Service Tax: Guidance Note 6 – Exemptions.

Guidance Note 6 – Exemptions

Under the present system there are 88 exemption notifications. The need for exemptions is not obliterated with the introduction of negative list. While some existing exemptions have been built into the negative list, others, wherever necessary, have been retained as exemptions. In addition new exemptions are proposed to be introduced in the context of the negative list. For ease of reference and simplicity most of the exemptions are part of one single mega exemption notification (list of such proposed exemptions is placed as Exhibit A2). In addition there are 9 more exemption notifications (list of such proposed exemptions is placed as Exhibit A3). The total number of exemption notifications, therefore, proposed to be issued in the new system would be only 10.

6.1 Are services provided to all international organizations exempt?

NO. Services to only specified organizations are exempt which are as follows:

1. International Civil Aviation Organisation

2. World Health Organisation

3. International Labor Organisation

4. Food and Agriculture Organisation of the United Nations

5. UN Educational, Scientific and Cultural Organisation (UNESCO)

6. International Monetary Fund (IMF)

7. International Bank for Reconstruction and Development

8. Universal Postal Union

9. International Telecommunication Union

10. World Meteorological Organisation

11. Permanent Central Opium Board

12. International Hydrographic Bureau

13. Commissioner for Indus Waters, Government of Pakistan and his advisers and assistants

14. Asian African Legal Consultative Committee

15. Commonwealth Asia Pacific Youth Development Centre, Chandigarh

16. Delegation of Commission of European Community

17. Customs Co-operation Council

18. Asia Pacific Telecommunity

19. International Centre of Public Enterprises in Developing Countries, Ljubljana (Yugoslavia)

20. International Centre for Genetic Engineering and Biotechnology

21. Asian Development Bank

22. South Asian Association for Regional Co-operation

23. International Jute Organisation, Dhaka, Bangladesh

6.2 Health Care Services (Details at Sr. No 2 of Exhibit A2)

6.2.1 Are all health care services exempt?

No. only services in recognized systems of medicines are exempt. In terms of the Clause (h) of section 2 of the Clinical Establishments Act, 2010, the following systems of medicine are recognized systems of medicine:

•  Allopathy
•  Yoga
•  Naturopathy
•  Ayurveda
•  Homeopathy
•  Siddha
•  Unani
•  Any other system of medicine that may be recognized by central government

6.2.2 Who all are covered as paramedic?

Paramedics are trained health care professionals, for example nursing staff, physiotherapists, technicians, lab assistants etc. They are accountable for their services when provided independently. Services by them in a clinical establishment would be in the capacity of employee and not provided in independent capacity and will thus be considered as services by such clinical establishment. Similarly services of assisting an authorized medical professional would be considered as services by such authorized medical professional only.

6.3 Charities (Details at Sr. No. 4 of Exhibit A2)

6.3.1 I am a registered charity. How do I know that activities provided by me are charitable activities?

You are doing charitable activities if you are registered with income tax authorities for this purpose under section 12AA the Income Tax Act, 1961 and carry out one or more of the specified charitable activities. Following are the specified charitable activities:-

(a) public health by way of -

(I) care or counseling of (i) terminally ill persons or persons with severe physical or mental disability, (ii) persons afflicted with HIV or AIDS, or (iii) persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or

(II) public awareness of preventive health, family planning or prevention of HIV infection;

(b) advancement of religion;

(c) advancement of educational programmes or skill development relating to,-

(I) abandoned, orphaned or homeless children;

(II) physically or mentally abused and traumatized persons;

(III) prisoners; or

(IV) persons over the age of 65 years residing in a rural area;

(d) preservation of environment including watershed, forests and wildlife; or

(e) advancement of any other object of general public utility up to a value of twenty five lakh rupees in a financial year subject to the condition that total value of such activities had not exceeded twenty five lakh rupees during the preceding financial year.

6.3.2 What is the tax liability of a registered charity on their activities?

If a registered charity is doing any activity falling in negative list of services or otherwise exempt, he is not required to pay service tax on that activity. In case, where his activity is covered explicitly in any of the specified charitable activities at ‘a ‘to ‘d’ of the answer to 6.3.1 he is exempt from service tax without any value limit. For charitable activities mentioned at ‘e’ of the answer to 6.3.1 he is exempt up to a value of twenty five lakh rupees in a financial year if the total value of such services had not exceeded twenty five lakh rupees during the preceding financial year. However, if his activity is not for general public as defined in the notification, he is not eligible for exemption and required to pay service tax on such activities. General public is defined in the notification as ‘body of people at large sufficiently defined by some common quality of public or impersonal nature’.

6.4 What is the tax liability of an individual advocate or arbitral tribunal on services provided by them?

They are not required to pay service tax on services provided by them. However, when such services are provided to a business entity, the business entity is required to pay service tax under reverse charge. Business entity is defined in section 65B of the Finance Act, 1994 as ‘any person ordinarily carrying out any activity relating to industry, commerce or any other business’. The business entity can take input tax credit of such tax paid in terms of Cenvat Credit Rules, 2004

6.5 What is the scope of exemption to coaching or training in recreational activities?

There is exemption from service tax to training or coaching in recreational activities relating to arts, culture or sports. The benefit is available to coaching or training relating to all forms of dance, music, painting, sculpture making, theatre and sports etc.

