Budget 2007 - Service Tax – Scope of Existing Services to be extended

In continuation of the policy of widening of the service tax base, the Finance Bill, 2007 proposes to expand or clarify the scope of existing services.

1 SALE OF SPACE OR TIME FOR ADVERTISEMENT [Section 65 (105) (zzzm]:

Definition of the term "Book" is being amended so as to exclude business directories, yellow pages and trade catalogues which are primarily meant for commercial purposes from the scope. Consequently sale of space for advertisement in such publications will also be leviable to service tax under this service.

2 RENT-A-CAB SERVICE [Section  65(20)]:

Definition of "cab" has been amended so as to include motor vehicles capable of carrying more than twelve passengers for hire or reward.  However, motor vehicle capable of carrying more than twelve passengers and maxicab, rented to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre, is specifically excluded from the scope of the term "cab". Commercial coaching or training centre is already defined under section 65 (27).

Effect of this proposed change are-

- Renting of motor vehicles capable of carrying more than twelve passengers for hire or reward will be leviable to service tax.

-  Maxicab and motor vehicles capable of carrying more than twelve passengers for hire or reward rented to an educational body is not leviable to service tax. It may be noted that for the purposes of levy, educational body does not include commercial training or coaching centre defined under section 65(27).

- Motorcab, even if it is   rented to an educational body is leviable to service tax.

Ambulances are not meant for carrying passengers for hire or reward. Hence, the question of levy does not arise.

3 MANDAP KEEPER SERVICE [Section 65(66) and 65(67)] and PANDAL OR SHAMIANA SERVICE [Section 65(77a)]:

Explanation under these taxable services has been added stating that social function appearing in these taxable services includes marriage functions;

4 EVENT MANAGEMENT SERVICE [Section 65(40)]:

Definition of event management is amended so as to specifically include marriage event within the scope of this service.

5 MANPOWER RECRUITMENT OR SUPPLY SERVICE [Section 65 (105) (k)]:

Explanation is added to clarify that manpower recruitment or supply agency service  includes  services  in  relation  to  pre-recruitment  screening,  verifying  the credentials of the candidate, authenticity of documents submitted by the candidates and verification of antecedents. Amendment is for the purpose of clarification.

6 BANKING AND OTHER FINANCIAL SERVICE:

(i) The words "any other person" is substituted with "commercial concern" in the definition of taxable service of banking and other financial services [section  65(105)(zm)] and also in the definition of banking and other financial services [section 65(12)],

(ii) At present cash management is specifically excluded from the scope of this service.  Specific exclusion of cash management is being omitted. Consequently, cash management services will be leviable to service tax under this service.  Cash  management  services  includes  services  of collection of receivables, execution of payment, management of liquidity and  providing  customized  Management  Information  System (MIS)    reports, provided by banks to clients such as corporate clients, and

(iii) The term "financial leasing" is explained as a lease transaction fulfilling the following conditions, namely:-

(a) a contract for leasing of a specific asset is entered into between two parties,

(b) the contract is for use and occupation of the specific asset,

(c) the lease payments are calculated so as to cover the full cost of the asset together with the interest charges, and

(d) the lessee is entitled to own or has the option to own, the asset at the end of the lease period after completing the lease  payment;

International Accounting Standards Committee defines financial lease as "lease that transfers substantially all the risks and rewards incidental to ownership of an asset, title may or may not eventually be transferred". Financial lease is a way of purchasing an asset with the help of the loan and the lessee uses the asset. Risks and rewards incidental to ownership of an asset is also with the lessee. All lease transactions particularly sale and lease back transactions are to be examined carefully on the basis of this clarification.

7 MANAGEMENT CONSULTANT'S SERVICE:

(i) Renamed as management or business consultant's service [Section 65(105)(r)], and

(ii) to explicitly include business consultancy in the definition itself [Section 65(65)].

8 CONSULTING ENGINEER'S SERVICE [Section 65(105)(g)]:

Presently computer hardware engineering consultancy is specifically excluded from this service. Specific exclusion of computer hardware engineering consultancy is being omitted.  Consequently, computer hardware engineering consultancy will be leviable to service tax under this service.

9 MANAGEMENT, MAINTENANCE OR REPAIR SERVICE:

Section 65(64) Amended to clarify that "goods" for the purposes of this service includes computer software. Consequently, maintenance or repair of computer software will be leviable to service tax under this category. It may be noted that development of computer software is distinct from maintenance or repair of computer software and development of computer software continues to be not leviable to service tax being an "information technology service".