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TMI BlogClarification on technical issues relating to taxation of services under the Finance Act, 1994 – Regarding.X X X X Extracts X X X X X X X X Extracts X X X X ..... s keeping in view the changes that had been made in the statutory provisions, the judicial pronouncements and other relevant factors, and appointed a Committee under Shri T.R.Rustagi, former Chief Commissioner of Customs Central Excise and Director General of Inspection to undertake the review of the clarifications. 3. Comments, views and suggestions were also sought from the trade and industry associations, departmental officers and interested persons. 4. Shri T.R.Rustagi submitted his report to the Government. The report of Shri T.R.Rustagi was placed on the CBEC web site for comments and suggestions. 5. Taking into consideration the report submitted by Shri T.R.Rustagi and the views and suggestions received from the trade and industry associations, departmental officers and other stakeholders, it is proposed to codify and issue a comprehensive circular on the technical issues. 6. This circular supersedes all circulars, clarifications and communications, other than Orders issued under section 37B of the Central Excise Act, 1944 (as made applicable to service tax by section 83 of the Finance Act, 1994), issued from time to time by the CBEC, DG (Service Tax) and various f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice tax is liable on the amount collected as surcharge for delayed payment of telephone bills? An amount collected for delayed payment of a telephone bill is not to be treated as consideration charged for provision of telecom service and, therefore, does not form part of the value of taxable service under section 67 read with Service Tax (Determination of Value) Rules, 2006. 004.01 / 23.08.07 Persons / agencies canvass advertisements for publishing, on commission basis. Such persons / agencies do not provide any other services like making, preparation, display or exhibition of advertisement. Whether merely canvassing advertisement for publishing on a commission basis by persons / agencies is classifiable as Advertising Agency service [section 65(105)(e)] or not? Merely canvassing advertisements for publishing, on commission basis, is not classifiable under the taxable service falling under section 65(105)(e). Such services are liable to service tax under business auxiliary service [section 65(105)(zzb) ]. 005.01 / 23.08.07 Some transporters undertake door- to-door transportation of goods or articles and they have made spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Educational institutes such as IITs and IIMs fall within the definition of 'manpower recruitment or supply agency', and service tax is liable on services provided by such institutions in relation to campus recruitment under section 65(105)(k). 010.02 / 23.08.07 Business or industrial organisations engage services of manpower recruitment or supply agencies for temporary supply of manpower which is engaged for a specified period or for completion of particular projects or tasks. Whether service tax is liable on such services under manpower recruitment or supply agency's service [section 65(105)(k) ] In the case of supply of manpower, individuals are contractually employed by the manpower recruitment or supply agency. The agency agrees for use of the services of an individual, employed by him, to another person for a consideration. Employer-employee relationship in such case exists between the agency and the individual and not between the individual and the person who uses the services of the individual. Such cases are covered within the scope of the definition of the taxable service [ section 65(105)(k) ] and, since they act as supply agency, they f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 163 of the Finance Act, 2002 with effect from 1.4.2003. In view of the above statutory changes, with effect from 1.4.2003 Prasar Bharati Corporation is liable to pay service tax for the broadcasting services provided like any other broadcasting agency or organization engaged in providing service in relation to broadcasting. 034.01 / 23.08.07 Moneychangers are persons authorized under section 7 of Foreign Exchange Management Act, 1973 to deal in foreign currency. Explanation given under Section 7 of the said Act states that 'dealing' means purchasing foreign currency in the form of notes, coins or traveller's cheques or selling foreign currency in the form of notes, coins or traveller's cheques. Whether services provided by a money changer in relation to dealing of foreign currency (buying or selling), at specified rates, without separately charging any amount as commission for such dealing, is liable to service tax as foreign exchange broking under 'banking and other financial services' [section 65(105) (zm)] ? Moneychangers are authorized by RBI to buy and sell foreign exchange at the prevalent market rates. Buying or selling of foreign exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o types, namely:- (a) Simple Chit Funds: In this case, members agree to contribute to the fund a certain amount at regular interval. Lots are drawn periodically and the member, whose name appears, gets the periodical collection. No separate amount is charged from the members. (b) Business Chit Funds : In this case, there is a promoter known as foreman who draws up the terms and conditions of the scheme and enrolls subscribers. Every subscriber has to pay his subscription in regular installments. The foreman charges a separate amount for the services provided. Some States prescribe a ceiling limit for the amount to be charged by such promoter for the services provided. Commission amount is retained by the promoter as consideration for providing the services in relation to chit fund. Whether services provided in relation to chit fund is leviable to service tax under "banking and other financial services" or not? Reserve Bank of India has clarified that the business of a chit fund is to mobilize cash from the subscribers and effectively cause movement of such cash to keep it working and, therefore, the activity of chit funds is in the nature of cash manage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorized service station is liable to service tax under section 65(105)(zo) ? Service tax is liable on services provided by an authorised service station to a customer in relation to service, repair, reconditioning or restoration of motorcars, light motor vehicles or two-wheeled motor vehicles [ section 65(105)(zo) ]. Thus, servicing of heavy vehicles like trucks, not being one of the specified categories of motor vehicles, is at present not covered within the scope of the said taxable service. 036.03 / 23.08.07 Whether spare parts sold by a service station during the servicing of vehicles is liable to payment of service tax? Whether exemption can be claimed on the cost of consumables that get consumed during the course of providing service? Service tax is not leviable on a transaction treated as sale of goods and subjected to levy of sales tax / VAT. Whether a given transaction between the service station and the customer is a sale or not, is to be determined taking into account the real nature and material facts of the transaction. Payment of VAT / sales tax on a transaction indicates that the said transaction is treated as sale of goods. Any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 65(50)]. Thus, services provided in relation to storage and warehousing of empty containers is liable to service tax under storage and warehousing service [section 65(105)(zza) ]. 048.01 / 23.08.07 Whether commission received by distributors for distribution of mutual fund units is liable to Service Tax under business auxiliary service? Distributors receive commission from mutual fund for providing services relating to purchase and sale of Mutual fund units. Services provided by such distributors are in the nature of commission agent and are, thus, liable to service tax under business auxiliary service [section 65(105)(zzb)]. 053.01 / 23.08.07 Services provided by any person to a customer in relation to management, maintenance or repair is liable to service tax [ section 65(105)(zzg) ]. "Management, maintenance or repair" includes maintenance or repair of any goods, excluding motor vehicle [section 65(64)]. Whether maintenance or repair of software is liable to service tax? Explanation to section 65(64) provides that "goods" includes computer software. Since, maintenance or repair of any goods is liable to service tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the Registrar of Co-operative Societies, is eligible to avail of exemption from levy of service tax vide notification No.8/2007-Service Tax, dated 01.03.2007 provided the following conditions are satisfied, namely:- (i) The exemption is available for the services specified under section 65(105)(zzze) of the Finance Act, 1994 and provided or to be provided by the association to its members. (ii) The sole criterion for membership of the resident welfare association is the residential status of a person in a residential complex or locality i.e., membership of the association is restricted to the residents of the complex or locality. (iii) The value of total consideration received from an individual member by the association for providing the services does not exceed Rs.3,000/- per month. 079.01 / 23.08.07 Whether service tax is liable under construction of complex service [section 65(105)(zzzh)] on builder, promoter, developer or any such person,- (a) who gets the complex built by engaging the services of a separate contractor, and (b) who builds the residential complex on his own by employing direct labour? (a) In a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e attributable to the domestic sector from the total value of the ticket? In this case, the journey is a single composite journey. The aim of the passenger is to travel from India to a place outside India. Part of the travel in the domestic sector cannot be segregated from the single journey. Service tax is, therefore, leviable on the total value of the ticket treating the domestic sector as integral part of the international journey without excluding the value attributable, if any, to travel in the domestic sector. 086.03 / 23.08.07 An international journey commences from an airport outside India and completed at an airport outside India but including a sector wherein the passenger disembarks and subsequently embarks at an Indian airport as part of international journey (say Sydney-Mumbai-Dubai-Singapore-Sydney). Whether service tax is liable for Mumbai-Dubai sector only or on the total value of the ticket? In this case, the journey being a single one and the aim of the passenger is not to travel from India to a place outside India, service tax is not leviable under section 65(105)(zzzo). 