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TMI BlogClarification regarding changes made or proposed in Budget 2012-2013X X X X Extracts X X X X X X X X Extracts X X X X ..... tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin-top:0in; mso-para-margin-right:0in; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0in; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} table.MsoTableGrid {mso-style-name:"Table Grid"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-priority:59; mso-style-unhide:no; border:solid windowtext 1.0pt; mso-border-alt:solid windowtext .5pt; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-border-insideh:.5pt solid windowtext; mso-border-insidev:.5pt solid windowtext; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contracts from 4% to 4.8%. 3. The rate for Cenvat reversal for exempt services has been revised likewise from 5% to 6% in Rule 6(3) of Cenvat Credit Rules (CCR), 2004 . 4. The dual tax structure for air transportation: partly specific, partly ad valorem - is being replaced with a uniform ad-valorem levy at standard rate with an abatement of 60% on all sectors and all classes. 5. All these changes will be effective April 1, 2012. B. Taxation of services: B.1. Negative List: 1. There is paradigm shift in the way services are proposed to be taxed in future. Taxation will be based on what is popularly known as Negative List of Services . 2. In simple words, it means that if an activity meets the characteristics of a service it is taxable unless specified in the Negative list, comprising 17 heads listed in proposed new section 66D, or otherwise exempted by a notification issued under section 93 of the Act. Most of the 88 exemptions at present will be either rescinded, being no more needed, or modified in some manner, or merged in a mega notification, leaving the final tally of exemptions to just 10. 3. The word service is defined in clause (44) of the new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from non-taxable territory, some changes to services provided by GTA and the deletion of all those services that are now exempt e.g. mutual funds agents and distributers. 11. Since the Export Rules will cease to apply, the required provisions will be incorporated in Service Tax Rules. A transaction will qualify as export when it meets following requirements: i The service provider is located in Taxable territory; ii Service recipient is located outside India; iii Service provided is a service other than in the negative list. iv The Place of Provision of the service is outside India; and v The payment is received in convertible foreign exchange B. 3(II). Valuation Rules 12. Negative list will require movement away from service-specific provisions. As such, the abatements under Notification 1/2006-ST and composition rate under the Works Contract (composition scheme for payment of service tax) Rules, 2007 will need some reformulations. 13. A new valuation rule is being introduced to substitute the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 . The value of the Works Contract is proposed to be redefined, as follows: i As at pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 3 will be applicable only in the cases where valuation is not ascertainable. At present Rule 3 has been inadvertently made applicable to situation where consideration received is not wholly or partly consisting of money, which is fully covered by the Act. 20. Rule 6 of Valuation Rules prescribes inclusions and exclusions to the taxable value. Following changes are being made here: i Sub-rule (1) to include any amount realized as demurrage, or by any other name, for the provision of a service beyond the period originally contracted or in any other manner relatable to the provision of service . This change will become relevant in the context of negative list where such amounts may be collected in the name of demurrage but will actually be in all respects a service. ii In sub-rule (2) clause (iv) regarding exclusion of interest on loans is proposed for substitution with interest on (a) deposits; and (b) delayed payment of any consideration for the provisions made (services/goods) . This will keep such amounts outside the value and thus not be relevant for reversal of credits under rule 6(3) of CCR, 2004 . Interest on loans will now be an exempt income rather than an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the benefit of not reversing the input tax credits for exports without treating them exempt until the period specified for realizing export proceeds. 26. Interest on loans, advances will now be an exempt service. This will require reversal of credits used for earning such income. For the banking and financial sector, provisions are available to reverse credits up to 50% in rule 6(3D). It is being proposed to change this formula to actual basis, the value of service being net interest i.e. interest earned less interest paid on deposits, subject to a minimum of 50% 0f interest paid on deposits. For the non-financial sector it is being proposed that they may reverse credits on gross interest basis. B. 3(V). Rebate of service tax on export of goods: 27. The scheme for electronic refund of service tax paid on taxable services (eighteen different taxable services) used for export of goods at the post-manufacture /post-removal stage has been made operational since 3rd January, 2012, as announced by the Honorable Finance Minister in his last year s Budget speech. 