6.6 Sports (Details at Sr. No 10 of Exhibit A2)

6.6.1 What is the tax liability on services provided to a recognized sports body?

Services provided to a recognized sports body by an individual as a player, referee, umpire, coach or manager for participation in a tournament or championship organized by a recognized sports body are exempt from service tax. Similarly services by a recognized sports body to another are exempt. Services by individuals such as selectors, commentators, curators, technical experts etc are taxable. Recognized sports body has been defined in the notification.

6.7 Construction (Details at Sr No 12 to 14 of Exhibit A2)

6.7.1 I am a contractor in number of projects for constructing roads. What is my tax liability on construction of roads under different types of projects?

Construction of roads for use by general public is exempt from service tax. Construction of roads which are not for general public use e.g. construction of roads in a factory, residential complex etc would be taxable.

6.7.2 I am in to construction of hospitals and educational institutes. Am I required to pay service tax?

If you are constructing such structures for the government or local authority, you are not required to pay service tax. If you are constructing for others, you are required to pay tax.

6.7.3 I am setting up a wheat flour mill. The supplier of machines is demanding service tax on erection and installation of machineries and equipments in the flour mill. Is he is right in demanding service tax?

There is no service tax liability on erection or installation of machineries or equipments for units processing agricultural produce as food stuff excluding alcoholic beverages. You are processing wheat which is made from processing an agricultural produce. Similarly erection or installation of machineries or equipments for dal mills, rice mills, milk dairies or cotton ginning mills would be exempt.

6.8 Copyright (Details at Sr No 15 of Exhibit A2)

6.8.1 Will a music company having the copyright for any sound recording be taxable for his activity of distributing music?

Temporary transfer of a copyright relating to original literary, dramatic, musical, artistic work or cinematographic film falling under clause (a) and (b) of sub-section (1) of section 13 of the Indian Copyright Act, 1957 is exempt. A music company would be required to pay service tax as the copyright relating to sound recording falls under clause (c) of sub-section (1) of section 13 of the Indian Copyright Act, 1957.

6.8.2 I am a composer of a song having the copyright for my song. When I allow the recording of the song on payment of some royalty by a music company for further distribution, am I required to pay service tax on the royalty amount received from a music company?

No, as the copyright relating to original work of composing song falls under clause (a) of sub-section (1) of section 13 of the Indian Copyright Act, 1957 which is exempt from service tax. Similarly an author having copy right of a book written by him would not be required to pay service tax on royalty amount received from the publisher for publishing the book. A person having the copyright of a cinematographic film would also not be required to pay service tax on the amount received from the film exhibitors for exhibiting the cinematographic film in cinema theatres.

6.9 Miscellaneous

6.9.1 I am an artist. How do I know that my activity is subjected to service tax?

The activities by a performing artist in folk or classical art forms of music, dance, or theatre are not subjected to service tax. All other activities by an artist in other art forms e.g. magic shows, mimicry, western music or dance, modern theatres, performance of actors in films or television serials would be taxable. Services provided by such an artist as brand ambassador is also taxable.

6.9.2 I have a bus with a contract permit and operating the bus on a route. The passengers embark or disembark from the bus at any place falling on the route and pay separate fares either for the whole or for the stages of journey. Am I required to pay tax?

No. However, transport of passengers in a contract carriage for the transportation of passengers, for tourism, conducted tour, charter or hire is taxable.

6.9.3 I have taken on rent a piece of vacant land from its owner. The land will be used for providing the facility of motor vehicles parking on payment. What is my service tax liability?

You are not required to pay tax on providing the facility of motor vehicle parking to general public. However, if you are providing the facility of parking of vehicles to a car dealer, you are be required to pay tax as parking facility is not for general public. Moreover, land owner is liable to pay service tax on renting of his land to you.

6.9.4 I am a Resident welfare Association (RWA). The members contribute an amount to RWA for holding camps to provide health care services to poor men and women. Am I required to pay tax on contribution received from members?

No. You are not required to pay service tax on the contribution received as you are providing exempt health care services to third persons. If contribution is for the taxable services to be provided to third persons, you are required to pay service tax.

6.9.5 What is the tax liability on services by the intermediaries to entities those are liable to pay tax on their final output services? (Details at Sr No 29 of Exhibit A2)

Services by following intermediaries are exempt from service tax:

•  a sub-broker or an authorized person to a stock broker
•  an authorized person to a member of a commodity Exchange
•  a mutual fund agent or distributor to mutual fund or asset management company for distribution or marketing of mutual fund
•  a selling or marketing agent of lottery tickets to a distributer or a selling agent
•  a selling agent or a distributer of SIM cards or recharge coupon vouchers
•  a business facilitator or a business correspondent to a banking company or an insurance company in a rural area

6.9.6 Footwear Association of India is organizing a business exhibition in Germany for footwear manufacturers of India. Is Footwear association of India required to pay service tax on services to footwear manufacturers?

No, the activity is exempt from service tax.

6.9.7 I am an individual receiving services from a service provider located in non- taxable territory, am I required to pay service tax?

If you are using these services for industry, business or commercial purposes, you are required to pay tax under reverse charge, unless otherwise exempt or in negative list. If use is for other purposes, you are exempt from service tax.