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TMI BlogBudget 2005 -2006, Issues pertaining to Service TaxX X X X Extracts X X X X X X X X Extracts X X X X ..... ed 7/6/2005 ). Certain other amendments relating to service tax in the Finance Act, 1994 are effective from the date of enactment of the Finance Act. 3. The scope of these changes is explained in the following paragraphs. 4. New services 5. Transport of goods through pipeline or other conduit [see sub-clause (zzz) of section 65(105) of the Finance Act, 1994 ] 5.1 Transportation of goods, other than water, through pipeline or conduit is generally employed to transport petroleum and other petroleum products, natural gas, LPG, chemicals, coal slurry and other similar products. Such transport services are liable to service tax under sub-clause (zzz) of section 65(105) of the Finance Act, 1994. Consideration for the said transportation service provided may be payable periodically or from time to time. The service provider is required to pay service tax as and when payment is received for the services provided or to be provided. 6. Site formation and clearance, excavation, earth moving and demolition services 6.1 Any service provided or to be provided to any person, by any other person, in relation to site formation and clearance, excavation and earthmo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for ships and other vessels and to maintain shipping channels. Service tax is leviable only on dredging of river, port, harbour, backwater or estuary and dredging in any other cases does not attract service tax. The definition of dredging is an inclusive definition and the activities specified are only indicative and not exhaustive. 8. Survey and map making 8.1 Any service provided or to be provided 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 is taxable under sub-clause (zzzc) of section 65(105) of the Finance Act, 1994 . 'Survey and map-making' has been defined under clause (104b) of section 65 of the Finance Act, 1994. 8.2 This service covers geological, geophysical, geochemical and other prospecting services by studying the properties of the earth and rock formation and structures. It also includes services providing information on sub-surface earth formations by different methods such as seismographic, gravimetric, magnetometric methods or other sub-surface surveying methods. 8.3 Further, it covers surface surveying, services of gathering info ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice. Window cleaning services, including exterior window cleaning using swing stages would be liable to service tax; (iii) Floor cleaning and waxing, wall cleaning etc. performed on the premises of commercial or industrial buildings; (iv) Specialized cleaning services such as cleaning services for computer rooms, cleaning of machinery or plant, reservoirs and tanks of commercial or industrial buildings, furnace and chimney cleaning services and similar services. 9.3 However, such cleaning services in relation to agriculture, horticulture, animal husbandry or dairying would be excluded from the purview of service tax. Further, such cleaning services in respect of non-commercial buildings and premises thereof would not be covered within the purview of service tax under this category. 10. Membership of Clubs or Associations 10.1 Any service provided or to be provided to its members by any club or association in relation to provision of services, facilities, or advantages for a subscription or any other amount is taxable under sub-clause (zzze) of section 65(105) of the Finance Act, 1994. "Club or association" has been defined under clause (25a) of section 65 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the documents evidencing such sale are available. 10.6 Any additional fee should be treated in the same way as subscription. Life membership fees must be treated in the same way as subscription. In certain professions, persons cannot practice unless they are registered with a statutory body and have paid fees which are prescribed by law. In such cases, the organization is not providing any service in the course of its business and it is merely carrying statutory functions. Since no service is provided, the question of levy of service tax does not arise. However, if there is no statutory requirement, service tax is liable to be paid. 11. Packaging services 11.1 Any service provided or to be provided to any person, by any other person, in relation to packaging activity is taxable under sub-clause (zzzf) of section 65(105) of the Finance Act, 1994. "Packaging activity" has been defined under clause (76b) of section 65 of the Finance Act, 1994. 11.2 This taxable service would cover packaging activity undertaken by a person for any other person. These kinds of packaging services may be done for pharmaceuticals (aseptic packaging), fragile goods, heavy machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x since 2004. In this year's budget the construction of new residential complex or a part thereof is also covered under service tax. The term of "construction of complex" is defined under section 65 (30a) of the Finance Act 1994. It covers,- construction of a new residential complex completion and finishing services in relation to a residential complex, whether or not new repair, alteration, etc. in relation to residential complex, whether or not new. 13.3 This service would generally cover construction services in respect of residential complexes developed by builders, promoters or developers. Such residential complexes are normally constructed after obtaining approval of the statutory authority for their layout. For the purpose of this levy, residential complex means,- (i) a building or buildings located within a premises; (ii) total number of residential units within the said premises are more than twelve; (iii) having common area; (iv) having common facilities or services; and (v) layout of the premises has been approved by the appropriate authority. Common area would include roads, staircases and other similar areas where residents of the residenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1994 and renovation of a commercial or industrial building or civil structure has now been specifically included within the purview of service tax. 14.2 Post construction completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, especially if undertaken as an isolated or stand alone contract, are also specifically included. Thus post construction completion and finishing services are specifically included in the definition of commercial or industrial construction services. 