28. The scheme is operated at present as a general exemption under section 93(1) of the Finance Act, 1994 . T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions relating to Settlement Commission are being brought in the Service Tax by adding sections 31, 32 and 32A to 32P of the Central Excise Act in section 83. On the date of the enactment of the Finance Bill, notification containing Service Tax (Settlement of Cases) Rules, 2007 along the lines of Central Excise (Settlement of Cases) Rules, 2007, will come into effect. This should encourage quick settlement of disputes and save the business from the worries of prosecution in certain situations. 6. The periods for filing appeals in service tax are being aligned with Central Excise. These are captured by relevant amendments in sections 85 and 86. New limitations will apply to decisions or orders passed after the date on which Finance Bill, 2012, receives the assent of the President. 7. At present in service tax, appeals against the order of commissioner (appeals) lie before the Tribunal; whereas in Central Excise, a revision mechanism is available to hear certain specified matters i.e. credit of any duty allowed to be utilized towards payment of excise duty on final products, rebate on exports. It is proposed that this revision mechanism may also be made available for service tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or LLP and the recipient is a body corporate. The three services and the portion of tax payable are as follows: Sl. No. Description of service Service recipient Service provider 1. Hiring of a motor vehicle designed to carry passengers: (a) with abatement (b) without abatement 100% 40% NIL 60% 2. Supply of manpower for any purpose 75% 25% 3. Works contract service 50% 50% 15. It is clarified that the liability of the two persons is for respective amounts and is not influenced by compliance or the lack of it by the other side. Service provider is allowed Cenvat credit of tax paid by him on inputs and input services. The respective portions have been attempted such that the credits available will be well below the amount required to be paid by such persons. In extreme situations the small service provider is also being allowed the refund of unutilized Cenvat credit if any, available with him. Suitable changes will be made in Cenvat Credit Rules, to this effect. 16. Even though the above scheme can be given effect on enactment, it is prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erse charge that will come into effect along with Negative List. D. Point of Taxation Rules, 2011 1. The time period for issuance of invoice is being increased to 30 days ordinarily and 45 days for banks and financial institutions (to reconcile with the business practice of issuing monthly statement). These changes are being provided in Rule 4A of Service Tax Rules and the time period so defined is being incorporated in POT Rules. 2. In case of export of services and eight specified services provided by individuals or firms, the point of taxation is the date of payment. The special dispensation is being shifted from the POT Rules to the Service Tax Rules. This would help provide certainty in the application of rate of tax while retaining the benefit of payment of tax until payment is received. 3. In case of exporters, the period extended by the Reserve Bank of India is now explicitly included in the period for which the tax is allowed to be deferred. 4. The benefit available to individuals and firms to determine POT on the basis of date of payment for eight specified services is being extended to all services in a slightly modified form. The facility will be now availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis of invoice or completion of service rather than payment. Such provision is expected to address the accounting problems faced by service providers in telecommunications, credit card businesses who regularly receive minor excess payments from their customers. 11. A residual rule has been made by way of best judgement to handle situations where the tax-payer is unable to furnish one or more of the details needed i.e. date of payment or date of invoice or both to determine POT. 12. And lastly, the small scale exemption has also been amended recognizing that the first clearances up to Rs 10 lakhs will be in terms of invoices and not mere payments received. 13. These changes come into effect from April 1, 2012. E. Service Tax Rules, 1994: 1. A common simplified registration format for Central Excise and Service Tax is being placed for public comments, together with further liberalization in registration requirements, particularly centralized registrations. The proposed changes are attached as Annexure C. 2. Likewise a new simplified one page common return with Central Excise: to be called Excise Service Tax Return (EST for short) is being introduced. The format of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g their delivery and location. 6. Rule 9(1)(e) is being amended to allow availment of credit on the tax payment challan in case of payment of service tax by all service receivers on reverse charge. 7. Changes are being made in Rule 7 relating to distribution of credits of input services by an input service distributer (ISD) to ensure their scientific allocation to only such units where they have been put to use and proportionate to turnover. For example in case of services by way of advertisement- i if the advertisement is for a product or service provided from only one unit, the said credit shall be distributed only to that unit; and if two units, the said credit shall be distributed only to those two units, in proportion to the respective turnovers; ii if the advertisement is for the company as such, the said credit shall be distributed only to the extent of the turnover of units registered and entitled to avail Cenvat credit to the total turnover of the company including unregistered units. 