Mansorovar ppt

Mansarover CPE Study Circle of CIRC of ICAI
A
Presentation
On
“Recent Amendments in Service Tax”
At
Seminar on Direct and Indirect Taxes

Monday, by
29th
October, 2012 Dr. Sanjiv Agarwal
Jaipur FCA, FCS

© Dr. Sanjiv Agarwal
1

This presentation covers –
 Paradigm shift in taxation of services in India – An overview
 Major changes in service tax law by the Finance Act, 2012 - at a
Glance
 Negative List of Services
 Exempted Services
 Declared Services (Including Valuation)
 Bundled Services
 Abatements
 Reverse Charge Provisions
 Other Amendments

2

Indian Economy – An overview
 India’s economy is the 11th largest economy in the world and
the second fastest growing even in today’s recession
 World is presently facing recession-II but Indian economy is
still better than comparable economies.
 Agriculture, services and industry are the major sector of
India an economy. Contribution of different sectors in March,
2012 was :
 Agriculture 19%
 Services 59%
 Industry 22%

to be contd…….
3

Brief Overview of Services / Service
Tax Share of Services in GDP

Agricult ure
19%

Service
Sect or
Indust ry 59%
22%

GDP C O MPO S ITIO N IN MARC H, 2012

4

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, services have grown by 9.6 % which is more
than GDP growth rate 5

Service Tax in India (The Past)
 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 other laws.
 Scattered and heterogeneous large mass of service
providers as well as wide spectrum of services.
 Jurisdictional application.

6

Growth of Service Tax

Year No of new services Total No of Total collection
services (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 95000

2013 - All 126000 (BE)
7

Service Tax in India (The Past)

Selective Approach to Service Tax

 Selective v. Comprehensive approach
 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

8

Service Tax - Today
Shift to Comprehensive Approach

 W.e.f. 1 July 2012
 Finance Act, 2012 – A land mark Act to shift
from positive to negative approach.
 It took 18 years to shift from selective approach
to positive approach to tax services

9

Taxation of Services by Finance Act, 2012
All Services
(including declared Services

(-)

Specific Exclusions

(-)

Negative List Services

(-)

Exemptions

(=)

Taxable Services
10

Service Tax - Today

New system of taxation of services
 All services to be taxed other than services
specified in the negative list and exempted
services – Section 66B.
 Negative list (17 in number) specified through
statutory provisions – Section 66D.
 ‘Service’ defined for the first time.

 ‘Negative List’ and ‘declared services’ also
defined.

11

Service Tax provisions no longer applicable
(w.e.f. 1.7.2012)

 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

12

New Provisions in Service Tax
 Section 66 B deals with charge of service tax
on the after Finance Act, 2012
 Section 66 C provides for determination of
place of provision of services
 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

13

The New Taxability Concept
SERVICE FOR A
CONSIDERATION

9 DECLARED SERVICES
E: Employee
M: Money E - MAGIC TEST
A: Actionable claim
G: Goods
I: Immovable property
C: Court Fee

14

Taxable Services w.e.f. 1.7.2012

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 15

Taxation of Services Post Finance Act,
2012

16

What is Service

‘Service' has been defined in clause (44) of the new section
65B and means –

 any activity

 for consideration

 carried out by a person for another

 and includes a declared service (66E)

17

What is Service
 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
18

What is Service
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

19

What is Service

Consideration
 Means everything received or recoverable in
return for a provision of service which includes -
 Monetary payment

 Non-monetary payment

 Deferred consideration

20

What is Service
Consideration
 Monetary consideration means any
consideration in form of Money.
 Includes not only cash but also cheques,
promissory note, bill of exchange, letter of
credit, draft, pay order, traveler’s cheques,
money order, postal or electronic remittance or
any such similar instrument
 Non-monetary consideration - money
equivalent
21

What is Service

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

22

What is Service
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 23

What is Service
Government – Not defined
 Section 3(22) of General Clause Act, 1897

includes Central/State Government/ Union
Territory
 Actions taken in the name of President/ Governor
 Most of services provided by government are in
Negative List
24

What is Service : Exclusions
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 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

25

What is Service
Tax on Money Remittance
 No service tax on foreign currency remitted to India from
overseas (Circular No.163 dated 10.7.2012)
 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)

26

What is Service
This scope of service 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 1.07.2012

27

What is Service
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
28

Remuneration to Partner – Not a Service
 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 can not be overlooked
29

Directors services to Company -
Taxable
 Director’s 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 will 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
30

Directors services to company-
Taxable
 Interest 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
 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
 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

31

Employer facilities to Employees
 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 taxable
 Employer who provides some services free of cost (e.g. crèche,
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
32

Employer facilities to
Employees
Treatment of supplies and reimbursements made by the
employer to ex-employees/ pensioners
Same tax treatment with ex- employees of the company –
 Reimbursement of expenses on behalf of
company – non-taxable
 Facilities for consideration – taxable
 Facilities free of cost - non taxable

33

Examples of new activities which may
be taxed
 Non commercial construction for non-government
purpose
 Private roads
 Residential construction of more than one unit
 Commercial artists/performers
 Actors, directors
 Reality show judges
 Tourism boats
 Board director’s sitting fee
 Non-compete fee
 Arbitrators to business entities 34

Examples of new activities
which may be taxed
Discourses and lectures
Banking services to government

