Service Tax Guide Part-1

What is ‘service’?
‘Service’ has been defined and means -any activity for consideration carried out by a person for another and includes a declared service.
The said definition further provides that ‘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 or
– 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
To determine whether you are providing a ‘Service’ Pose the following questions to yourself

service

[*if you are a person doing business through an establishment located in the taxable territory and another establishment located in non taxable territory OR a association or body of persons or a member thereof then please see Explanation 3 to clause (44) of section 65B of the Act before answering this question]
If the answer to the above questions is as per the answers indicated in column 2 of the table above THEN you are providing a service.

Taxability of a ‘service’

The taxability of services or the charge of service tax has been specified in section 66B of the Act. To be a taxable a service should be – provided or agreed to be provided by a person to another in the taxable territory and should not be specified in the negative list.
The phrase “agreed to be provided” has been retained from the definition of taxable service as contained in the erstwhile clause (105) of section 65 of the Act. The implications of this phrase are- – Services which have only been agreed to be provided but are yet to be provided are taxable
– Receipt of advances for services agreed to be provided become taxable before the actual provision of service
– Advances that are retained by the service provider in the event of cancellation of contract of service by the service receiver become taxable as these represent consideration for a service that was agreed to be provided.

Negative List
In terms of Section 66B of the Act, service tax will be leviable on all services provided in the taxable territory by a person to another for a consideration other than the services specified in the negative list. The services specified in the negative list therefore go out of the ambit of chargeability of service tax. The negative list of service is specified in the Act itself in Section 66D. In all, there are seventeen heads of services that have been specified in the negative list.

  • Services provided by Government or local authority
  • Services provided by Reserve Bank of India
  • Services by a foreign diplomatic mission located in India
  • Services relating to agriculture or agricultural produce.
  • Trading of goods
  • Processes amounting to manufacture or production of goods
  • Selling of space or time slots for advertisements other than advertisements broadcast by radio or television
  • Access to a road or a bridge on payment of toll charges
  • Betting, gambling or lottery
  • Entry to Entertainment Events and Access to Amusement Facilities
  • Transmission or distribution of electricity
  • Specified services relating to education
  • Services by way of renting of residential dwelling for use as residence
  • Financial activity
  • Services relating to transportation of passengers
  • Service relating to transportation of goods
  • Funeral, burial, crematorium or mortuary services including transportation of the deceased

Place of Provision of Service

The ‘Place of Provision of Services Rules, 2012’ specify the manner to determine the taxing jurisdiction for a service. Hitherto, the task of identifying the taxing jurisdiction was largely limited in the context of import or export of services. For this purpose rules were formulated which handled the subject of place of provision of services somewhat indirectly, confining to define the circumstances in which a provision of service would constitute import or export.
The new rules will, on the other hand, determine the place where a service shall be deemed to be provided, in terms of section 66C of the Finance Act, 2012, read with section 94 (hhh) of Chapter V of the Finance Act, 1994. In terms of section 66B, a service is taxable only when, inter alia, it is “provided (or agreed to be provided) in the taxable territory”. Thus, the taxability of a service will be determined based on the “place of its provision”. The ‘Place of Provision of Services Rules, 2012’ will replace the ‘Export of Services, Rules, 2005’ and ‘Taxation of Services (Provided from outside India and received in India) Rules, 2006.

Declared Services

In the definition of ‘service’ contained in clause (44) of section 65B of the Act it has also been stated that service includes a declared service. The phrase ‘declared service’ is also defined in the said section as an activity carried out by a person for another for consideration and specified in section 66E of the Act. The following nine activities have been specified in section 66E:
1. Renting of immovable property;
2. 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 certificate of completion by a competent authority;
3. Temporary transfer or permitting the use or enjoyment of any intellectual property right;
4. Development, design, programming, customization, adaptation, up gradation, enhancement, implementation of information technology software;
5. Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;
6. Transfer of goods by way of hiring, leasing, licensing or any such manner without transfer of right to use such goods;
7. Activities in relation to delivery of goods on hire purchase or any system of payment by installments;
8. Service portion in execution of a works contract;
9. 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 part of the activity.

Exemptions

Under the present system there are 88 exemption notifications. The need for exemptions is not obviated with the introduction of negative list. While some existing exemptions have been built into the negative list, others, wherever necessary, have been retained as exemptions. In addition some new exemptions are also proposed to be introduced. For ease of reference and simplicity most of the exemptions are now a part of one single mega exemption notification 25/2012-ST dated 20/6/12