8. These changes will be effective from 1.4.2012. 9. Additionally, there are other changes which have implication largely in respect of central excise but may also touch upon servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hole-hearted contribution of uncountable people through their valuable comments and insights. 6. Our journey so far has emboldened us to place before all stakeholders both the draft guidance papers as well as acquaint them with practically all the changes that will unfold later when the negative list is introduced. We remain conscious that these clarifications may not sometime capture all the various complexities of diverse businesses that service tax is required to confront with. To that extent the quest to pursue doubts and improve upon the answers already furnished will persist. 7. We expect the negative list, together with all the other changes, to spearhead the most positive changes in the field of service taxation: to reduce litigation and compliance costs and pave the way for long-term stability. If this dream is realized, it would be worth all the effort that the team has relentlessly put in over the last one year. 8. And before concluding, respectful thanks to all my seniors for their guidance, and keeping the environment sufficiently relaxed despite enormous challenge. Enclosures: Annexure A, B, C D Sincere regards, Yours sincerely (V K Garg) Joint Secre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a specific topic relating to the proposed new system of taxation based on the negative list, as summed up in para 1.2 above. The list of these guidance notes is as follows- Guidance Note 1 Introduction Guidance Note 2 What is service ? Guidance Note 3 Taxability of a service Guidance Note 4 Negative List Guidance Note 5 Declared Services Guidance Note 6 Exemptions Guidance Note 7 Rules of interpretation In addition, the Guidance Paper has the following three Exhibits: Exhibit A1 - List of services specified in the negative list Exhibit A2 List of exemptions in mega notification Exhibit A3 - Gist of other proposed exemptions 1.4 What is the broad the scheme of new taxation? In the new system, service tax will be levied on all services provided in a taxable territory other than the services specified in the negative list. The key features of this system are as follows: At the outset service has been defined in clause (44) of section65B of the Act. Section 66B specifies the charge of service tax which is essentially that service tax shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fees payable to a court or a tribunal set up under a law for the time being in force There are three explanations appended to the definition of service which are dealt with in later part of this Guidance Note. Each of the ingredients bulleted above have been explained in the points below. 2.1 Activity 2.1.1 What does the word activity signify? Activity has not been defined in the Act. In terms of the common understanding of the word activity would include an act done, a work done, a deed done, an operation carried out, execution of an act, provision of a facility etc. It is a term with very wide connotation. Activity could be active or passive and would also include forbearance to act. Agreeing to the obligation to refrain from an act or to tolerate an act or a situation has also been specified as a declared service under section 66E of the Act. 2.2 Consideration 2.2.1 The phrase consideration has not been defined in the Act. What is, therefore, the meaning of consideration ? Yes. Consideration has not been defined in the Act. The definition of consideration as given in the Indian Contract Act, 1872 can safely be adopted to understand the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of service Illustrations If And in return A agrees to dry clean B s clothes B agrees to click A s photograph A agrees not to open dry clean shop in B s neighborhood B agrees not to open photography shop in A s neighborhood A agrees to design B s house B agrees not to object to construction of A s house in his neighborhood A agrees to construct 3 flats for B on land owned by B B agrees to provide one flat to A without any monetary consideration Then For the services provided by A to B, the acts of B specified in 2nd column are non- monetary consideration provided by B to A. Conversely, for services provided by B to A, similar reasoning will be adopted. 2.2.5 Is the value of non-monetary consideration important? Yes. The non-monetary consideration also needs to be valued for determining the tax payable on the taxable service since service tax is levied on the value of consideration received which includes both monetary consideration and money value of non-monetary consideration. 2.2.6 How is the money value on non-monetary consideration determined? The value of non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the nature of security and hence do not represent consideration for service. 6. Security deposits forfeited for damages done by service receiver in the course of receiving a service If the forfeited deposits relate to accidental damages due to unforeseen actions not relatable to provision of service then such forfeited deposits would not be a consideration in terms a clause proposed to be inserted in rule 6 of the Valuation Rules. 7. Fines and penalties paid for violation of provisions of law. These are not considerations as no service is received in lieu of payment of such fines and penalties. 8. Excess payment made as a result of a mistake If returned it is not consideration. If not returned and retained by the service provider it becomes a part of the taxable value. 