Unrecognized IPRs

Services to RBI

Hotel Telephone Calls

Video library facilities by hotels

Matrimonial sites

Astrologers

Works contracts for movable properties
35


MAJOR CHANGES IN
SERVICE TAX LAW BY
FINANCE ACT, 2012
- AT A GLANCE

36

MAJOR CHANGES IN SERVICE TAX LAW BY
FINANCE ACT, 2012 - AT A GLANCE
 Objective to widen tax base
 Service Tax law to be shorter by about 40 percent
 Effective rate of Service Tax shall be 12.36 percent w.e.f.
01.04.2012 including education cesses
 Definition of ‘service’ finds place in statutory provisions
 All services to be taxed including a set of services called ‘declared
services’
 Negative list of services containing 17 broad service categories to
be out of Service Tax ambit.
 Withdrawing of many existing exemptions / abetments or their
rationalization

37

MAJOR CHANGES IN SERVICE TAX LAW BY
The FINANCE ACT, 2012 - AT A GLANCE
 Place of provision of supply rules will 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 supply of service rules coming into
operation.
 Concept of taxable territory and non- taxable territory
brought in basis of charge of Service Tax shifted under new
section 66B.
 Taxation of Service to be determined by provision of service in
taxable territory and non taxable territory.
 Classification of service criteria replaced by new section 66F
on interpretation principles of specified description of service
or bundled services. 38

MAJOR CHANGES IN SERVICE TAX LAW BY The
 Consequent upon change in service tax rates, there is change
of service tax rate in composition scheme and specified rates
w.e.f. 1.4.2012 (Composition scheme withdrawn w.e.f
1.7.2012 for works contracts)
 Penalty wavier for arrears paid within specified time in respect
of renting of immovable property service
 Retrospective exemption to road repairs and repairs etc of
non commercial government buildings
 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
to be contd….
39

MAJOR CHANGES IN SERVICE TAX LAW BY The

 Change in valuation rules in relation to works contracts and
outdoor catering / supply of food.
 Provision introduced for date of determination of value of
service, tax rate and rate of exchange.
 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.
 Criteria for Rs 10 lakh threshold exemption changed.
 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 . 40

Goods & Service Tax
(The Future)
GST: A Common Tax

on
Goods Services

41

GST – In Budget 2012
 No announcement on GST rollout date
 GST to be implemented in consultation with the States at the earliest
 GST network (GSTN) likely to be in place from August, 2012
 GSTN to implement common PAN based registration, return filing and
processing of payments for centre and all states on a shared platform.
 Bringing closer of Service Tax and Central Excise for transition to GST
 Drafting of model legislation for CGST and SGST under progress.
 Common forms for Service Tax and Central Excise registration and return
proposed.
 Place of Provision of Service Rules, 2012 to trigger debate to assess issues
that may arise in taxation of inter state services for eventual launch of GST.

42

The GST Journey – beginning
of end…….
Past Recent Past Now &
Future

National GST Dual GST ???????

…or end of beginning !!
43

NEGATIVE LIST
[SECTION 66D]

44

Negative list of Services

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 c haracteristics of service , it is taxable
unless specified in Negative List.

• Based on socio-economic–tax criterion 45


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

(i)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;

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

(iii)Transport of goods or passengers; or

(iv)Support services ,other than services covered under clauses (i) to
(iii) above, provided to business entities;
46

to be contd..


 Most of services provided by Central / State
Governments exempt from service tax.
 But following services are taxable -
 Department of posts - speed post, express parcel, life
insurance and agency service to non government
business entity but basic mail, money orders,
operation of saving accounts ,pension payment etc
services are covered in negative list
 In relation to vessel or aircraft service within/outside
port/airport
 Transport of goods and/ or passengers
 Support service to business entities
To be contd…..

 Services by government as sovereign functions (grant of
licensing rights or audit of government, 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
 For other services, government not liable to pay service
tax as tax paid by service recipient in reverses charge (N.
No. 30)
To be contd…..

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.

(b) Service by Reserve Bank of India
(c) Services by a foreign diplomatic mission located in
India
(d)Service relating to Agriculture or Agricultural
Produce 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

51

(e) Trading of Goods
 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 trading of goods
to be contd …….

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


(f) Any process amounting to manufacture or production
of goods
 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 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

54


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.

(g) Selling of space or time slots for advertisements other
than advertisements broadcast by radio or television
(h)Service way of access to a road or a bridge on
payment of toll charges
(i) Betting, Gambling or Lottery
(j)Admission to entertainment events and access to
amusement facilities
(k)Transmission or distribution of Electricity by an
electricity transmission or distribution utility

56

(l) 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 for the
time being in force;
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

to be contd …….

Approved vocational education course
 a course run by an industrial training institute or an industrial
training centre affiliated to the National Council for Vocational
Training, offering courses in designated trades as notified under
the Apprentices Act, 1961
 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
 a course run by an institute affiliated to the National Skill
Development Corporation set up by the Government of India

to be contd …….

Circular No. 164/15/2012-ST dated 28.08.2012
 If VEC is offered by Government / Local Authority, service

tax does not arise
 If VEC is offered by an independent institution, in form of

society or any other similar body, qualification recognized
by any law or approved VEC is in Negative List
 Recognized by any law will include such courses as are

approved or recognized by any entity established under a
central or state law
 However, definition is silent on these issues

59

 Education upto higher secondary school or equivalent
are in negative list.
 Services provided to or by 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 county
 Services provided to educational institutions
 Placement services
 Educational tours
 Seminars and conferences (including CPE Hours)
to be contd …….

Education related services not in negative list but exempt
from tax under Notification No. 25/2012-ST dated
20.06.2012
• 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


(m) Services by way of renting of residential
dwelling for use as residence
Renting covers 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.)

to be contd …….

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

to be contd …….


 Residential dwelling not defined but includes residential
accommodation
 Does not include hotel, motel, inn, guest house, camp site,
lodge, house boat or other placement 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
 Generally, hostels rooms / hotel rooms not a residential
unit

to be contd …….

