Budget 2011 - Service Tax - Alteration or expansion in the scope of existing services

A number of existing services are being modified or substituted as follows:  

3.1 Authorized Service Station‟s Services [section 65 (105) (zo)]: The existing service is being replaced with a new definition to cover all persons and all motor vehicles other than those meant for goods carriage or three wheeler auto rickshaw.  

3.2 Life Insurance Service [section 65 (105) (zx)]: The scope of this service is proposed to be expanded to cover all services, including in relation to management of investments.  

3.3 Commercial Training or Coaching Service [section 65 (105) (zzc)]: The scope of the service is proposed to be expanded to include all coaching and training that is not recognized by law irrespective of whether the institute is providing any other course(s) recognized by law.  

3.4 Club or Association Service [section 65 (105) (zzze)]: The scope of the service is proposed to be expanded to include service provided to non-members as well.  

3.5 Business Support Service [section 65 (105) (zzzq)]: The scope of the service is being expanded to include operational or administrative assistance of any kind.  

3.6 Services by legal professionals [section 65 (105) (zzzzm)]: The scope of the existing service is being expanded to include:  

(i) Services of advice, consultancy or assistance provided by a business entity to individuals as well;  

(ii) Representational services provided by any person to a business entity; and  

(iii)Services provided by arbitrators to business entities. Services provided by individuals to other individual will remain outside the levy.  

3.7 Services provided by clinical establishments [section 65 (105) (zzzzo)]: The existing levy on health services is proposed to be replaced as follows:  

(i) Any service provided by a clinical establishment having the facility of central air- conditioning in any part of the establishment and more than 25 beds for in-patient treatment at any time of the year;  

(ii) Diagnostic services provided by a clinical establishment with the aid of laboratory or medical equipment; and

(iii)Health-related services provided by doctors, not being employees, providing health-related services from the premises of a clinical establishment.  

3.8 The scope of these changes and other relevant details are given at Annexure B.  

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Annexure B  

Amendments, substitution or expansion of existing services  

1. Authorized Service Station’s Services [section 65 (105) (zo)]: The existing service is being substituted with a new definition to cover:  

a) Services provided by any person i.e. whether authorized service station or otherwise;  

b) All motor vehicles, other than vehicles used for goods transport and three-wheeler auto-rickshaws; and  

c) Repair, re-conditioning or restoration - which are already taxable - and services of decoration and any other related services.  

2. Life Insurance business [section 65 (105) (zx)]:  

2.1 Life insurance companies provide services relating to risk cover and managing investment for the policy holders. The former is already subjected to service tax. The latter is now being brought into the tax net. Similar services rendered by way of ULIP are already subject to service tax since 2008.  

2.2 When the entire premium is only for risk cover the same shall continue to be taxed even in the revised definition. However in the case of other schemes, a significant portion of the premium is used towards investment, while the rest is allocated towards various overheads and mortality. IRDA in its circular Ref: IRDA/ACT/CIR/VIP/171/2010 dated November 21, 2010 has made it mandatory for the insurance companies to share this break-up with the policy holders in the case of “Variable Insurance Policies” under the heads: premium received, deductions towards mortality, commission and expenses, interest added and closing balance. Thus amounts relating to deductions for mortality, commission and expenses are not available for investment. After the enactment of the new levy, it is proposed to amend the Service Tax Rules to give the option to pay tax at the standard rate on that portion of the premium that has not been invested and is so indicated in any of the documents given to the policy holder. Where the break-up is not indicated in any document issued to the policy holder, option will be given to pay tax @ 1.5% of the gross amount of premium.  

3. Commercial Training or Coaching Service [section 65 (105) (zzc)]:  

3.1 The levy in its present form keeps outside its purview unrecognized education which is imparted by an institute that issues any certificate or diploma or degree or any educational qualification recognized by law. Thus two identical courses may be treated differently merely because one of the institutes also conducts another course that is recognized by law. This anomaly is proposed to be corrected by subjecting all such unrecognized education to tax.  

3.2 In the Finance Bill the definition of „commercial training coaching centre” has been amended. Suitable exemption will be given after the enactment of the Finance bill to preschool coaching and training and to coaching or training relating to educational qualifications that are recognized by law.  

4. Club or Association [section 65 (105) (zzze)]:  

4.1 Services provided by a club or association to its members are already subjected to tax since 2005. When a member avails the facilities for his guest, he is already covered by the existing definition as the services are paid for by the member and not by the guest. However a number of clubs or associations allow non-members to use their facilities in their own capacity for a separate charge. Clubs also entertain members of other affiliated clubs. Such services are proposed to be brought within the revised definition.  

5. Business Support Service [section 65 (105) (zzzq)]:  

5.1 The scope of the service is being expanded to include operational or administrative assistance of any kind. The scope will cover all support activities for others on a contract or fee, that are ongoing business support functions that businesses and organizations commonly do for themselves but sometimes find it economical or otherwise worthwhile to outsource.  

5.2 The words “operational and administrative assistance” have wide connotation and can include certain services already taxed under any other head of more specific description. The correct classification will continue to be governed by Section 65A.  

6. Health services [section 65 (105) (zzzzo)]:  

6.1 The existing service is being substituted with a new description as follows:  

a) Services provided by a clinical establishment having the facility of central air- conditioning in whole or any part of the establishment and more than 25 beds for in-patient treatment at any time of the year; and  

b) Services provided by a clinical establishment in relation to diagnostic tests of any kind or investigative services with the help of a laboratory or medical equipment  

c) Service provided by doctors, who are not employees, from the premises of a clinical establishment.  

6.2 The head will not cover an establishment under the ownership or control of government or a local authority including Primary Health Centre and ESIC hospital. Autonomous medical institutes set-up by the government by a special act of parliament are also outside the levy.

6.3 Only such doctors will be covered who provide services from the specified premises of a clinical establishment in a capacity other than as employee of such establishment.

6.4 Finance Minister has announced 50% exemption from the value of this service.

The exemption notification will be issued when the new levy is enacted.

6.5 Parliament has already passed The Clinical Establishment (Registration and Regulation) Bill, 2010. The Act will apply to such States as have given their consent for the same. The Act prescribes registration of all Clinical Establishments and maintenance of prescribed records and other reporting requirements. These can be referred to the extent they are relevant for the purpose of this levy.

7. Money changing services [section 65 (105) (zm and zzk)]:

7.1 There is no change in the scope of the levy of these services. However the following changes have been made in the actual collection of tax:  

a) A new rule (2B) has been introduced in the Service tax (Determination of Value) Rules, 2006 prescribing the value of the service in terms of Section 67 of the Act. The value shall be as follows:

(i) The difference between the buying rate or the selling rate, as the case may be, and the RBI reference rate for that currency for that day multiplied by units of currency exchanged;

(ii) If RBI reference rate is not available the value shall be 1% of the value of money exchanged in Indian rupees;

(iii) When both the currencies are not Indian rupees, 1% of the lesser of the amounts receivable if the two currencies are converted at RBI reference rate. b) The rate of composition under rule 6(7B) has been lowered from 0.25% to 0.1% of the gross amount of money exchanged. However, the proviso relating to paying tax on billed charges has been deleted. Thus now the assesse will have the option to pay tax @0.1% of gross amount exchanged or else at standard rated on the value of service in terms of rule 2B, as mentioned above.