9. Demurrages payable for use of services beyond the period initially agreed upon e.g. use of containers beyond the normal period. This will be consideration and is being so provided in the amendments made to Rule 6 of the Valuation Rules. 2.2.9 Can a consideration for service be paid by person other than the person receivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot Government (Central and State Governments, will be separate persons) a local authority, or every artificial juridical person, not falling within any of the preceding sub-clauses. 2.3.4 Are Government and local authorities also liable to pay tax? Yes. However, most of the services provided by the Government or local authorities are in the negative list. 2.3.5 What is the rationale behind taxing certain activities of the Government or local authorities? Only those activities of Government or local authorities are taxed where they compete with private entities. The rationale is as follows- to provide a level playing field to private entities in these areas as exemption to Government in such activities would lead to competitive inequities; and to avoid break in Cenvat chain as the support services provided by Government are normally in the nature of intermediary services. 2.3.6 Would taxable services provided by Government or local authorities still be taxable if they are covered under any other head of the negative list or are otherwise exempted? No. For example, transport services provided by Government to passengers by way of a stage carriage wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out by the person transferring the title would not be excluded from the definition of service. 2.5.3 Would the answer to 2.5.2 mean that all composite transactions which in addition to a transfer of title in goods involve an element of provision of service be considered as a service and taxable as such? No. The manner of treatment of such composite transactions for the purpose of taxation, i.e. are they to be treated as sale of goods or provision of service, has been laid down by the Honorable Supreme Court in the case of Bharat Sanchar Nigam Limited vs Union of India [2006(2)STR161(SC)]. The relevant paras 42 and 43 of the said judgment are reproduced below - 42. Of all the different kinds of composite transactions the drafters of the 46th Amendment chose three specific situations, a works contract, a hire purchase contract and a catering contract to bring within the fiction of a deemed sale. Of these three, the first and third involve a kind of service and sale at the same time. Apart from these two cases where splitting of the service and supply has been Constitutionally permitted in Clauses (b) and (g) of Clause 29A of Art. 366, there is no other service which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract of service. If no then such transaction is a composite transaction even if the contracts could be disintegrated. The nature of a composite transaction, except in case of two exceptions carved out by the Constitution, would be determined by the element which determines the dominant nature of the transaction. If the dominant nature of such a transaction is sale of goods or immovable property then such transaction would be treated as such. If the dominant nature of such a transaction is provision of a service then such transaction would be treated as a service and taxed as such even if the transaction involves an element of sale of goods. In case of works contracts and service wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as part of the service the dominant nature test does not apply and service portion is taxable as a service This has also been declared as a service under section 66E of the Act. For guidance on these two types of composite transactions and the manner of determining the value portion of service portion of such composite transactions please refer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods has essentially been borrowed from the Sale of Goods Act, 1930 with the only variation that in the inclusion clause of the said definition the phrase stocks and shares been replaced with securities . In effect, therefore, activities that are in the nature of only transfer of title by way of sale, redemption, purchase or acquisition of securities on principal-to-principal basis, excluding services of dealers, brokers or agents in relation to such transactions, are outside the ambit of services. However activities which are not in the nature of transfer of title in securities (for example a person agreeing not to exercise his right in a security for a given period of time for a consideration) would not be included in this exclusion clause to the definition of service. 2.5.7 Are deemed sales defined in article 366(29A) of the Constitution also included in the ambit of sale ? Yes. The six categories of deemed sales as defined in article 366(29A) of the Constitution are also included in the term sale since these transactions have been deemed to be a sale in the Constitution itself. These are transfer, otherwise than in pursuance of a contract, of prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in favour of another and that in all cases the essence of delivery is that the deliveror, by some apt and manifest act, puts the deliveree in the same position of control over thing, either directly or through a custodian, which he held himself immediately before the act . The nature of such arrangements has been explained by the Supreme Court in the case of Association Of Leasing Financial Service Companies Vs Union Of India [2010 (20) S.T.R. 417 (S.C.)]