Other Important Taxable Services
1 Activity resulting in manufacture
¨ If any process results in manufacture of excisable goods under Central Excise or State Excise (Alcoholic Liquor), there is no service tax. Only provisions of Central Excise Act or State Excise Law applies.
¨ Manufacture means new and different article emerges having a distinctive name, character or use.
¨ Deemed manufacture in some cases.
2 Job work
¨ Exemption when excise duty is payable on final product i.e. when material sent by Principal Manufacturer to job worker under rule 4(5)(a) of Cenvat Credit Rules.
¨ Job work relating to agriculture, printing and textile processing is exempt.
¨ Job work of diamonds and gemstones
¨ Job work on cycle parts and parts of sewing machines exempt upto ` 150 lakhs per financial year.
¨ Job work of liquor manufacture not taxable after 1-7-2012.
3 Salary to Partners
¨ Payment of salary to partner –– but legally partner is not employee – It is only share of profit – Hence ‘money transaction’
¨ Alternate argument – By legal fiction – partner and firm are being treated as separate – hence employer employee relation – should not be taxable
4 Director’s Remuneration
¨ Sitting fees and commission to non-wholetime and independent directors – should be subject to service tax.
¨ Executive directors or wholetime directors – If there is Employer Employee Relation then no service tax.
5 Services of Advocate, Firm of Advocates or Arbitral Tribunal
¨ Legal Services of individual Advocate and firm to non-business entity or business entity with less than ` 10 lakh turnover exempt
¨ Legal Services provided by Advocate or firm to Business Entity with turnover more than ` 10 lakhs – The Business Entity liable to pay service tax under reverse charge
¨ Thus, advocates or firm of advocates are never liable if they provide ‘Legal Service’.
¨ Same provision is applicable in case of services of Arbitral Tribunal.
¨ “Legal service” means any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority [Rule 2(cca) of Service Tax Rules, inserted w.e.f. 1-7-2012 – same definition in para 2(w) of Notification No. 25/2012-ST dated 20-6-2012 effective from 1-7-2012].
6 Manpower supply service
¨ “Supply of manpower” means supply of manpower, temporarily or otherwise, to another person to work under his superintendence or control.’ – Rule 2(g)
¨ Service tax on salary plus PF, ESI plus commission of labour contractor.
¨ Persons sent on deputation is manpower supply service
¨ Job work contract on per piece or per job basis can be manpower supply service, if the labour works under supervision or control of Principal Employer (otherwise not).
¨ Security service or cleaning service is manpower supply service , if the labour works under supervision or control of Principal Employer (otherwise not).
7 Reverse charge in case of manpower supply
¨ 75% tax by service receiver if service provider of manpower supply is individual, HUF, proprietary or partnership firm or AOP
¨ AND service receiver is company or business entity incorporated as body corporate. Balance 25% by service provider
8 Educational Services
¨ Pre-school and upto HSC (no requirement of any recognition)
¨ Education for obtaining a qualification recognised by law
¨ Education for approved vocational education course
¨ International schools and boarding schools not taxable
¨ Placement services taxable
¨ Renting of immovable property by or to Educational Institution
¨ Transportation of students provided by educational institution or to educational institution exempt
¨ Midday meals in schools are exempt
¨ Outsourced activities of Recognised Educational Institution
¨ Admission related services to educational institutions are exempt
¨ Training in arts, culture, sports exempt.
¨ Commercial training and coaching will be subject to service tax.
9 Agriculture or Agricultural Produce related service
¨ Services relating to agriculture or agricultural produce are in negative list. Agriculture includes cultivation of plants and rearing of animals (but not horses)
¨ All services upto stage of primary market of agricultural produce are in negative list
¨ Storage of agricultural produce and services relating to mechanised food grain handling system are exempt.
¨ Carrying out an intermediate production process as job work in relation to agriculture is exempt – Sr No. 30(1) of Notification No. 25/2012-ST dated 20-6-2012.
10 Some services to Government exempt
¨ Services provided to Government or local authority or governmental authority for erection, construction, maintenance, repairs of non-commercial or non-industrial use, educational purpose, sewage, residential colony etc. exempt.
¨ Services provided to Government or local authority or governmental authority for services in relation to water supply, public health, sanitation conservancy, solid waste management, slum improvement.
¨ Services imported by Government or local authority or governmental authority for non-commercial purposes are exempt.
