form essential part of the course/curriculum leading to issuance of recognised certificate/diploma/degree or any other qualification provided the student makes payment for the entire course to the institute/establishment issuing certificate/diploma etc. and not to the commercial course.
- (Exempt vide notification No. 10/2003 - Service Tax dated June 20, 2003; effective date July 1, 2003)
OTHER EXCLUSIONS/INCLUSIONS
VIDE CIRCULAR NO.59/8/2003 DATED 20/06/2003
EXCLUSIONS :
- Colleges/institutes providing coaching for competitive exams in addition to imparting education to pursue degree/diploma/certificate;
- Individuals providing tuition/coaching provided at the premises of service receiver;
- In-house training/free training by employer to employees.
INCLUSIONS :
- Postal tuition provided by coaching centers;
- Coaching center/establishment sending their faculty/representative to the individual premises or any other corporate or the like as the payment is made to the coaching center.
3. COMMISSIONING OR INSTALLATION SERVICES :
STATUTORY PROVISIONS :
"Commissioning or Installation" means any service provided by a commissioning and installation agency in relation to commissioning or installation of plant, machinery or equipment;
[ Section 65(28)] - emphasis added
"Commissioning and Installation Agency" means any agency providing service in relation to commissioning or installation;
[ Section 65(29) ]
"Taxable service" means any service provided, to a customer, by a commissioning and installation agency in relation to commissioning or installation;
[Section 65(105)(zzd)]
SPECIFIC EXCLUSION:(vide clause (vii) of Explanation to Section 67)
Cost of parts or other material if any sold to the customer during the course of providing commissioning or installation service.
Clarification vide Circular 59/8/2003 dated 20/06/2003
Turnkey projects are indivisible contracts. However if break-up of commissioning or installation charge is not stated, the consolidated amount would attract service tax.
Erection of plant is not covered as any activity other than commissioning and installation of plant/machinery/equipment per se is not chargeable.
- FRANCHISE SERVICES :
STATUTORY PROVISIONS:
"Franchise" means an agreement by which -
(i)franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be, is involved;
(ii)the franchisor provides concepts of business operation to franchisee, including know-how, method of operation, managerial expertise, marketing technique or training and standards of quality control except passing on the ownership of all know-how to franchisee;
(iii)the franchisee is required to pay to the franchisor, directly or indirectly, a fee; and
(iv)the franchisee is under an obligation not to engage in selling or providing similar goods or services or process, identified with any other person.
[Section 65(47)]
"Franchisor" means any person who enters into franchise with a franchisee and includes any associate of franchisor or a person designated by franchisor to enter into franchise on his behalf and the term "franchisee" shall be construed accordingly.
[Section 65(48)]
`"Taxable service" means any service provided, to a franchisee, by the franchisor in relation to franchise;
[Section 65(105)(zze)
Clarification vide Circular No.59/8/2003 dated 20/06/2003
Unless all the ingredients provided in (i) to (iv) mentioned above are satisfied, the agreement is not a franchise agreement for the purpose of service tax.
- INTERNET CAFE :
STATUTORY PROVISIONS:
"Internet Café" means a commercial establishment providing facility for accessing internet;
[Section 65(57)]
"Taxable service" means any service provided, to any person, by an Internet café in relation to access of Internet.
[Section 65(105)(zzf)]
- MAINTENANCE OR REPAIR SERVICE :
STATUTORY PROVISIONS:
"Maintenance or repair" means any service provided by -
(i)any person under a maintenance contract or agreement; or
(ii)a manufacturer or any person authorized by him, in relation to maintenance or repair or servicing of any goods or equipments, excluding motor vehicle.
[Section 65(64)]
"Taxable service" means any service provided, to a customer, by any person in relation to maintenance or repair;
[Section 65(105)(zzg)]
Exclusion: (Vide clause (vi) of the explanation to section 67)
The cost of parts of other material, if any sold to the customer while providing service.
Exemption:
Provided to contracts entered into prior to July 1, 2003 and when the bill/invoice was raised prior to July 1, 2003 and also only when the value of service was received prior to July 1, 2003.