. The relevant extract in para 20 of the said judgement is reproduced below: 20. According to Sale of Goods Act by Mulla [6th Edition] a common method of selling goods is by means of an agreement commonly known as a hire-purchase agreement which is more aptly described as a hiring agreement coupled with an option to purchase, i.e., to say that the owner lets out the chattel on hire and undertakes to sell it to the hirer on his making certain number of payments. Key ingredients of the deemed sale category of delivery of goods on hire-purchase or any system of payment by installments , therefore are- Transfer of possession (and not just of custody) The hirer has the option or obligation to purchase the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould debt collection services or credit control services be considered to be transaction only in money? No. Such services provided for consideration are taxable. 2.6.5 What are actionable claims? As per section 3 of the Transfer of Property Act, 1893 actionable claims means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent. Illustrations of actionable claims are - Unsecured debts Right to participate in the draw to be held in a lottery. 2.6.6 If an unsecured debt is transferred to a third person for a consideration would this activity be treated as service? No. Since unsecured debt is an actionable claim, a transaction only in such actionable claim is outside the ambit of service. 2.7 Provision of services by an employee to the employer is outside the ambit of services 2.7.1 Are all services provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble. As per these deeming provisions establishment of a person located in taxable territory and establishment of such person located in non-taxable territory are deemed to be establishments of distinct persons. Further an unincorporated association or body of persons and members thereof are also deemed as separate persons. For implications please see point no 2.3.2 of this Guidance Paper. Explanation 3 explains that a branch or an agency of a person through which the person carries out business is also an establishment of such person. Guidance Note 3 Taxability of services The taxability of services or the charge of service tax has been specified in section 66B of the Act. To be a taxable a service should be provided or agreed to be provided by a person to another in the taxable territory and should not be specified in the negative list. 3.1 Provided or agreed to be provided 3.1.1 What is the significance of the phrase agreed to be provided ? The phrase agreed to be provided has been retained from the definition of taxable service as contained in the existing clause (105) of section 65 of the Act. The implications of this phrase are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the negative list please refer to Guidance Note 4. 3.4 Relevant Questions relating to taxability of services 3.4.1 How do I know that I am performing a taxable service in the absence of a positive list? The drill to identify whether you are providing taxable service is very simple. Pose the questions listed in Step 1 and Step 2 below- Step 1 To determine whether you are providing a Service Pose the following questions to yourself S.NO. QUESTION ANSWER 1 2 1 Am I doing an activity (including, but not limited to, an activity specified in section 65E of the Act) for another person*? Yes 2 Am I doing such activity for a consideration? Yes 3 Does this activity consist only of transfer of title in goods or immovable property by way of sale, gift or in any other manner? No 5 Does this activity consist only of a transaction in money or actionable claim? No 6 Is the consideration for the activity in the nature of court fees for a court or a tribunal? No 7 Is such an activity in the nature of a servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued under section 93 of the Act of which the main exemption is proposed to have 34 heads (mega notification). If the service provided by you fits into the nature and description of services specified in these notifications then the service being provided by you is an exempted service. For the sake of convenience the proposed mega exemption notification and gist of other proposed notifications has been reproduced in Exhibits A2 and A3 of this Guidance Paper respectively. (Please also refer to Guidance Note 6 for guidance on exemptions) 3.4.4 Are declared services also covered by exemptions? Yes. 3.4.5 Are services other than declared services taxable? Yes. All services, whether declared or not, which are covered under Section 66B of the Act are taxable if elements of taxability are present. The only purpose behind declaring activities as service is to bring uniformity in assessment of such activity across the country. Guidance Note 4 Negative List of Services In terms of Section 66B of the Act, service tax will be leviable on all services provided in the taxable territory by a person to another for a consideration other than the services specified in the negative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment . Services provided by such entities would, therefore, not be entitled to the negative list entry relating to the Government . It would also not include regulatory bodies. 4.1.5 What entities are then covered under Government ? Government would include various departments and offices of the Central or State Government or the U.T. Administrations which carry out their functions in the name and by order of the President of India or the Governor of a State. 