(n) 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;

to be contd …….

 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 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 and hence excluded
to be contd …….


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

 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 consideration on
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

(o)Services relating to transportation of passengers with or
without accompanied belongings, by—
(i) a stage carriage;
(ii) railways in a class other than—
(A) first class; or
(B) an air conditioned coach;
(iii) metro, monorail or tramway;
(iv) inland waterways;
(v) public transport, other than predominantly for tourism
purpose, in a vessel, between places located in India; and
(vi) metered cabs, radio taxis or auto rickshaws;

69

(p) services by way of transportation of goods—
(i) by road except the services of—
(A) a goods transportation agency; or
(B) a courier agency;
(ii) by an aircraft or a vessel from a place outside India upto the
customs station of clearance in India ; or
(iii) by inland waterways;
(q) funeral, burial, crematorium or mortuary services
including transportation of the deceased.

70

GENERAL EXEMPTIONS

71

Exemptions under Service Tax
General Exemptions
Small Scale Exemption
• The threshold exemption limit of Rs. 10 lakh continues to
exist and it is over and above the exemptions notified in
Notification No. 25/2012-ST dated 20.6.2012.
• W.e.f. 1.4.2012, aggregate value of Rs. 10 lakh would
mean the sum total of value of first consecutive invoices
issued during a financial year, but does not include value
charged in invoices towards such services which are
exempt from whole of service tax. (Refer Notification No.
33/2012-ST dated 20.6.2012)

to be contd….

Exemption under Service Tax
General Exemptions
• W.e.f. 1.07.2012, Notification No. 6/2005 as
amended shall no longer be applicable. There is
a change in scope of aggregate value which
shall mean as follows and subject to following
conditions-
 total of value of taxable services
 value shall be as charged in first consecutive invoices
issued during financial year
 value charged in invoices issued for taxable services
which are exempt from whole of Service Tax shall be
excluded in determining the aggregate value

General Exemptions
Exemption for Exporters/SEZ
 Transportation of export goods by Goods Transport
Agency in a goods carriage received by an exporter for
transport of goods. (Refer Notification No. 31/2012- ST
dated 20.6.2012)

 Refund of service tax paid on all input taxable services
received by an exporter of goods and used for export of
goods, subject to certain specified conditions. (Refer
Notification No. 39/2012-ST dated 20.6.2012)

 Taxable services, received by a unit located in a Special
Economic Zone or Developer of SEZ for the authorised
operations. (Refer Notification No. 40/2012-ST dated
20.6.2012)

General Exemptions

Exemption for Exporters/SEZ
 Rebate of Service Tax paid on taxable services received

by exporter of goods and used for export of goods,
subject to conditions (Refer Notification No. 41/2012-ST
dated 29.6.2012)
 Exemption to services provided by commission agent

located outside India and engaged by Indian exporter for
promotion of export goods exported upto Service Tax
calculated on 10% of free on board value of export
goods (Refer Notification No. 42/2012-ST dated
29.6.2012)

General Exemptions
Exemption to Import of Technology
 Taxable service involving import of technology, from so much
of service tax, as is equivalent to the extent of amount of
cess payable on the said transfer of technology under the
provisions of section 3 of the Research and Development
Cess Act, 1986.(Refer Notification No. 14/2012-ST dated
17.3.2012)

Exemption for Services to Foreign Diplomatic Mission
 Taxable services provided for the official use of a foreign
diplomatic mission or consular post in India, or for personal
use or for the use of the family members of diplomatic agents
or career consular officers posted therein. (Refer Notification
No. 27/2012-ST dated 20.6.2012)

Exemption under Service Tax General
Exemptions

Exemption to Services by TBI or STEP
 Taxable services provided by a Technology Business Incubator
(TBI) or a Science and Technology Entrepreneurship Park (STEP)
recognized by the National Science and Technology
Entrepreneurship Development Board (NSTEDB) of the Department
of Science and Technology, Government of India. (Refer
Notification No. 32/2012-ST dated 20.6.2012)

Exemption to Renting of an Immovable Property
 Taxable service of renting of an immovable property, from so much
of the service tax leviable thereon, as is in excess of the service tax
calculated on a value which is equivalent to the gross amount
charged for renting of such immovable property less taxes on such
property, namely property tax levied and collected by local bodies.
(Refer Notification No. 29/2012-ST dated 20.6.2012)

Exemption under Service Tax General
Exemptions

Exemption to Railway Services
 Taxation of services of passenger transportation

by railways in first class / AC coach and
transportation of goods by railways exempt upto
30 September, 2012 (Refer Notification No.
43/2012-ST dated 2.7.2012)
 W.e.f 1.10.2012 , Railway services is liable to

Service Tax

EXEMPTED
SERVICES
[NOTIFICATION NO. 25/2012-ST, DATED
20.6.2012]

79

Exempted Services
(Vide mega Exemption Notification No.
25/2012-ST dated 20.6.2012)
 W.e.f. 1.7.2012

 Covers 39 specific exemptions

 Negative List services – not taxable at all ;
can be amended only by parliament
 Exempted services – taxable but exempt
under notification; can be modified by
notification.

