'PERSON' AND SERVICE TAX - in case of need there should be an amendment to avoid disputes.

[C.A. DEV KUMAR KOTHARI]

Summary: In the provisions relating to service tax the expression 'person' has been used in relation to service providers and service receivers. There is no definition of 'person' in the relevant provisions of the Finance Act, 1994, the Central Excise Act, 1944 and the Central Excise Rules. Definitions given in the General Clauses Act have not been specifically adopted and as per scheme of the service tax, wherein different expressions have been used for various types of service receivers and service providers it appears that the expression 'person' means only a living person and other type of organizations may not be covered. To avoid ambiguity, and possibility of litigation it is required that the expression 'person' may be defined in the F.A. 1994 on the lines of definition of 'person' in the Income tax Act, 1961. 

Expression "Person" in provisions relating to service tax:

In the Chapter V of the Finance Act, 1994, the expression 'person', 'a person' 'any person' etc. The use of these words is in relation to service provider and / or service receiver. For example, service provided to any person, or service provided by any other person.

Definition clause in F.A. 1994:

In section 65 of the F.A, 1994 definitions and meanings of various terms and expressions have been given. Though the section opens with the usual opening language in such provisions namely 'In this Chapter, unless the context otherwise require.-- , however we find that many expressions have been given definite and exhaustive meanings. It is also provided that words and expressions used but not defined in this Chapter and defined in the Central Excise Act, 1944 (1 of 1944) or the rules made there under, shall apply, so far as may be, in relation to service tax as they apply in relation to a duty of excise.]

Specifically adopted definitions:

We find that other words used in the F.A. but not defined in the F.A. shall have the meaning as per definitions given in the CEA, 1944 and the rules made there under. Any definition from any other law including the General Clauses Act, has not been expressly adopted for the purpose of service tax. 

Person has not been defined:

On perusal of the definition clauses in the F.A. 1994, C.E. Act and CE Rules we find that there is no definition of 'person'.

Definition of 'person' or similar terms are important:

The definition of 'person' in the context of any tax law is important. This is so because the scope of tax can be widened only if the expression is made wider in the particular enactment by insertion of definition or by adoption of definition in some other laws. It is worth to note that the definition of 'person' in some other tax laws have been given in wider manner for example in section 2(31) of the Income Tax Act, 1961, the terms 'person' has been defined in an inclusive and illustrative manner, thus it is very wide. That shows that wherever, the intention is to cover different type of entities as a person, specifically provision has been made in that regard in the particular enactment. 

Some definitions of 'person' are given below:

As per Oxford Dictionary Thesaurus & word power guide:

Person*. (pl. people or persons).

1 an individual human being.

2 an individual's body: concealed on his person

3. Grammer a category used in the classification of pronouns or verb forms according to whether they indicate the speaker (first person).

The person spoken to (second person. Or a third party (third person). * Phrases in person actually present.

* comb. Form used as a neutral alternative to man in nouns referring to status, authority , etc: sales person.

Thesaurus: person* n. adolescent, adult, baby, being. In formal body, Character, child, individual, In fant, mortal, personage, soul, In formal type, Woman See man, people, woman. 

As per Black's law dictionary:

Person, In general usage, a human being (i.e. natural person).

Though by statute term may include a firm, labor organization, partnership, associations, corporations, legal representatives, trustees, trustees in bankruptcy, or receivers. National Labor Relations Act. S. 2(1). 

Person for service tax may mean living person:

In Indian laws we find that under some enactments like Income Tax Act, Wealth Tax Act, Gift Tax Act, General Clauses Act, Carriers Act etc. person has been defined to include different type of artificial persons and association of persons etc. however, these definitions have not been specifically adopted for the purposes of Service Tax. Therefore, it can be said that in the context of service tax 'person' means a living person because where other persons are intended to be included different expressions have been used instead of 'person'.  

Excerpts from the GENERAL CLAUSES ACT, 1897 [10 OF 1897] 

Preamble reads as follows:

An Act to consolidate and extend the General Clauses Acts, 1868 and 1887.Whereas it is expedient to consolidate and extend the General Clauses Acts, 1868 (1 of 1868) and 1887 :

It is hereby enacted as follows:- 

GENERAL DEFINITIONS

Definitions.

3. In this Act, and in all Central Acts and Regulations made after the commencement of this Act, unless there is anything repugnant in the subject or context.- 

(42) "person" shall include any company or association or body of individuals, whether incorporated or not; 

The definition of 'person' as above has not specifically been adopted for Service Tax. Though, the definitions as given in the General Clauses Act can be applied to any central enactment like the Finance Act, 1994. However, that can be only if it is not repugnant in the subject or context of the particular enactment or the context and scheme of the particular enactment. 