4.1.6 Would a department of the Government need to get itself registered for each of the services listed in answer to Q. No.4.1.1 above? For the support services provided by the Government to business entities government departments will not have to get registered because service tax will be payable on such services by the service receiver i.e. the business entities receiving the service under reverse charge mechanism in terms of the provisions of section 68 of the Act and the notification proposed to be issued under the said section. For services mentioned at (a) to (c) of the list (point 4.1.1 above refers) tax will be payable by the concerned department. 4.1.7 What is the meaning of support services whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing; supply of farm labour; processes carried out at the agricultural farm including tending, pruning, cutting, harvesting, drying cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter essential characteristics of agricultural produce but makes it only marketable for the primary market; renting of agro machinery or vacant land with or without a structure incidental to its use; loading, unloading, packing, storage and warehousing of agricultural produce; agricultural extension services; services provided by any Agricultural Produce Marketing Committee or Board or services provided by commission agent for sale or purchase of agricultural produce; 4.4.1 What is the meaning of agriculture ? Agriculture has been defined in the Act as cultivation of plants and rearing or breeding of animals and other species of life forms for foods, fibre, fuel, raw materials or other similar products but does not include rearing of horses. 4.4.2 Are activities li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ittee or Board? Agricultural Produce Marketing Committees or Boards are set up under a State Law for purpose of regulating the marketing of agricultural produce. Such marketing committees or boards have been set up in most of the States and provide a variety of support services for facilitating the marketing of agricultural produce by provision of facilities and amenities like shops, sheds, water, light, electricity, grading facilities etc. They also take measures for prevention of sale or purchase of agricultural produce below the minimum support price. APMCs collect market fees, license fees, rents etc. Services provided by such Agricultural Produce Marketing Committee or Board are covered in the negative list. 4.5 Trading of goods 4.5.1 Would activities of a commission agent or a clearing and forwarding agent who sells goods on behalf of another for a commission be included in trading of goods? No. The services provided by commission agent or a clearing and forwarding agent are not in the nature of trading of goods. These are auxiliary for trading of goods. In terms of the provision of clause (1) of section 66F reference to service does not include reference to a serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied in entry no. 30 of Exhibit A2. 4.6.2 Would service tax be leviable on processes on which Central Excise Duty is leviable under the Central Excise Act, 1944 but are otherwise exempted? No. If Central Excise duty is leviable on a particular process as the same amounts to manufacture then such process would be covered in the negative list even if there is a central excise duty exemption for such process. 4.7 Selling of space or time slots for advertisements other than advertisements broadcast by radio or television Advertisement has been defined in section 65 B of the Act as form of presentation for promotion of, or bringing awareness about, any event, idea, immovable property, person, service, goods or actionable claim through newspaper, television, radio or any other means but does not include any presentation made in person. 4.7.1 Sale of space of time for advertisements not including sale of space for advertisement in print media and sale of time by a broadcasting agency or organization is currently taxed under clause (zzzm) of sub-section (105) of the Finance Act,1944. So what kind of sale of space or time would become taxable and what would be not taxable? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time for advertisement to be broadcast on radio or television Sale of space for advertisement in print media Sale of time slot by a broadcasting organization. Sale of space for advertisement in bill boards, public places, buildings, conveyances, cell phones, automated teller machines, internet Aerial advertising 4.7.2 Would services provided by advertisement agencies relating to preparation of advertisements be covered in the negative list entry relating to sale of space for advertisements? No. Services provided by advertisement agencies relating to making or preparation of advertisements would not be covered in this negative list entry and would thus be taxable. This would also not cover commissions received by advertisement agencies from the broadcasting or publishing companies for facilitating business, which may also include some portion for the preparation of advertisement. 4.7.3 In case a person provides a composite service of providing space for advertisement that is covered in the negative list entry coupled with taxable service relating to design and preparation of the advertisement how will its taxability be determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by nature or description in the Act will not include reference to a service used for providing such service. 