Exempted Services
(1)Services Provided to the United Nations or a Specified

international organization

(2)Health care services by a clinical establishment, an
authorised medical practitioner or para-medics;

(3)Services by a veterinary clinic in relation to health care
of animals or birds ;

Exempted Services

(4) Services by an entity registered under section 12AA of
the Income tax Act, 1961 (43 of 1961) by way of
charitable activities
“Charitable activities”- Clause (k) means activities relating to –
(a) public health by way of –
• care or counselling of -
(i) terminally ill persons or persons with severe
physical or mental disability
(ii) persons afflicted with HIV or AIDS, or
(iii) persons addicted to a dependence-forming
substance such as narcotics drugs or alcohol or
• public awareness of preventive health, family planning or
prevention of HIV infection
(b) advancement of religion or spirituality

Exempted Services
(c) advancement of educational programmes or skill
development relating to,-
(I) abandoned, orphaned or homeless children
(II) physically or mentally abused and traumatized persons
(III) Prisoners or
(IV) persons over the age of 65 years residing in a rural area
(d) preservation of environment including watershed,
forests and wildlife or
(e) advancement of any other object of general public utility
up to a value of twenty five lakhs rupees in any FY
provided that total value of such activities had not
exceeded twenty five lakhs rupees during the preceding
FY

Exempted Services

Conditions for this exemption -
 services should be provided by an entity
registered u/s 12AA of Income Tax Act, 1961,
and
 services should be charitable activities (as
above)

Exempted Services
(5)Services by a person by way of-
 renting of precincts of a religious place meant for
general public ; or
 conduct of any religious ceremony

Religious place - meant for prayers / worship pertaining
to religion, meditation or spirituality

General Public- body of people at large sufficiently
defined by some common quality of public or
impersonal nature
85

Exempted Services
(6) Services provided by-
(a) an arbitral tribunal to -
(i) any person other than a business entity; or
(ii) a business entity with a turnover up to rupees ten lakh in the
preceding financial year;
(b) an individual as an advocate or a partnership firm of advocates
by way of legal services to,-
(i) an advocate or partnership firm of advocates providing legal
services ;
(ii) any person other than a business entity; or
(iii) a business entity with a turnover up to rupees ten lakh in the
preceding financial year; or
(c) a person represented on an arbitral tribunal to an arbitral tribunal;

Exempted Services

Taxability for Arbitral Tribunal
Sole / Panel
to Arbitral Tribunal exempt
to any person (non business entity) exempt
to business entity (turnover upto 10 lakh) exempt
to business entity (turnover > 10 lakh) taxed under reverse charge
Taxability for advocates
Individual / firm
to Individual / firm exempt
to business entity (turnover upto 10 lakh) exempt
to business entity (turnover > 10 lakh) taxed under reverse charge
• Firm includes LLP
• Effectively, no tax to be paid by advocates / arbitral tribunal
• Legal services – advice, consultancy or assistance in any branch of law in
any manner, includes representational services (N. No. 25/2012-ST dated
20.6.2012)

Exempted Services
 High Court of Delhi vide Order dated 21.09.2012 has
stayed the implementation of this amendment in a petition
(W.P. (C) No. 5957/2012) of Delhi Tax Bar Association.

 It has directed that the provisions of Section 65B(44) and
66B of the Finance Act, 1994 (as amended by the Finance
Act, 2012) as well as Rule 2(1)(d)(D)(II) of the Service Tax
Rules, 1994 shall not be given effect till the next date of
hearing.

88

Exempted Services

(7) Services by way of technical testing or analysis of newly developed
drugs, including vaccines and herbal remedies, on human
participants by a clinical research organisation approved to conduct
clinical trials by the Drug Controller General of India

(8)Services by way of training or coaching in recreational activities
relating to arts, culture or sports

Exempted Services
(9) Services provided to or by an educational institution in respect of
education exempted from service tax, by way of -
(a) auxiliary educational services or
(b) renting of immovable property
Auxiliary education services shall cover the services in relation to
educational activities only and include –
(i) any service relating to imparting any
 skill
 knowledge
 education
 development of course conduct
 other knowledge enhancement activity
(ii) whether for students or faculty
(iii)out sourced activities ordinarily carried out by educational
institutions

Exempted Services

(iv) Services in relation to –
 admission
 conduct of examination
 catering of students under any mid day meal scheme
sponsored by Government
 Transportation of students or faculty
(v) Services in relation to catering under mid day scheme and
transportation were hitherto exempt under different notifications
under outdoor catering services and tour operator’s services

Exempted Services
(10) Services provided to a recognized sports body by-
(a) an individual as a player, referee, umpire, coach or team
manager for participation in a sporting event organized by
a recognized sports body;
(b) another recognized sports body;
(11) Services by way of sponsorship of sporting events organised-
(a) by a national sports federation, or its affiliated federations,
where the participating teams or individuals represent any
district, state or zone;
(b) by Association of Indian Universities, Inter-University Sports
Board, School Games Federation of India, All India Sports
Council for the Deaf, Paralympic Committee of India or Special
Olympics Bharat;
(c ) by Central Civil Services Cultural and Sports Board;
(d) as part of national games, by Indian Olympic Association; or
(e) under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA)
Scheme

Exempted Services
(12) Services provided to the Government, a local authority or a
governmental authority by way of construction, erection,
commissioning, installation, completion, fitting out, repair,
maintenance, renovation, or alteration of -
a) a civil structure or any other original works meant predominantly for
use other than for commerce, industry, or any other business or
profession;
b) a historical monument, archaeological site or remains of national
importance, archaeological excavation, or antiquity specified under the
Ancient Monuments and Archaeological Sites and Remains Act, 1958
(24 of 1958);
c) a structure meant predominantly for use as (i) an educational, (ii) a
clinical, or (iii) an art or cultural establishment;
d) canal, dam or other irrigation works;
e) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii)
sewerage treatment or disposal; or
f) a residential complex predominantly meant for self-use or the use of
their employees or other persons specified in the Explanation 1 to
clause 44 of section 65 B of the said Act;