Definition of 'person', as per General Clauses Act does not fit in scheme: 

We find that in the scheme of service tax, the definition of 'person', as per the General Clauses Act doe not fit. Because for service tax, several expressions have been used in relation to service provider and service receiver in which the scope and ambit is wider or restricted as discussed hereafter. 

Other terms used instead of 'person' for service tax:

The view that 'person' means an individual - a living person is fortified when we find that in case of many services, companies, firms, establishments or particular professional etc. have been specifically mentioned instead of 'person' for example:

              S. 65(105): (a) to any person, by a stockbroker,

                                  (b) (c) to a subscriber, by the telegraph authority,

                                  (d) to a policy holder, by an insurer,

                                  (e) to a client by an advertising agency,

                                  (f) to a customer by a courier agency,

                                  (g) to a client by a consulting agency,

                                  (l) to a customer by an air travel agent,

                                  (m) to a client by a mandap keeper,

                                  (n) to any person by a tour operator

                                  (s,t,u) to a client by a practicing CA,CWA, CS,

                                  (zb) to a customer, by a photography studio,

                                  (zn) to any person by a port ..,

                                  (zv) to any person by a fashion designer,

Other expressions like customer, client, policy holder, member etc:

Other expressions used in relation to service receiver are like customer, client, policy holder, member … these expressions refer to a class of service receiver as per commercial terminology. Therefore these would include all service receiver who fits into that class. For example, a client, a customer , a member or a policy holder may be a person a living person or estate of a deceased person, a firm, a company, an association of persons, a body of individuals, a co-operative society etc if relationship is of client , customer etc. 

Thus, we find that a service provider as well as service receiver in different situations has been treated differently accordingly to relationship between service receiver and service provider or the nature of profession of service provider or status of service receiver in relation to the concerned service etc.

And therefore, it can possibly be said that the expression 'person', should be confined to a living person in capacity of service receiver as well as service provider. The definition of 'person', as per the General Clauses Act, should not be applied because, the provisions relating to the Service Tax are self contained exhaustive code. When for definitions, only definitions given in the CE Act and CE Rules  are specifically adopted, it may not be permissible to adopt definitions from the General Clauses Act.

An area of dispute and litigation is quite clear in this regard:

In cases where the word 'person' is used in relation to service receiver, and the service receiver is not a living person it can be argued that service provided is not taxable because service is not provided to a person.

Similarly in cases where the word 'person' is used in relation to service provider, and the service provider is not a living person it can be argued that service provided is not taxable because service is not provided by a person.

Similarly in relation to service providers other expressions like a stock broker, tour operator, rent-cab scheme, port, cargo handling agency, practicing CA, CWA, CS, interior decorator, or fashion designer, an insurer, a telegraphic authority, port, interior decorator, cable operator, … etc. would covers any organization which satisfy that class of service provider and it is not necessary that it should be a person- a living person who can provide service. 

Examples of taxable services in which expression 'person' has been used:

 (105) "taxable service" means any service provided or to be provided,—

   (a) to any person, by a stock-broker in connection with the sale or purchase of securities listed on a recognised stock exchange;

   (n) to any person, by a tour operator in relation to a tour;

   (o) to any person, by a rent-a-cab scheme operator in relation to the renting of a cab;

   (zn) to any person, by a port or any person authorised by the port, in relation to port services, in any manner;      

   (zr) to any person, by a cargo handling agency in relation to cargo handling services;

   (zs) to any person, by a cable operator, including a multi system operator in relation to cable services;

   (zv) to any person, by a fashion designer in relation to fashion designing;

   (zw) to any person, by a health club and fitness centre in relation to health and fitness services;

   (zza) to any person, by a storage or warehouse keeper in relation to storage and warehousing of goods;

   (zzc) to any person, by a commercial training or coaching centre in relation to commercial training or coaching;

   (zzf) to any person, by an internet cafe in relation to access of internet;

   (zzg) to a customer, by any person in relation to maintenance or repair;

   (zzh) to any person, by a technical testing and analysis agency, in relation to technical testing and analysis;

   (zzi) to any person, by a technical inspection and certification agency, in relation to technical inspection and certification;

    (zzl) to any person, by other port or any person authorised by that port in relation to port services, in any manner;

    (zzm) to any person, by airports authority or any person authorised by it, in an airport or a civil enclave;

    (zzn) to any person, by an aircraft operator, in relation to transport of goods by aircraft;

     (zzq) to any person, by a commercial concern, in relation to commercial or industrial construction service;

     (zzr) to any person, by the holder of intellectual property right, in relation to intellectual property service;

     (zzs) to any person, by an opinion poll agency, in relation to opinion poll;