- (Vide Notification No.11/2003 - Service Tax dated June 20, 2003 - effective date July 01, 2003)
- TECHNICAL TESTING & ANALYSIS :
STATUTORY PROVISIONS:
"Technical testing and analysis" means any service in relation to physical, chemical, biological or any other scientific testing or analysis of goods or material or any immovable property, but does not include any testing or analysis service provided in relation to human beings or animals;
[Section 65(106)]
"Technical testing and analysis agency" means any agency or person engaged in providing service in relation to technical testing and analysis;
[Section 65(107)]
"Taxable service" means any service provided, to any person, by a technical testing and analysis agency, in relation to technical testing and analysis;
[Section 65(105)(zzh)]
Exclusion:
Testing/analysis services in relation to human beings/animals.
- TECHNICAL INSPECTION & CERTIFICATION SERVICES :
STATUTORY PROVISIONS:
"Technical inspection and certification" means inspection or examination of goods or process or material or any immovable property to certify that such goods or process or material or immovable property qualifies or maintains the specified standards, including functionality or utility or quality or safety or any other characteristic or parameters, but does not include any service in relation to inspection and certification of pollution levels
[Section 65(108)]
"Technical inspection and certification agency" means any agency or person engaged in providing service in relation to technical inspection and certification;
[Section 65(109)]
"Taxable service" means any service provided, to any person, by a technical inspection and certification agency, in relation to technical inspection and certification;
[Section 65(105)(zzi)]
Specific inclusion:
Certification of all types including that of immovable property.
- (Clarification vide Circular No.59/8/2003 dated June 20, 2003)
SCOPE WIDENED: THREE OF THE EXISTING SERVICES:
Authorized Automobile Service Station :
This service covered services in respect of motor cars and two wheelers. From July 1, 2003, light motor vehicles are also included.
Specified Banking and Financial Services :
Out of the list of specified banking services, clause (iv) in section 65 (12), refers to 'securities and forex broking services'. In respect of forex broking specific provision is made to include forex broking, services provided by persons other than banking company financial institution, NBFC and a body corporate. This is mainly intended to include individuals and partnership firms providing forex broking services.
Port Services :
Services provided by ports other than major ports or persons authorized by such other ports are now included.
OTHER NOTIFICATIONS ISSUED ON JUNE 20, 2003:
Value of goods and material sold by the service provider exempted, however it is subject to a documentary proof specifically indicating the value of the said goods and material.
(Notification No.12/2003 - Service Tax - effective date July 1, 2003)
Religious places exempted from category of 'Mandap Keeper'
Religious place is explained to mean a place meant for conduct of prayers/worship pertaining to a religion.
(Notification No.14/2003 - Service Tax - effective date July 1, 2003)
II]GIST OF AMENDED SERVICE TAX CREDIT RULES, 2003 (STCR):
[Amended Vide Notification No.5/2003 - ST dated 14/05/2003]
- Credit of service tax paid on input services - is available across all services - for which bills/invoices are issued on or after 14/05/2003 Provided - that such credit shall be allowed to be taken on or after the day he makes payment of :
a)value of input service plus
b)Service tax paid/payable as indicated in the bill/invoice etc.
- When output service provider provides taxable services plus non- taxable/exempt services :-
(a)The service provider is required to maintain separate account for receipt and consumption of input in relation to output services.
(i)chargeable to service tax and
(ii)exempt or non-taxable services,
Credit will be allowed only on input services intended for use in relation to output services chargeable to service tax.
(b) When no separate accounts are maintained, utilization of service tax credit is allowed - to the extent of amount not exceeding 35% of the service tax payable on output service.
3. Telephone services :
service tax credit allowed only for telephones installed in the premises from which output service is provided;
Mobile phones - No credit for service tax allowed - (clarified vide Circular No.59/8/2003 dated June 20, 2003)
4. No refund under any circumstance allowed for service tax credit availment.
5. Documents and accounts :
The following details will be required to be obtained by the person availing input credit:
Serial No. of the document
Date of issue
Description and value of input service
Service tax paid/payable
Service tax registration no. and address of input service provider
Service tax credit availed
Service tax credit utilized for payment of service tax on output service
The burden of proof for admissibility of service tax credit - on person taking credit.
A form is prescribed to be attached with ST-3 form with the details as above, mentioned therein. (provided in Annexure 1)
6. For wrong availment of service tax credit or non-payments of service tax by the service provider - person availing credit bears consequential of Section 73, 75, 76, & 78 for interest/penalty, etc.
7. Transfer of Service Tax credit
Unutilized service tax credit is now allowed to be transferred in case of shifting of establishment to another site or on sale, merger, lease, transfer, etc. to such transferred establishment when specific provision exists for transfer of liabilities.