Exempted Services
(13) Services provided by way of construction, erection, commissioning,
installation, completion, fitting out, repair, maintenance, renovation, or
alteration of,-
a) a road, bridge, tunnel, or terminal for road transportation for use
by general public;
b) a civil structure or any other original works pertaining to a
scheme under Jawaharlal Nehru National Urban Renewal
Mission or Rajiv Awaas Yojana;
c) a building owned by an entity registered under section 12 AA of
the Income tax Act, 1961(43 of 1961) and meant predominantly
for religious use by general public;
d) a pollution control or effluent treatment plant, except located as
a part of a factory; or
e) a structure meant for funeral, burial or cremation of deceased

Exempted Services
• Construction of roads for use by general public - Exempt
• Construction of roads which are not for general public use e.g.
construction of roads in a factory, residential complex etc –Taxable
• If assessee is constructing such structures for the government, a local
authority or a governmental authority – Exempt
• If assessee is constructing for others – Taxable
• Construction of a 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 – Exempt
• Repair, maintenance of airports, ports and railways -Taxable

Exempted Services
(14) Services by way of construction, erection, commissioning, or
installation of original works pertaining to,-
a) an airport, port or railways, including monorail or metro;
b) a single residential unit otherwise than as a part of a residential
complex;
c) low- cost houses up to a carpet area of 60 square metres per house
in a housing project approved by competent authority empowered
under the ‘Scheme of Affordable Housing in Partnership’ framed by
the Ministry of Housing and Urban Poverty Alleviation, Government of
India;
d) post- harvest storage infrastructure for agricultural produce including
a cold storages for such purposes; or
e) mechanised food grain handling system, machinery or equipment for
units processing agricultural produce as food stuff excluding
alcoholic beverages;

Exempted Services
• Original works as defined in Valuation Rules means –
(a) all new constructions; or
(b) all types of additions and alterations to abandoned or damaged
structures on land that are required to make them workable,
(c) erection, commission or installation of plant, machinery or
equipment or structures, whether prefabricated or otherwise
• No service tax liability on erection or installation of machineries or
equipments for units processing agricultural produce
• Erection or installation of machineries or equipments for dal mills,
rice mills, milk dairies or cotton ginning mills -Exempt
• Only erection and construction of original works is covered
• Exemption will cover low cost houses under the scheme of
affordable housing in partnership

Exempted Services
(15)Temporary transfer or permitting the use or enjoyment of a copyright
covered under clauses (a) or (b) of sub-section (1) of section 13 of the
Indian Copyright Act, 1957 (14 of 1957), relating to original literary,
dramatic, musical, artistic works or cinematograph films;

(16) Services by a performing artist in folk or classical art forms of (i)
music, or (ii) dance, or (iii) theatre, excluding services provided by
such artist as a brand ambassador;

(17)Services by way of collecting or providing news by an independent
journalist, Press Trust of India or United News of India;

(18) Services by way of renting of a hotel, inn, guest house, club,
campsite or other commercial places meant for residential or lodging
purposes, having declared tariff of a unit of accommodation below
rupees one thousand per day or equivalent;

Exempted Services
(19)Services provided in relation to serving of food
or beverages by a restaurant, eating joint or a
mess, other than those having (i) the facility of
air-conditioning or central air-heating in any part
of the establishment, at any time during the year,
and (ii) a licence to serve alcoholic beverages

99

Exempted Services
(20) Services by way of transportation by rail or a vessel from one place
in India to another of the following goods -
a. petroleum and petroleum products falling under Chapter heading 2710
and 2711 of the First Schedule to the Central Excise Tariff Act, 1985
(5 of 1986);
b. relief materials meant for victims of natural or man-made disasters,
calamities, accidents or mishap;
c. defence or military equipments;
d. postal mail or mail bags;
e. household effects;
f. newspaper or magazines registered with the Registrar of
Newspapers;
g. railway equipments or materials;
h. agricultural produce;
i. foodstuff including flours, tea, coffee, jaggery, sugar, milk products,
salt and edible oil, excluding alcoholic beverages; or
j. chemical fertilizer and oilcakes;

Exempted Services
(21) Services provided by a goods transport agency by way of
transportation of -
a) fruits, vegetables, eggs, milk, food grains or pulses in a goods
carriage;
b) goods where gross amount charged for the transportation of
goods on a consignment transported in a single goods carriage
does not exceed one thousand five hundred rupees; or
c) goods, where gross amount charged for transportation of all such
goods for a single consignee in the goods carriage does not
exceed rupees seven hundred fifty;
(22) Services by way of giving on hire -
a) to a state transport undertaking, a motor vehicle meant to
carry more than twelve passengers; or
b) to a goods transport agency, a means of transportation of
goods;

Exempted Services
(23)Transport of passengers, with or without accompanied belongings,
by -
a) air, embarking from or terminating in an airport located in the
state of Arunachal Pradesh, Assam, Manipur, Meghalaya,
Mizoram, Nagaland, Sikkim, or Tripura or at Bagdogra located
in West Bengal;
b) a contract carriage for the transportation of passengers,
excluding tourism, conducted tour, charter or hire; or
c) ropeway, cable car or aerial tramway;
(24) Services by way of vehicle parking to general public excluding
leasing of space to an entity for providing such parking facility;

Exempted Services
(25)Services provided to Government, a local authority or a
governmental authority by way of -
a) carrying out any activity in relation to any function ordinarily
entrusted to a municipality in relation to water supply, public
health, sanitation conservancy, solid waste management or slum
improvement and upgradation; or
b) repair or maintenance of a vessel or an aircraft;