14.3 Construction of pipeline or conduit has been included within the purview of service tax. Thus, the construction of long distance pipeline which was earlier excluded from the coverage of construction services would now be liable to service tax. Repair, alteration, renovation or restoration of pipeline or conduit would now be liable to service tax. This levy would also be applicable for such activities performed on the old pipeline or conduits constructed before this levy has come into force. 14.4 At present, services rendered for construction of commercial or industrial buildings is taxable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a good condition by periodically checking and servicing or repairing. While repair is a one time activity, maintenance is a continuous process of which repairing may be incidental or ancillary. 16.4 Prior to 16/6/2005, maintenance or repair carried out under a maintenance contract or agreement was covered under service tax. Repair or servicing carried out under a contract other than a maintenance contract or agreement was not covered within the purview of service tax. Maintenance or repair, including reconditioning or restoration or servicing of any goods or equipment, except motor vehicle (which is taxable under the category of authorized service station), undertaken as part of any contract or agreement (not necessarily maintenance contract or agreement) is now liable to service tax under this category of taxable service. To attract service tax under this category, the contract or agreement need not necessarily be a maintenance contract / agreement. 17. Broadcasting services 17.1 In the case of radio or TV broadcasting services, the services are subject to tax where the services are effectively used and enjoyed. Multi System Operators (MSOs) are permitted to receive sign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service stations or centres. Such reconditioning or restoration of an old vehicle was not explicitly covered as a taxable service. Amendments have been made to specifically include reconditioning or restoration of motor cars, two-wheeled and light motor vehicles carried out by the authorized service stations or centers under this service tax. 20.2 Taxable services rendered by authorized service stations in relation to motor cars or two-wheeled motor vehicles was covered under clause (zo) of section 65 (105), while such taxable services performed in relation to light motor vehicles were covered under clause (zzj) of section 65 (105). Amendments have been made in clause (zo) so that taxable services rendered by authorized service stations in respect of motor cars, light motor vehicles or two-wheeled motor vehicles would now be taxable under this clause. Consequently, clause (zzj) has been omitted. 21. Beauty Parlour Service 21.1 Amendments have been made in the definition of 'beauty treatment' so as to cover comprehensively all services provided by beauty parlours including hair cutting, hair dressing and hair dyeing within the purview of service tax. 22. Manpower Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly when the agreement between the franchisor and the franchisee satisfies all of the following conditions [as mentioned in section 65(47) ]: (i) Franchisor grants representational right to franchisee to sell or manufacture goods or provide service identified with the franchisor; (ii) Franchisor provides expertise in business operation, know how, quality control etc. to the franchisee; (iii) Franchisee pays fees to the franchisor; (iv)The franchisee is under an obligation not to engage in selling goods or providing services identified with any other person. 23.2 To make the coverage of franchise service more comprehensive, effective from 16/6/2005, amendments have been made to define "franchise" as an agreement by which the franchisor grants representational rights to franchisee to sell or manufacture goods or provide service or undertake any process identified with the franchisor, by any symbol such as a trade mark, service mark, trade name or logo. No other condition is required to be fulfilled for levy of service tax. 23.3 In view of the amended definition, License Production Agreements where principal allows production of goods bearing his brand name by another p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance Act. 25. Outdoor Catering Service 25.1 Service tax is already leviable on the services provided by an outdoor caterer. Prior to 16//6/05, outdoor caterer was defined as a caterer providing catering services "at a place other than his own". Doubts were expressed about the scope of the term "at a place other than his own" where the caterer provides catering service from a premises provided by the recipient of the service, on rent. In such cases, whether the place is to be treated as the place owned by the caterer and therefore the services are not subject to service tax or the place is to be treated as not owned by the caterer and therefore subject the services to service tax. To remove the doubt, the present definition of "outdoor caterer" has been modified so as to provide that "outdoor caterer" includes caterer engaged in providing services in connection with catering at a place provided by way of tenancy or otherwise by the person receiving such services. Important Legislative Changes 26.1 An Explanation has been inserted in section 65(105) of Finance Act, 1994 as follows: "Explanation.- For the removal of doubts, it is hereby declared that where any ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mited company or a other corporate body, it belongs wherever it is legally constituted. 