4.10 Entry to Entertainment Events and Access to Amusement Facilities. Entertainment events has been defined in section 65B of the Act as an event or a performance which is intended to provide recreation, pastime, fun or enjoyment, such as exhibition of cinematographic films, circus, concerts, sporting events, fairs, pageants, award functions, dance performances, musical performances, theatrical performances including cultural programs, drama, ballets or any such event or programme . Amusement facility has been defined in the Act as a facility where fun or recreation is provided by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks, theme parks or such other place but does not include a place within such facility where other services are provided . 4.10.1 If a cultural programme, drama or a ballet is held in an open garden and not in a theatre would it qualify as an entertainment event? Yes. The words used in the definition are theatrical performances and not performances in theatres . A cultural progra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or if it is, for such distribution, a distribution licensee licensed under the Electricity Act, 2003. 4.11.3 If the services provided by way installation of gensets or similar equipment by private contractors for distribution of electricity covered by this entry? No. the entry does not cover services provided by private contractors. Moreover the services provided are not by way of transmission or distribution of electricity. 4.12 Specified services relating to education The following services relating to education are specified in the negative list pre-school education and education up to higher secondary school or equivalent education as a part of a prescribed curriculum for obtaining a qualification recognized by law for the time being in force; education as a part of an approved vocational education course 4.12.1 Are services provided by international schools giving international certifications like IB also covered in this entry? Yes. Services by way of education up to higher secondary school or equivalent are covered in this entry. 4.12.2 Are services provided by boarding schools covered in this entry? Boarding schools provide service of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s together, only one of which leads to a qualification recognized by law, then by application of the rule of determination of taxability of a service which is not bundled in the ordinary course of business contained in section 66F of the Act it is liable to be treated as a course which attracts the highest liability of service tax. However incidental auxiliary courses provided by way of hobby classes or extra-curricular activities in furtherance of overall well being will be an example of naturally bundled course. One relevant consideration in such cases will be the amount of extra billing being done for the unrecognized component viz-a-viz the recognized course. (For guidance on bundled services please refer to Guidance Note 7). 4.12.7 Are placement services provided to educational institutions for securing job placements for the students covered in this negative list entry? No. Such services do n0t fall in the category of exempt services provided to educational institutions (please refer to point no 4.12.3 above). 4.12.8 Are services of conducting admission tests for admission to colleges exempt? Yes in case the educational institutions are providing qualification r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld the nature of renting transactions explained in column 1 of the table below be covered in this negative list entry? 1 2 If .. Then (i) a residential house taken on rent is used only or predominantly for commercial or non-residential use. the renting transaction is not covered in this negative list entry. (ii) if a house is given on rent and the same is used as a hotel or a lodge the renting transaction is not covered in this negative list entry because the person taking it on rent is using it for a commercial purpose. (iii) rooms in a hotel or a lodge are let out whether or not for temporary stay the renting transaction is not covered in this negative list entry because a hotel or a lodge is not a residential dwelling. (iv) government department allots houses to its employees and charges a license fee such service would be covered in the negative list entry relating to services provided by government and hence non- taxable. (v) furnished flats given on rent for temporary stay these are in the nature of lodges or guest houses and hence not treatable as a residential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .15.1 Are services by way of giving on hire of motor vehicles to state transport undertakings covered in this negative list entry? No. However such services provided by way of hire of motor vehicle meant to carry more than 12 passengers to a State transport undertaking is exempt (refer entry no. 22 of Exhibit A2). 4.15.2 In some cases contract carriages get permission or temporary permits to ply as stage carriages. Would such services be taxable? Specific exemption is available to services of transport passengers by a contract carriage for transportation of passengers, excluding tourism, conducted tours, charter or hire. (Refer entry No. 23 of Exhibit A2). 4.15.3 Are national waterways covered in the definition of inland waterways? Yes. 4.16 Service relating to transportation of goods The following services provided in relation to transportation of goods are specified in the negative list. Services:- by road except the services of (i) a goods transportation agency; or (ii) a courier agency by aircraft or vessel from a place outside India to the first customs station of landing in India; or by inland waterways. 