Exempted Services
(26)Services of general insurance business provided under
Following schemes
a. Hut Insurance Scheme;
b. Cattle Insurance under Swarnajaynti Gram Swarozgar
Yojna (earlier known as Integrated Rural Development
Programme);
c. Scheme for Insurance of Tribals;
d. Janata Personal Accident Policy and Gramin Accident
Policy;
e. Group Personal Accident Policy for Self-Employed
Women;
f. Agricultural Pumpset and Failed Well Insurance;
g. premia collected on export credit insurance;

Exempted Services
h. Weather Based Crop Insurance Scheme or the
Modified National Agricultural Insurance Scheme,
approved by the Government of India and
implemented by the Ministry of Agriculture;
i. Jan Arogya Bima Policy;
j. National Agricultural Insurance Scheme (Rashtriya
Krishi Bima Yojana);
k. Pilot Scheme on Seed Crop Insurance;
l. Central Sector Scheme on Cattle Insurance;
m. Universal Health Insurance Scheme;
n. Rashtriya Swasthya Bima Yojana; or
o. Coconut Palm Insurance Scheme;

Exempted Services
(27) Services provided by an incubatee up to a total turnover of fifty lakh
rupees in a financial year subject to the following conditions,
namely:-
a) the total turnover had not exceeded fifty lakh rupees during the
preceding financial year; and
b) a period of three years has not been elapsed from the date of
entering into an agreement as an incubatee;

(28)Service by an unincorporated body or a non- profit entity registered
under any law for the time being in force, to its own members by
way of reimbursement of charges or share of contribution -
a) as a trade union;
b) for the provision of carrying out any activity which is exempt
from the levy of service tax; or
c) up to an amount of five thousand rupees per month per member
for sourcing of goods or services from a third person for the
common use of its members in a housing society or a residential
complex

Exempted Services
(29)Services by the following persons in respective capacities -
a) sub-broker or an authorised person to a stock broker;
b) authorised person to a member of a commodity exchange;
c) mutual fund agent to a mutual fund or asset management company;
d) distributor to a mutual fund or asset management company;
e) selling or marketing agent of lottery tickets to a distributer or a selling
agent;
f) selling agent or a distributer of SIM cards or recharge coupon
vouchers;
g) business facilitator or a business correspondent to a banking
company or an insurance company, in a rural area; or
h) sub-contractor providing services by way of works contract to
another contractor providing works contract services which are
exempt;

Exempted Services
(30)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 (5 of 1986);
(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;

Exempted Services
(31) Services by an organizer to any person in respect of a
business exhibition held outside India ;
(32) Services by way of making telephone calls from -
a) departmentally run public telephone;

b) guaranteed public telephone operating only for local
calls; or
c) free telephone at airport and hospital where no bills are
being issued ;
(33) Services by way of slaughtering of animals;

109

Exempted Services
(34) Services received from a provider of service located in
a non- taxable territory by -
a) Government, a local authority, a governmental authority
or an individual in relation to any purpose other than
commerce, industry or any other business or
profession;
b) an entity registered under section 12AA of the Income
tax Act, 1961 (43 of 1961) for the purposes of providing
charitable activities; or
c) a person located in a non-taxable territory;

110

Exempted Services
(35) Services of public libraries by way of lending of books,
publications or any other knowledge- enhancing content or
material;
(36) Services by Employees’ State Insurance Corporation to persons
governed under the Employees’ Insurance Act, 1948 (34 of 1948);
(37) Services by way of transfer of a going concern, as a whole or an
independent part thereof ;
(38) Services by way of public conveniences such as provision of
facilities of bathroom, washrooms, lavatories, urinal or toilets;
(39)Services by a governmental authority by way of any activity in
relation to any function entrusted to a municipality under
article 243 W of the Constitution ;

DECLARED SERVICES
SECTION 66E

112

 As defined in clause 44 of section 65B, ‘service’ 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

113

Following constitute Declared Services (Section 66E)
 Renting of immovable property;

 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;

 Temporary transfer or permitting the use or enjoyment of any intellectual
property right;

 Development, design, programming, customization, adaptation, up
gradation, enhancement, implementation of information technology
software;
114

 Agreeing to the obligation to refrain from an act, or to tolerate an act
or a situation, or to do an act;

 Transfer of goods by way of hiring, leasing, licensing or any such
manner without transfer of right to use such goods;

 Activities in relation to delivery of goods on hire purchase or any
system of payment by installments ;

 Service portion in execution of a works contract;

 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.
115

Renting of Immovable Property


Renting (Section 65B(41)) allowing, permitting or granting access, entry,
occupation, usage or any such facility, wholly or partly, in an immovable
property, with or without the transfer of possession or control of the said
immovable property and includes letting, leasing, licensing or other similar
arrangements in respect of immovable property

Renting of certain kinds of immovable properties is specified 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 a
non-business entity

116


Exemptions to Renting of Immovable property
 Threshold level exemption up to Rs. 10 lakh.
 Renting of precincts of a religious place meant for general public is exempt.
 Renting of a hotel, inn, guest house, club, campsite or other commercial places
meant for residential or lodging purposes, having declared tariff of a room below
rupees one thousand per day or equivalent is exempt.
 Renting to / by an exempt educational institution
 Municipal taxes (Notification No. 29/2012-ST dated 20.6.2012)

to be contd…

117


The immovable property could be –
 factories
 office buildings
 warehouses
 theatres
 exhibition halls
 multiple use buildings
 commercial markets
 shops / shopping centre
 hotel, guest houses
 community centre
 Vacant land for commercial use etc.

 Allowing or permitting the usage of immovable property without
transferring possession of such property is also renting of immovable
property.