26.5 Individuals receiving services are treated as belonging in the country where they have their usual place of residence. An individual has only one usual place of residence at any point in time. Individuals are normally resident in the country where they have set up home with their family and are in full time employment. If either the provider of services or recipient of services have establishments in more than one country, the establishment most directly connected with the particular service would be the deciding factor. These provisions are intended to take care of taxable services where the service provider is located outside India and the recipient of service is located in India. 26.6 Rule 2(1)(d)(iv) of Service Tax Rules, 1994 has been amended in view of the above Explanation vide notification No. 23/2005-Service Tax, dated 7th June, 2005. 26.7 Charging service tax from the recipient when the service is provided by a non-resident is a well accepted international practice. This was enunciated in Rule 2(1)(d)(iv). In this year's budget, for removal of doubts, suitable ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to submit periodical returns submit statutory returns. Thus, a person who was not liable to pay service tax was not required to get registered with the Department. It was felt that in certain instances, though the person may not be liable to pay service tax, for the sake of accountability, such person needs to get registered with the Department. 28.1 Amendments have been made in sections 69 and 70 to incorporate the enabling provisions for registration and filing of return by Input Service Distributors and small service providers whose aggregate value of taxable service exceeds Rs. 3 lakhs per annum. Rule making power in this regard has also been taken under section 94 of the Finance Act. Amendments in Service Tax Rules 29. An assessee has to register all locations from where taxable services are provided, or opt for one single registration. Amendments have been made to Rules 4(2) and 4(3) of the Service Tax Rules, 1994 to facilitate more than one centralized registration, i.e. more than one office of an assessee such as his zonal or regional office depending upon their centralized billing or accounting systems. 29.1 In view of the amendment, if a bank has its head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) exempting from service tax aggregate value of taxable services not exceeding four lakh rupees received by the service provider during a financial year. A point has been raised whether payments received after 1.4.2005 towards the services provided prior to 1.4.2005 would be included while computing this threshold value of Rs. 4 lakhs. 30.1.1 The exemption is related to first payments received in a financial year irrespective of the actual date of provision of services. Thus, the payments received after 1.4.2005 even if they relate to taxable services provided prior to 1.4.2005, will be taken into account for the purpose of computation of the threshold limit. 30.2 At present exemption from the gross amount charged (abatement) has been prescribed for certain taxable services such as construction and transport of goods by road. However, abatement scheme is not applicable to other than specified taxable services. 30.2.1 A point has been raised about application of abatement scheme in case of single provision of service which consists both category of taxable services, in such cases, what portion of the gross contract would get the benefit of abatement. 30.2.2 In all such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from abroad by an Indian recipient in relation to these goods are held to be liable to be taxed under "Reverse Charge " norms. 33. Taxable Services received from abroad Taxable services received from abroad by a person belonging to India are taxed in the hands of the Indian recipient. Relevant provisions are section 65(105) of the Finance Act, 1994 and rule 2(1)(d)(iv) of the Service Tax rules. In such cases, the Indian recipient of taxable services is deemed to be the service provider. 34. Exemption to shipping industry 34.1 Indian Ship Owners Association sought exemption from the levy of service tax on all taxable services received and consumed outside India by the shipping sector. Notification No.22/2005-ST, dated 7.6.2005 exempts only certain specified taxable services provided by a non-resident person, outside India and consumed outside India in the course of sailing of a ship. For this purpose, the ship should have been registered as an Indian ship under the Merchant Shipping Act, 1958 or registered under the Coasting Vessels Act, 1838 or Inland Vessels Act, 1917. In the case of chartered ship, it should have been licensed under the Merchant Shipping Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, 2005. Newly introduced services have also been categorized for the purposes of export of services. Notification No. 28/2005-ST dated 7/6/05 amends Export of Service Rules accordingly. 36. Service providers who have opted for centralized registration may, at times, have difficulty in accurately computing their tax liability by the due date of payment. Facility has been extended to such service providers to make suo moto adjustments of the excess amount paid, if any, and utilize the excess amount for payment of service tax for the subsequent period. Rule 6 of the Service Tax Rules, 1994 is amended for this purpose vide notification No. 23/2005-ST dated 7/6/2005. 37. The above explanation of various changes and provisions of law is only for purpose of guidance to facilitate understanding and implementation of various provisions. It is not a part of the law and does not override it. Adequate care may be taken to carefully read the relevant provisions of law. 38. All possible assistance and facilitation may be provided to providers of such services who have been subjected to the above changes, so that the implementation of these new levies or other changes is smooth and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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