CLARIFICATIONS ISSUED IN SERVICE TAX MATTERS

[Mr. M. GOVINDARAJAN]

            Recently the Revenue issued clarifications on some issues. The clarifications are issued on the following subjects:

Whether commission received by Directors is liable for Service tax?

Whether ship broking is covered under Business Auxiliary services?

Whether the transport services offered by the schools to their students are liable for service tax?

Whether film certification by Central Board of Film certification is liable to service tax?

Whether the credit of excise duty/Additional duty of Customs paid on goods used in providing supply of tangible goods service is allowed?

The clarifications for the above said issues have been issued in trade notices issued by the Commissioner of Central Excise, Madurai based on the Board's clarifications communicated to them.

COMMISSION RECEIVED BY DIRECTORS:

            The business of the company is running by the Board of Directors. The Board of Directors may be executives of the company or may be non executives. All the directors are paid in addition to remuneration, commission. The levy of service tax under the head 'Business Auxiliary service' on the commission received by the Directors of the Company has been examined.   The Board is of the view that the commission paid to the Managing Directors/Directors may be over and above the salary and other remunerations. Such commissions may be either performance linked or linked to the financial results of the company but the fact is that it is nothing but remuneration paid to an employee by the employer. The relationship between an employee and employer is distinct from the relationship between a service receiver and service provider. Thus action taken by an employee for the benefit of the employer cannot be in the nature of service. Therefore, so long as the activities performed are duties within the framework of the terms of employment, the amount paid by an employer to an employee, even it is termed as commission would not be treated as 'commission' mentioned under the definition of 'Business Auxiliary Service' and service tax would not be leviable on such amount.

(Trade Notice No.15/2009; ST No. 7/2009, dt. 13.3.2009 on Board's letter Dy. No. 324/Comm (ST)/2008, dated 01.12.2008)

SHIP BROKING:

            The ship broker ensures that the conditions of the contracts are adhered to. They also follow up the movement of goods and freight payment till the cargo reaches its destination. Hence, the activities undertaken by ship brokers are nothing but provision of services on behalf of client for a consideration akin to that of a commission agent. 

            The ship broker is acting on behalf of shipping lines/ship owner and causes provisions of services, for a consideration.   The activities of ship broker are akin to a commission agent. Ship brokers are not only providing services on behalf of the shipping line/ship owner and charterer but also dealing with the goods. i.e., cargo. This is clearly evident from the fact that it monitors the cargo movement till it reaches the destination. Ship broker also ensures that freight is paid after cargo reaches the destination. Hence the activities undertaken by ship broker are of commission agent and leviable to service tax under Business Auxiliary Service.

(Trade Notice No. 16/2009; Service Tax No. 8/2009, dated 13.3.2009 on Board's letter F.No. 332/41/2008-TRU, dated 19.12.2008)

TRANSPORTION OF STUDENTS BY SCHOOLS:

            The clarification in this regard states that it has already been clarified by the Board vide its letter F.No. 137/70/2007-CX 4 dated 26.04.2008 that schools running transport services for their students are not liable to pay service tax under the category of tour operator. There has been no change in the stand taken by the Board. 

            It is further clarified that the activity of schools to transport children from and back to the school on the cabs owned and run by them does not constitute renting a cab and schools do not fall in the category of rent-a-cab operator. As regards hiring a cab by school from outside, the same has specifically been excluded from the scope of taxable service. Hence activity of transportation of school children on cabs owned by school or hired by school does not attract service tax.

(Trade Notice No. 17/2009; Service Tax No. 9/2009, dated 13.3.2009 on Board's letter F.No. 137/70/2007-CX.4 (pt), dated 15.12.2008)

FILM CERTIFICATION:

            The issue whether service tax is payable by Central Board of Film Certification under the category of 'Technical Testing and Analysis Service' and/or 'Technical Inspection and Certification Service', on the services provided by Central Board of Film Certification by way of certification of films has been examined by the Board and issue the following clarification:

            "The certification by Central Board of film is done to ensure that film is suitable for exhibition and not against interest of sovereignty and integrity of India, the security of the State, friendly relation with foreign states, public order, decency or morality or involves defamation or contempt of court etc., It is a mandatory requirement under the provisions of Cinematograph Act, 1952. The Act provides that any person, who exhibits a film other than a film which has been certified by the Board as suitable for unrestricted public exhibition  or for public exhibition restricted to adults, he shall be punishable with imprisonment for a tem which may extent to three years, or with fine which may extend to one lakh rupees, or with both, and in the case of a continuing offence with a further fine which may extend to twenty thousand rupees for each day during which the offence continues. Hence certification by Central Board of Film Certification is a statutory requirement.  CBEC vide Circular No. 96/7/2007-ST, dated 23.08.2007 has clarified that any activity assigned to and performed by a sovereign/public authority under the provisions of any law, do not constitute taxable services.  Any amount/fee collected in such cases is not to be treated as consideration for the purpose of levy of service tax.  In the instant case, CBEC issues certificate as required under the provisions of law and thus does not constitute taxable service.

(Trade Notice No.18/2009; Service Tax No. 10/2009, dated 13.3.2009 on Board's letter No. F.No.V/DGST/30-Misc-185/2008/429, dated 16.1.2009)

CENVAT CREDIT OF EXCUSE DUTY/CVD PAID ON GOODS:

            Supply of tangible goods including machinery, equipments and appliance for use, without transferring right of possession and  effective control of such tangible goods is a taxable service in terms of provision of Sec. 65 (105) (zzzz) of the Finance Act, 1994. In some cases, vehicles, aircrafts etc., are also supplied in the above manner and such activities also fall under the said taxable service. In this regard a doubt has arisen whether the credit of excise duty/Additional duty of Customs (commonly known as CVD) paid n such items are available to the provider of such taxable service and if so whether such goods should be considered as 'inputs' or 'capital goods' for the purpose of CENVAT Credit Rules, 2004.

            It is clarified that it is possible that some of such goods may either fall within the definition of 'capital goods' or may not be covered under the said definition. However, as these goods are primary requirements for providing the above mentioned output services for such service providers, the goods including vehicles, aircrafts, vessels etc., are in the nature of  'inputs'. It is emphasized that this clarification is valid only when the output service is in the nature of service defined under the provisions of Sec. 65(105)(zzzz) of Finance Act, 1994 and the goods in question are the tangible goods supplied during the course of providing the taxable service.

(Trade Notice No. 12/2009; Service Tax No. 4/2009, dated 13.3.2009 on Board's letter F. No. 137/120/2008-CX.4, dt 23.10.2008)