Inclusions / Exclusions of certain service-specific items - Service Tax Practice Manual / Ready Reckoner - Service Tax

Rule 6 -Valuation Rules - Inclusions / Exclusions of certain service-specific items Rule 6 of Service Tax (Determination of Value) Rules, 2006 prescribes specific items to be included or excluded in the value of taxable services Rule 6(1) prescribes specific inclusions in the value of taxable services. ================ Rule 6 of the Valuation Rules deals with specific situation where certain commission or costs received by the service provider would be included as part of the taxable service. INCLUSIONS the commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock-broker to any sub-broker; the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit; the amount of premium charged by the insurer from the policy holder; the commission received by the air travel agent from the airline; the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer; the reimbursement received by the authorised service station, from manufacturer for carrying out any service of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer; the commission or any amount received by the rail travel agent from the Railways or the customer; the remuneration or commission, by whatever name called, paid to such agent by the client engaging such agent for the services provided by a clearing and forwarding agent to a client rendering services of clearing and forwarding operations in any manner; the commission, fee or any other sum, by whatever name called, paid to such agent by the insurer appointing such agent in relation to insurance auxiliary services provided by an insurance agent ; and the amount realized as demurrage or by any other name whatever called for the provision of service beyond the period originally contracted or in any other manner relatable to the provision of service. EXCLUSIONS initial deposit made by the subscriber at the time of application for telephone connection or pager or facsimile (FAX) or telegraph or telex or for leased circuit; the airfare collected by air travel agent in respect of service provided by him; the rail fare collected by [rail travel agent] in respect of service provided by him; interest on delayed payment of any consideration for the provision of services or sale of property, whether moveable or immoveable; Provided that this clause shall not apply to any service provided by Government or a local authority to a business entity where payment for such service is allowed to be deferred on payment of interest or any other consideration . the taxes levied by any Government on any passenger travelling by air, if shown separately on the ticket, or the invoice for such ticket, issued to the passenger; accidental damages due to unforeseen action not relatable to the provision of service; subsidies or grants disbursed by the Government, not in the nature of directly influencing the value of service. ************** Guidance Note 8 of the Education Guide [CBEC] - Valuation 8.6 Cases in which commission, costs etc. received by the service provider will be included or excluded. Rule 6 of the Valuation Rules deals with specific situation where certain commission or costs received by the service provider would be included as part of the taxable service. 8.6.1. Does the interest for delayed payment for provision of a service includable in the taxable value? No. In terms of clause (iv) of Sub-rule 2 of Rule 6 delayed payments of any consideration for provision of service is excluded from the value of taxable service. 8.6.2. What is the scope of the exclusion entry related to accidental damages due to unforeseen actions not relatable to the provisions of service? This inclusion has been inserted vide the Serviced Tax (Determination of Value) Second Amendment Rules, 2012. In terms of this exclusion accidental damages are not to be included in the value of service provided the following two conditions are specified: The damages are due to unforeseen actions. The damages are not related to provisions of service. Examples- Insurance Companies provide insurance services to the clients for which the premium is charged. The premium charged is a consideration for the insurance service provided. However, in case due to an unforeseen action ,like an accident etc., a compensation is paid by the insurance company to the client then the money would not be included as part of value of taxable service as it is not relatable to the provisions of service but is only in the nature of consequence of provisions of insurance service. In case a landlord who has rented out his office building to a tenant receives compensation from the tenant for the damage caused to the building by an unforeseen action then such compensation would not form part of the value of taxable service related to tenant of his building as an unforeseen damage caused by the tenant is not relatable to provision of service of renting of the office building. 8.6.3. What is the scope of the exclusion entry relating to subsidies and grants disbursed by the Government, not in the nature or directly influencing the value of service? This exclusion entry has also been inserted by the Service Tax (Determination of Value) Second Amendment Rules, 2012. A subsidy influences the price directly when the price goes down proportionately to the amount of subsidy. In terms of this exclusion any subsidy or grant disbursed by the Government cannot form part of the value of taxable service unless such subsidy or grant directly influences the value of such service.