     (zzu) to any person, by a programme producer, in relation to a programme;

      (zzy) to any person, by a member of a recognised association or a registered association, in relation to a forward contract;]

      (zzz) to any person, by any other person, in relation to transport of goods other than water, through pipeline or other conduit;

      (zzza) to any person, by any other person, in relation to site formation and clearance, excavation and earthmoving and demolition and such other similar activities;

      (zzzb) to any person, by any other person, in relation to dredging;

       (zzzc) to any person, by any other person, other than by an agency under the control of, or authorised by, the Government, in relation to survey and map-making;

       (zzzd) to any person, by any other person, in relation to cleaning activity;

       (zzzf) to any person, by any other person, in relation to packaging activity;

       (zzzg) to any person, by any other person, in relation to mailing list compilation and mailing;

       (zzzh) to any person, by any other person, in relation to construction of complex,]         

       …….and the term "service provider" shall be construed accordingly. 

A likely area of serious dispute and litigation:

From close reading and analysis of the above provisions it can possibly be said that there is possibility of serious disputes and litigation on this aspect. As the expression 'person' is used in the meaning of taxable service, it must be strictly construed. On construction of the same in overall context of various provisions, it is amply clear that the word 'person' has a restricted and limited scope, whereas words like customer, client, etc. are broader terms. Therefore, wherever a taxable service receiver is described as a 'person' instead of a customer or client etc. it can possibly be argued that the services provided to service receivers other than living persons like firms, companies, … etc is not taxable. 

Similarly in cases of services where for service provider, expression 'person' is used, a service provider who is not a person a living person, can possibly claim that he is not subject to service tax.

Business entity:

An expression business entity is also used in context of service provider/ and service receiver. The definition inserted vide Finance Act 2010 w.e.f 01.07.2010

Reads as follows:

[(19b) "business entity" includes an association of persons, body of individuals, company or firm but does not include an individual;

This also shows that the expression 'person' is used in context of individual otherwise there may not be need to define business entity.

Government is not a person:

Services rendered to Indian Railways or other government departments:

This is with reference to discussions going on in the discussion forum and through personal messages on this website. Observations of learned readers including Mr. Datey and Mr. Govindrajan and Sucheta Agarwal are also considered. It has been rightly pointed out by them that Railways is a commercial establishment. No doubt the Indian Railways is one of biggest commercial establishment and by nature of services most of them maybe considered as service provided and received.

 Indian Railways is however a part and parcel of GOI. It is under the Ministry of Railways, GOI. Thus it is not a person for the purpose of service tax. A government department does not fall in category of 'person' even as per wider definition under the General Clauses Act vide Section 3(42) as discussed earlier.

Though the definition is an inclusive definition, but government cannot be considered as a 'person', particularly when a tax is imposed by the same government. 

From FAQ on service tax:

Q.10 How do you describe the expression, "person" appearing in the definitions of taxable service?

Ans. The expression refers to a 'legal person' and would include any individual, proprietary firm or partnership firm, company, trust and institution and society etc. Here also GOI is not included in 'person'. 

Purpose seeking approach: levy of service tax on government as a service receiver will be of no avail for the GOI- on one hand ST will be collected by service provider from Indian Railways, GOI and on other hand it will be paid to GOI. So even with purpose seeking approach, there cannot be levy of ST on Railways on services availed by IR, GOI. The same rule apply when services are provided to other government organizations. 

Though levy of ST is on service provider, however, it is admitted position that ST is charged extra as may be applicable in relation to service provided to service receiver. Even in tenders of Railways or any other government organization, there is specific mention that any tax, duty etc. will be extra as may be applicable at the relevant time. 

Indian Railways or any government department cannot also be called a 'business entity'

Because it is not an association of persons, body of individuals, company or firm.  

100% government company is a company and a person:

Government companies like BSNL may be a 100% government company, but it is a company and not government, hence a 'person' liable to pay even income tax, VAT and service tax.

In my earlier reply in personal message on this issue I have stated that "…, if service is provided to any government company, or contractor of Railways then the matter would be different. 

Condition for charge:

When condition is that service provider or service receiver should be a person, then that condition must be fulfilled without any doubt. In such cases, for charge to crystallize, the recipient of service must be a person (or other organization as is specified in context of service receiver or provider). 

An immediate amendment in law relating to service tax is desirable:

In case intention is not to tax persons other than living persons as service receiver or service providers in cases where word person is used, it should be clarified so that tax collection is not made where it is not intended. However, if legislative intention is to give a wider meaning to the word 'person' so as to include firms, companies, HUF, BOI, co-operative societies, government departments, etc. an immediate amendment to prescribe a wider definition of 'person' is desirable to avoid dispute and litigation.