¨ Governmental authority means Board or Authority where at least 90% equity is of Government.
11 Support Services of Government or Local Authority
¨ “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 and shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis.
¨ Sovereign and statutory activities not subject to service tax.
¨ Import of service by Government, local authority or Governmental authority for non-commercial purposes is exempt from service tax.
¨ Support services like testing, police protection, Advertisement, construction, Outsourcing type services provided by Government to business entity are subject to reverse charge (except renting of immovable property).
12 Reverse charge when support service provided by Government
¨ In case of support services provided by Government to business entity, like police, testing, advertisement, the business entity is liable under reverse charge (also termed to as “tax shift”)
¨ Reverse charge not applicable in case of renting of immovable property, speed post, railways, port and airport services
13 Service of freight forwarder
¨ It is essentially a goods transport service and should not be taxable if destination is outside India.
¨ In case of imports, if the Indian Agent provides services in India, he should be liable for his part of work in India as transport upto first customs station is not taxable.
¨ However, if freight forwarder is located in India and he charges consolidated amount for transport from outside India to final destination in taxable territory to the Indian customer, then India will be treated as Place of Provision of Service and service tax will be payable on entire amount.
¨ Freight forwarder can act as intermediary and work on commission basis. In such cases, he is liable to pay service tax on commission. However, usually he charges the customer total amount by padding up his actual expenses. In other words, he indicates that he is acting as Principal though he is acting as intermediary.
¨ Since he is padding the actual expenses and charging customer, he cannot come within the definition of ‘pure agent’ and may be held liable to pay service tax on entire amount. This is more so since as per rule 8 of Place of Provision of Service, India is treated as Place of Provision of Service when both service provider and service receiver are in taxable territory (India).
¨ However, in case of ocean freight, the transaction is covered under rule 10 of Place of Provision of Service. Hence, in case of export of goods, even if pads up his Bill, service tax should not apply.
¨ In case of import of goods, as per section 66D(p) of Finance Act, 1994, service of transport of goods by an aircraft of vessel from a place outside India upto the customs station of clearance in India is in negative list of service. Hence, even if there is padding of Bill, service tax should not apply.
14 Services of Customs House Agent (CHA)
¨ CHA arranging for internal transport, storage, loading/unloading/ stevedoring, crane charges etc. These are not part of his services.
¨ However, in most of the cases, the CHA adds his mark up and then recover these amounts from customer. In that case, such collection is not as ‘pure agent’.
¨ In such case, a view is possible that all such services arranged by CHA are part of ‘naturally bundled service’ and CHA may be held liable to pay service tax on entire amount collected by him from customer (except the statutory charges paid by him on behalf of the customer).
15 Advertisement services
¨ Advertisement other than advertisement and sale of time slot on TV and radio are in negative list of services.
¨ Advertisements on TV and radio will be subject to service tax.
¨ Advertisements in newspapers, yellow pages, and on Bill Boards, websites, LCD display are not subject to service tax.
¨ Services of advertisement agents and services of advertisement design will be subject to service tax.
16 Temporary transfer of IPR
¨ Temporary transfer or permitting the use or enjoyment of any intellectual property right (IPR) is ‘declared service’.
¨ Permanent transfer may be subject to State Vat.
¨ IPR covers patents, trade marks, designs, copyright.
¨ Copyright services of literary, dramatic, musical, artistic works or cinematograph films exempted. Service tax is payable on copyright of sound recording is subject to service tax.
¨ Technology agreement without Patent is not an IPR service.
¨ If R&D cess is paid, service tax payable is reduced to that extent – see Notification No. 14/2012-ST dated 16-3-2012.
17. Software services
¨ Development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software is a ‘declared service’ under proposed section 66E(d) of Finance Act, 1994
¨ Software is really ‘goods’ and Vat payable
¨ Packaged software with MRP- Excise duty if manufactured in India, CVD (if imported) and Vat/CST (if sold in India) – No service tax
¨ Packaged software without MRP – Excise duty on cost of media if manufactured in India, CVD on cost of media if imported, service tax on transfer of right to use software and Vat/CST on sale.
¨ Tailor made software and paper license, PUK Cards – Service tax and Vat
¨ Downloaded software – Service tax by service receiver (if downloaded from outside India as it is import of service), If downloaded from service provider in India, the service provider is liable to service tax. No Vat as there is no physical media.