118

Nature of Activity Taxability
Renting of property to educational body Not chargeable to service tax; exemption

Renting of vacant land for animal husbandry Not chargeable to service tax as it is covered in the
or floriculture negative list entry relating to agriculture
Permitting use of immoveable property for Chargeable to service tax as permitting usage of
placing vending/dispensing machines space is covered in the definition of renting

Allowing erection of communication tower Chargeable to service tax as permitting usage of
on a building for consideration. space is covered in the definition of renting

Renting of land or building for entertainment Chargeable to service tax as there is no specific
or sports exemption.
Renting of theatres by owners to film Chargeable to service tax as the arrangement
distributors amounts to renting of immovable property.

Renting of immovable property outside India not taxable in India even if owners are
in India

Construction Activities

Construction Activities [Section 66E (b)]
Construction activities means 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.
It includes construction of -
 Complex
 Building
 Civil structure or part thereof
 Complex or building intended for sale to a buyer except where
entire consideration is received after issuance of completion
certificate by the competent authority.
Actual sale after construction-if consideration received before such
completion will also be taxed.

120


 Construction is not defined
 Construction Includes
 additions,
 alteration,
 replacement, or
 remodeling

of any existing civil structure

121


Who is Competent Authority to Issue Completion Certificate
 Government
 Any authority authorized to Issue CC under any law
 In absence of any requirement to issue CC,
• architect under Architect Act, 1972
• Chartered Engineer register with 10E
• licensed surveyor (of local body / development or planning
authority)

122


Residential Complex
 Complex comprising of one or more buildings having more than one
residential unit
 Even two units would be called ‘complex’
 Single residential unit – self contained residential unit designed for
use, wholly / principally, for residence of one family
 Original work – new construction and all type of addition / alteration
to abandoned / damaged structures on land as are required to make
them workable / erection , commissioning, installation.

123


Circular F. No. V/ST –I /Tech –II /463/11 Mumbai dated
31.08.2012
 Intended for personal use of residence – not in the new

definition
If the construction is provided to the existing flat owner

under SRA Project, Service tax will be applicable
Floor rising charges are also taxable because the

construction cost increases as per increase in the floor but it
is eligible for abatement of 75% in N. No. 26/2012-ST dated
20.6.2012

124

Intellectual Property Right

Temporary transfer or permitting the use or enjoyment of any
intellectual property right [Section 66 E (c)]
Intellectual property right has not been defined but Intellectual Property
Right includes :
• Copyright

 Patents

 Trademarks

 Designs

 Any other similar right to an intangible property

125


Examples of IPRs
 Patents - New technical concepts,
inventions
 Copyright - Text, graphics, software, data
compilations, art, music
 Trademarks - Brands (Services/ Products)
image and reputation
 Confidential Information - Ideas, information, know-how
etc.
 Design Rights - Form and appearance,
decoration

126


What is taxed in IPR
 all IPRs (whether recognized in law or not)
excluding copy rights
 temporary transfer of IPRs
 permitting the use of IPRs
 enjoyment of IPRs 127


Copyrights as IPRs are exempted which include :
 literary work
 dramatic work
 musical work
 artistic works
 cinematograph films

128

Works contract [65B(54)]
 “Works Contract” 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, erection, commissioning,
installation, completion, fitting out, repair, maintenance,
renovation, alteration of any movable or immovable property or
for carrying out any other similar activity or a part thereof in
relation to such property.
129

Works contract covers
 Construction

 Erection

 Commissioning

 Completion

 Fitting out

 Repair

 Maintenance

 Renovation

 Alteration, or

 Any other similar activity or part there of
130

Such activities could be in relation to any –
 Movable property (plant, machinery,
equipments etc)
 Immovable property (land, building,
structures etc)
 This definition is very vast and covers
almost everything
131

Some issues in works contracts
Labour contracts Excluded

Repair & Maintenance of motor yes if property in goods
vehicles transferred in execution of WC
Construction of pipeline / conduit yes, structures on land

Painting/repair/renovation of building yes if involves provision of
material also
Erection/commissioning installation of yes if transfer of property in
plant/ machine etc goods is involved

132

BUNDLED SERVICES
SECTION 66F

133

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’.

134

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 become 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
135

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
136

Taxability of naturally bundled services in ordinary course
of business (Rule 3)
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……

137

 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

Bundled Services
Rule 4
Taxability of services not naturally bundled ink 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.

ABATEMENTS
[N. No. 26/2012-ST dated
20.6.2012]

140

Abatements

• Besides 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 26/2102 -
ST dated 20/6/12
• Valuation rules contain abatement for Works Contract and
Supply of Food Services

Specific Abatements
Sl. No. Description of taxable service Taxable Conditions
value(%)

1 Financial leasing services including 10 Nil
equipment leasing and hire purchase

2 Transport of goods by rail (exempted upto 30 Nil
30.9.2012)

3 Transport of passengers, with or without 30 Nil
accompanied belongings by rail ( exempted
upto 30.9.2012)

4 Supply of food or any other article of human 70 CENVAT credit on any goods
consumption or any drink, in a premises, classifiable under chapter 1
including hotel, convention center, club, to 22 of the Central Excise
pandal, shamiana or any place specially Tariff Act, 1985 has not been
arranged for organizing a function taken under the provisions
of the CENVAT Credit Rules,
2004.

Specific Abatements
Sl. Description of taxable service Taxable Conditions
No value(%)

5 Transport of passengers by air, with 40 CENVAT credit on inputs or capital goods,
or without accompanied belongings 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 60 Same as above.
houses, clubs, campsites or other
commercial places meant for
residential or lodging purposes

7 Transport of goods by road by 25 CENVAT credit on inputs, capital goods
Goods Transport Agency 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 70 Same as above.