III] Synopsis of other important amendments:
(i)Retrospective Amendment:
Certain changes have been made with regard to services availed from goods transport operators during the period 16th November, 1997 to 2nd June, 1998 and clearing and forwarding agents from 16th July, 1997 to 16th October, 1998 which are given as under: -
Validation of levy and collection of service tax on users of services provided by goods transport operators and clearing and forwarding agents.
An amendment is made in the service tax law retrospectively to validate the levy and collection of service tax on the users of services provided by goods transport operators and clearing and forwarding agents the details of which are provided in Annexure-2.
Exemption for certain users of goods transport services.
Exemption is given from service tax to certain users of goods transport services during the period 16th November 1997 to 1st June 1998, the details of which are provided in Annexure-2.
(ii)Classification of services : (a new Section 65 A is introduced)
Provision is made for classification of taxable services on the basis of the definition of taxable services under various categories. Further, where a taxable service is prima facie classifiable under two or more categories, the basic principles of classification would be as follows: -
(a)The category which provides most specific description shall be preferred to a category providing a more general description;
(b)Composite services, consisting of a combination of different services, which cannot be classified in a manner specified in clause (a), shall be classified under the category which gives them their essential character;
(c)Where the first two methods [(a) and (b) above] fail, the classification will be under the category which occurs first in the statute i.e. which defines 'taxable service' amongst those categories which merit equal consideration.
(iii)Advance Rulings mechanism introduced :
Advance Ruling mechanism is introduced in service tax. The ruling shall be in respect of a question of law or fact regarding the liability to pay service tax in relation to a service proposed to be provided by: -
(a)a non-resident setting up a joint venture in India in collaboration with a non-resident or a resident; or
(b)a resident setting up a joint venture in India in collaboration with a non-resident; or
(c)a wholly owned subsidiary Indian company, of which the holding company is a foreign company.
The question on which the advance ruling is sought shall be in respect of: -
(a)Classification of any service as a taxable service;
(b)The valuation of taxable services for charging service tax;
(c)The principles to be adopted for the purposes of determination of value of the taxable service;
(d)Applicability of notifications issued;
(e)Admissibility of service tax credit.
(iv)Reduction in penalty for suppressing the value of taxable service in certain cases:
Untill now, penalty for suppression or concealment of value of taxable service was 100% to 200% of the amount of service tax sought to be evaded. Provision is now made to restrict the penalty to 25% of service tax, if the amount of service tax, interest and penalty (i.e. 25% of service tax), is paid within 30 days of the date of communication of the adjudicating order. The benefit of reduced penalty as mentioned above shall also apply to cases in which the order determining the service tax relates to notices issued prior to May 14, 2003.
Annexure 1
FORM(duly amended by the Finance Act,2003)
(see sub-rule (4) of rule 5)
Return under rule 5 of the Service Tax Credit Rule,2002
(For the period from ……………….. To ………………..)
Input service
Sr. Date and no. of documents Details of input service provider Details of input service
No. on which credit is availed ST regd No. Address Description Value Credit taken
Service tax credit
Opening balance Credit taken Credit utilized Closing Balance
Output service :
(a) Description of output service in relation to …………
rendering of which the input services are
consumed. ……………………
(b) Whether separate account is maintained for YES/NO
Receipt and consumption of input service
Meant for consumption in relation to
rendering of output services which are
taxable or exempted or non-taxable service
PLACE : Name and signature of the assessee or
DATE: his authorized representative.
Annexure 2
The Amended provisions having retrospective effect concerning service tax on goods transport services and clearing and forwarding services:
Validation of levy and collection of service tax on users of services provided by goods transport operators and clearing and forwarding agents:
Section 116 of the Finance Act, 2000 modified the provisions of Chapter-V of the Finance Act, 1994 (the law governing service tax) for the period beginning 16th July, 1997 and ending 16th October, 1998 to validate the levy and collection of service tax on services rendered by goods transport operators and clearing and forwarding agents, from the users of services during the same period. The modifications made were: -
(i)The definition of 'assessee' in section was amended to include users of services of goods transport operators and clearing and forwarding agents;
(ii)The charging section 66 was amended;
(iii)Section 67 governing the value of taxable services was amended.
The following modifications have been made with retrospective effect from 16th July, 1997 to 16th October, 1998: