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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 ..... tory 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 field formations on all technical issues including the scope and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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 special arrangements for speedy transportation and timely delivery of such goods or articles. Such services are known as 'Express Cargo Service' with assurance of timely delivery. Whether such 'Express cargo service' is covered under courier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... npower 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 fall within the definition of "manpower recruitment or supply agency" [section 65(68)] and are liable to service tax. 012.01 / 23.08.07 "Mandap" is defined as any immovable property as defined in section 3 of the Transfer of Property Act, 1882 and includes any furniture, fixtures, light fittings and floor coverings therein let out for a consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 by such persons without separately charging any amount as commission or brokerage does not fall within the scope of foreign exchange broking and is not liable to service tax under section 65(105)(zm). 034.02 / 23.08.07 'Asset management and all other forms of fund management' are liable to service tax under 'banking and other financial service' [section 65(12)]. Whether the amount charged as 'entry and exit load' from the investor by a mutual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate 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 management. (a) In the case of Simple Chit Funds, no consideration is paid or received for the services provided and, therefore, the question of levy of service tax does not arise. (b) In the case of Business Chit Funds, cash management service is provided for a consideration and, therefore, leviable to service tax under "banking and other financial services". 035.02 / 23.08.07 Management Committee of Paradeep Port was constituted as per the directions of Supreme Court of India. The Committee operates under the "ParadeepPort, Clearing, Forwarding and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 goods used in the course of providing service are to be treated as inputs used for providing the service and accordingly, cost of such inputs form integral part of the value of the taxable service. Where spare parts are used by a service station for servicing of vehicles, service tax should be levied on the entire bill, including the value of the spare parts, raised by the service provider, namely, service stations. However, the service provider is entitled to take input credit of excise duty paid on such parts or any goods used in providing the service wherein value of such goods has been included in the bill. The service provider is also entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mer 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, services provided in relation to maintenance or repair or servicing of computer software is liable to service tax under "management, maintenance or repair" service [section 65(105)(zzg)]. 076.01 / 23.08.07 "Club or association" is defined as any person or body of persons providing services, facilities or advantages, for a subscription or any other amount, to its members, but does not include such person or body of persons engaged in any activity having objectives which are of a charitable nature. Whether a club or association enjoying exemption under the provisions of Income Tax Act as a public charitable institution gets automatically excluded from levy of service tax under section 65(105)(zzze) read with section 65(25a) of the Finance Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 case where the builder, promoter, developer or any such person builds a residential complex, having more than 12 residential units, by engaging a contractor for construction of the said residential complex, the contractor in his capacity as a taxable service provider (to the builder / promoter / developer / any such person) shall be liable to pay service tax on the gross amount charged for the construction services under 'construction of complex' service [section 65(105)(zzzh)]. (b) If no other person is engaged for construction work and the builder / promoter / developer / any such person undertakes construction work on his own without engaging the services of any other person, then in such cases,- (i) service provider and service recipient relationship does not exist, (ii) services provided are in the nature of self-supply of services. Hence, in the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et? 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 outside India for an international journey commencing from India (say Delhi-London) is liable to service tax? Service tax is payable by the service provider, namely aircraft operator, for the taxable service provided. Place of purchase/ issue of ticket is of no relevance or consequence to determine the levy of service tax under section 65(105)(zzzo) read with section 66. Service tax is leviable as long as the passenger embarks in India for an international journey, in any class other than economy class. 086.05 / 23.08.07 Whether service tax is liable on the total value of the ticket or only half the value of the ticket in the case of round trip / return ticket (say Delhi-London-Delhi)? Service tax is leviable on the total value of the ticket. 1096.01 / 04.01.08 Commercial or industrial construction service [section 65(105)(zzq)] or works contract service [section 65(105)(zzzza)] is used for construction of an immovable property. Renting of an imm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2A of the Service Tax (Determination of Value) Rules, 2006]. Whether or not, excise duty paid on goods, subjected to levy of VAT / sales tax under works contract service, can be taken as credit under the CENVAT Credit Rules, 2004? Value for the purposes of levy of service tax under works contract service does not include the value pertaining to transfer of property in goods involved in the execution of a works contract leviable to VAT / sales tax. Works contract service provider is, therefore, not eligible to take credit of excise duty paid on such goods involved in the execution of works contract. 1097.03 / 04.01.08 Services provided in relation to execution of works contract is leviable to service tax w.e.f. 01.06.07 [section 65(105)(zzzza)]. Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 provides option to pay service tax @ 2% of the gross amount charged for the works contract. However, the service provider opting for composition scheme for payment of service tax should exercise the option prior to payment of service tax. The issue pertains to,- (i) contracts entered into prior to 01.06.07 for providing erection, commissioning or installation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the relevant laws. Authorities providing such functions, required to be performed as per law, may collect specific amount or fee and the amount so collected is deposited into government account. Whether such activities of a sovereign / public authority, performed under a statute, can be considered as 'provision of service' for the purpose of levy of service tax and the amount or fee collected, if any, for such purposes can be treated as consideration for the services provided? Activities assigned to and performed by the sovereign / public authorities under the provisions of any law are statutory duties. The fee or amount collected as per the provisions of the relevant statute for performing such functions is in the nature of a compulsory levy and are deposited into the Government account. Such activities are purely in public interest and are undertaken as mandatory and statutory functions. These are not to be treated as services provided for a consideration. Therefore, such activities assigned to and performed by a sovereign / public authority under the provisions of any law, do not constitute taxable services. Any amount / fee collected in such cases are not to be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that a given taxable service is intended for use as an input service by another service provider does not alter the taxability of the service provided. ANNEXURE Three digit Code Taxable Service / Others 001 Stock broker [Section (105)(a)] 002 Telecommunication Service [Section (105)(zzzx)] 003 General insurance [Section (105)(d)] 004 Advertising agency [Section (105)(e)] 005 Courier agency [Section (105)(f)] 006 Consulting engineer [Section (105)(g)] 007 Custom house agent [Section (105)(h)] 008 Steamer agent [Section (105)(i)] 009 Clearing and forwarding agent [Section (105)(j)] 010 Manpower recruitment agent [Section (105)(k)] 011 Air travel agent [Section (105)(l)] 012 Mandap keeper [Section (105)(m)] 013 Tour operator [Section (105)(n)] 014 Rent-a-cab scheme operator [Section (105)(o)] 015 Architect [Section (105)(p)] 016 Interior decorator [Section (105)(q)] 017 Management or Business consultant [Section (105)(r)] 018 Chartered accountant [Section (105)(s)] 019 Cost accountant [Section (105)(t)] 020 Company secretary [Section (105)(u)] 021 Real estate agent [Section (105)(v)] 022 Security agency [Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or shamiana [Section (105)(zzw)] 069 Travel agent [Section (105)(zzx)] 070 Forward contract [Section (105)(zzy)] 071 Transport of goods other than water through pipeline or other conduit [Section (105)(zzz)] 072 Site formation and clearance, excavation and earthmoving and demolition and such other activities [Section (105)(zzza)] 073 Dredging [Section (105)(zzzb)] 074 Survey and map-making [Section (105)(zzzc)] 075 Cleaning activity [Section (105)(zzzd)] 076 Club or association [Section (105)(zzze)] 077 Packaging activity [Section (105)(zzzf)] 078 Mailing list compilation and mailing [Section (105)(zzzg)] 079 Construction of complex [Section (105)(zzzh)] 080 Registrar to an issue [Section (105)(zzzi)] 081 Share transfer agent [Section (105)(zzzj)] 082 Automated teller machine operations, maintenance or management [Section (105)(zzzk)] 083 Recovery agent [Section (105)(zzzl)] 084 Sale 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 [Sect ..... 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