Specific Abatements
Sl. Description of taxable service Taxable Conditions
No value(%)

9 Renting of any motor vehicle 40 Same as above.
designed to carry passengers
10 Transport of goods in a vessel from 50 Same as above.
one port to another
11 Tour operator services 25 (i) CENVAT credit on inputs, capital
(i) provided by a tour operator in relation goods and input services, used for
to a package tour providing the taxable service, has not
been taken under the provisions of the
(ii) The bill issued for this purpose
indicates that it is inclusive of charges
for such a tour.

Specific Abatements
Sl. No Description of taxable Taxable Conditions
service value(%)

(ii) provided by a tour operator in 10 (i) CENVAT credit on inputs, capital goods
relation to a tour, solely arranging and input services, used for providing the
or booking accommodation 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.

Specific Abatements
Sl. No Description of taxable service Taxable Conditions
value(%)

(iii) Services, other than 40 (i) CENVAT credit on inputs, capital
services specified above in (i) goods and input services, used for
or (ii) providing the taxable service, has not
been taken under the provisions of the
(ii) The bill issued indicates that the
amount charged in the bill is the gross
amount charged for such a tour.

Specific Abatements
Sl. No Description of taxable service Taxable Conditions
value(%)

12. Construction of a complex, 25 (i) CENVAT credit on inputs
building, civil structure or a used for providing the taxable
part thereof, intended for a service has not been taken
sale to a buyer, wholly or under the provisions of the
partly except where entire CENVAT Credit Rules, 2004.
consideration is received
after issuance of completion (ii) The value of land is
certificate by the competent included in the amount
authority charged from the
service recipient.

Specific Abatements
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
148

Value of service portion in execution of work contract = gross amount charged for
works contact less value of transfer of property in goods involved in execution
of works contract
Gross amount includes Gross amount does not include
Labour charges for execution of Value of transfer of property in goods involved in the
the works execution of the said works contract.
Amount paid to a sub-contractor Note:
for labour and services As per Explanation (c) to sub-rule (i), where value added
Charges for planning, designing tax or sales tax has been paid or payable on the actual
and architect’s fees value of property in goods transferred in the execution of
the works contract, then such value adopted for the
purposes of payment of value added tax or sales tax, shall
be taken as the value of property in goods transferred in
Cost of establishment of the the execution Tax (VAT) or sales tax, as the case may be,
Value Added of the said works contract.
contractor relatable to supply of paid, if any, on transfer of property in goods involved in
labour and services and other the execution of the said works contract
similar expenses relatable to
supply of labour and services
Profit earned by the service
provider relatable to supply of
labour and services 149

Alternative valuation model (Rule 2A of Valuation Rules)
Where works contract is for… Value of the service portion shall
be…
(A) execution of original works forty percent of the total amount charged
for the works contract
(B) maintenance or repair or seventy per cent of the total amount
reconditioning or restoration or servicing charged including such gross amount
of any goods
(C) in case of other works contracts, not sixty percent of the total amount charged
included in serial nos. (A) and (B) above, for the works contract
including contracts for maintenance,
repair, completion and finishing services
such as glazing, plastering, floor and wall
tiling, installation of electrical fittings.
150

 Total Value = Sum total of
+ gross amount charged
+ value of goods and services supplied free of
cost for use in or in relation to execution of WC
Same Contract
Any other Contract
+ value of land charged as part of total
consideration
- amount charged for such goods / services, if
any
- VAT levied, if any
 If value of FOC goods / services is not ascertainable, it will be
determined on basis of fair market value having close resemblance
 FMV based on generally accepted accounting principles
 No Cenvat available on goods / inputs used in works contract 151

Valuation of Supply of food

 Restaurants provided conditional exemption
 Services provided in relation to serving of food or beverages by
a restaurant, eating joint or a mess, other then those having the
facility of air-conditioning or central air-heating in any part of the
establishment, at any time during the year, and which has a
license to serve alcoholic beverage.
 Threshold exemption
 What activities are covered –
• Supply of food or drinks in a restaurant;
• Supply of food and drinks by an outdoor caterer.

 in a restaurant -40% of total value charged

 by outdoor catering - 60% of total value charged

 Exemption under Notification No. 25/2012-ST to mid day meal scheme
and restaurants without bar license / air conditioning / central heating
facility

 Abatement @ 30% Notification No. 26/2012-ST provided Cenvat credit
is not taken on goods

153

 Total Value = Sum total of
+ gross amount charged
+ Value of goods and services supplied free of cost for use
in or in relation to supply of food under
Same contact
Any other contract
+ value of land charged as part of total consideration
- amount charged for such goods / services, if any
- VAT levied, if any
 If value of FOC goods / services is not ascertainable, it will be determined on basis of
fair market value of having close resemblance
 FMV based on generally accepted accounting principles
 No Cenvat available on goods used in supply of food

Amendment in Rule 6
Inclusion -
a) Any amount realized as demurrage, or by any other name, for the
provision of a service beyond the period originally contracted or in any
other manner relatable to the provision of service will be included in
taxable value
Exclusions -
a) Accidental damages due to unforeseen actions not relatable to the
provision of service will be excluded from the value of service
b) Interest on loan has been substituted with
I. Interest on Deposits and
II. Interest on delayed payments. (Interest on loans will now be exempt)
c) subsidies and grants disbursed by the Government, not directly affecting
the value of service.

155

Changes in Reverse Charge
Mechanism

 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 dated
20.6.2012 )

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

 Credit of tax paid 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

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