086.04 / 23.08.07 Whether ticket issued o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication No.32/2007-Service Tax dated 22.05.07 ? Rule 3(2) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 provides that the provider of taxable service opting to pay service tax under the composition scheme is not entitled to take CENVAT credit of duty on inputs, used in or in relation to the said works contract, under the provisions of the CENVAT Credit Rules, 2004. There is no restriction under notification No.32/2007-Service Tax dated 22.05.07 to take CENVAT credit of duty paid on capital goods and service tax paid on input services. 1 097.02 / 04.01.08 Services provided in relation to execution of a works contract is leviable to service tax [section 65(105)(zzzza)]. VAT / sales tax is payable on the transfer of property in goods involved in the execution of a works contract. Service tax is leviable on the value equivalent to the gross amount charged for the works contract less value of the transfer of property in goods involved in the execution of the works contract which is leviable to VAT / sales tax [Rule 2A of the Service Tax (Determination of Value) Rules, 2006]. Whether or not, excise duty paid on goods, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of receipt of the consideration is not legally sustainable. In view of the above, a service provider who paid service tax prior to 01.06.07 for the taxable service, namely, erection, commissioning or installation service, commercial or industrial construction service or construction of complex service, as the case may be, is not entitled to change the classification of the single composite service for the purpose of payment of service tax on or after 01.06.07 and hence, is not entitled to avail the Composition Scheme. 999.01 / 23.08.07 Sovereign/public authorities perform functions assigned to them under the law in force, known as "statutory functions". For example, Regional Reference Standards Laboratories (RRSL) undertake verification, approval and calibration of weighing and measuring instruments; Regional Transport Officers (RTO) issue fitness certificate to motor vehicles; Directorate of Boilers inspects and issues certificates for boilers; or Explosive Department inspects and issues certificate for petroleum storage tank, LPG/CNG tank in terms of provisions of the relevant laws. Authorities providing such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (distribution of mutual funds, bonds, passport applications, collection of telephone and electricity bills), which are also provided by other commercial organizations. Such services are liable to service tax under appropriate taxable services. 999.03 / 23.08.07 A taxable service provider outsources a part of the work by engaging another service provider, generally known as sub-contractor. Service tax is paid by the service provider for the total work. In such cases, whether service tax is liable to be paid by the service provider known as sub-contractor who undertakes only part of the whole work. A sub-contractor is essentially a taxable service provider. The fact that services provided by such sub-contractors are used by the main service provider for completion of his work does not in any way alter the fact of provision of taxable service by the sub-contractor. Services provided by sub-contractors are in the nature of input services. Service tax is, therefore, leviable on any taxable services provided, whether or not the services are provided by a person in his capacity as a sub-contractor and whether or not such services are used as input services. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (105)(zl)] 034 Banking and other financial services [Section (105)(zm)] 035 Port [Section (105)(zn)] 036 Authorized service station [Section (105)(zo)] 037 Beauty treatment [Section (105)(zq)] 038 Cargo handling [Section (105)(zr)] 039 Cable operator [Section (105)(zs)] 040 Dry cleaning [Section (105)(zt)] 041 Event management [Section (105)(zu)] 042 Fashion designing [Section (105)(zv)] 043 Health club and fitness [Section (105)(zw)] 044 Life insurance in relation to risk cover [Section (105)(zx)] 045 Insurance auxiliary services concerning life insurance business [Section (105)(zy)] 046 Rail travel agent [Section (105)(zz)] 047 Storage and warehousing [Section (105)(zza)] 048 Business auxiliary service [Section (105)(zzb)] 049 Commercial coaching or training [Section (105)(zzc)] 050 Erection, commissioning or installation [Section (105)(zzd)] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of space or time for advertisement [Section (105)(zzzm)] 085 Sponsorship [Section (105)(zzzn)] 086 Transport of passenger embarking in India for international journey by air [Section (105)(zzzo)] 087 Transport of goods in containers by rail [Section (105)(zzzp)] 088 Support services of business or commerce [Section (105)(zzzq)] 089 Auctioneers [Section (105)(zzzr)] 090 Public relations [Section (105)(zzzs)] 091 Ship management [Section (105)(zzzt)] 092 Internet telephony [Section (105)(zzzu)] 093 Transport by cruise ship [Section (105)(zzzv)] 094 Credit card, debit card, charge card or other payment card [Section (105)(zzzw)] 095 Mining [Section (105)(zzzy)] 096 Renting of immovable property [Section (105)(zzzz )] 097 Services involved in the execution of works contract [Section (105)(zzzza)] 098 Development and supply of content [Section (105)(zzzzb)] 099 Asset management service by ..... 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