4.16.1 Are all services provided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained in clause (44) of section 65B of the Act it has been stated that service includes a declared service. The phrase declared service is also defined in the said section as an activity carried out by a person for another for consideration and specified in section 66E of the Act. The following nine activities have been specified in section 66E: 1. renting of immovable property; 2. construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of certificate of completion by a competent authority; 3. temporary transfer or permitting the use or enjoyment of any intellectual property right; 4. development, design, programming, customization, adaptation, up gradation, enhancement, implementation of information technology software; 5. agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; 6. transfer of goods by way of hiring, leasing, licensing or any such manner without transfer of right to use such goods; 7. activities in relation to delivery of goods on hire purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... movable property, without transferring possession of such property, is also renting of immoveable property. 5.1.4 Would activities referred to in column 1 of a table below be chargeable to service tax? Sl. No. Nature of Activity Taxability 1. Renting of property to educational body Chargeable to service tax; no exemption 2. Renting of vacant land for animal husbandry or floriculture Not chargeable to service tax as it is covered in the negative list entry relating to agriculture 3. Permitting use of immoveable property for placing vending/dispensing machines Chargeable to service tax as permitting usage of space is covered in the definition of renting 4. Allowing erection of communication tower on a building for consideration. Chargeable to service tax as permitting usage of space is covered in the definition of renting 5. Renting of land or building for entertainment or sports Chargeable to service tax as there is no specific exemption. 6. Renting of theatres by owners to film distributors Chargeable to service tax as the arran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service tax be determined in such cases? In terms of explanation in section 66E in such cases the completion certificate issued by a architect or a chartered engineer or a licensed surveyor of the respective local body or development or planning authority would be treated as completion certificate for the purposes of determining chargeability of service tax. 5.3 Temporary transfer or permitting the use or enjoyment of any intellectual property right 5.3.1 What is the scope of the term intellectual property right ? Intellectual property right has not been defined in the Act. The phase has to be understood as it is understood in normal trade parlance as per which intellectual property right includes the following Copyright Patents Trademarks Designs Any other similar right to an intangible property 5.3.2 Would the temporary transfer of a patent registered in a country outside India also be covered under this entry? Since there is no condition regarding the law under which an intellectual right should be registered, temporary transfer of a patent registered outside India would be covered in this entry. However, it will become taxable only if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to delivery of goods on hire purchase or any system of payment by instalments 5.5.1 Is the delivery of goods on hire purchase of any system of payment by installments taxable? No. The delivery of goods on hire purchase or any system of payment on installment is not chargeable to service tax because as per Article 366(29A) of the Constitution of India such delivery of goods is deemed to be a sale of goods.(For guidance on this aspect please refer to point nos. 2.5.7 to 2.5.12 of this Guidance Paper) However activities or services provided in relation to such delivery of goods are covered in this declared list entry. 5.5.2 What is the scope of the phrase delivery of goods on hire purchase of any system of payment by installments? Please refer to point no 2.5.9 of this Guidance Paper. 5.5.3 If delivery of goods on hire purchase or any system of payment on installment is deemed to be sale of goods what are the activities in relation to such delivery which are covered in the declared service? It has been held by Supreme court in the case of Association Of Leasing Financial Service Companies Vs Union Of India [2010 (20) S.T.R. 417 (S.C.)] that in equipment leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; There must be a consensus ad idem as to the identity of the goods; The transferee should have legal right to use the goods consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee; For the period during which the transferee has such legal right , it has to be the exclusion to the transferor this is the necessary concomitant of the plain language of the statute, viz., a transfer of the right to use and not merely a license to use the goods; Having transferred, the owner cannot again transfer the same right to others. Whether a transaction amounts to transfer of right or not cannot be determined with reference to a particular word or clause in the agreement. The agreement has to be read as a whole, to determine the nature of the transaction. 5.6.2 Whether the transactions listed in column 1 of the table below involve transfer of right to use goods? S.No. Nature of transaction Whether transaction involves transfer of right to use 1 A car is given in hire by a person to a company along with a driver on payment of charges on per month ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act In terms of this entry the following activities if carried out by a person for another for consideration would be treated as provision of service. Agreeing to the obligation to refrain from an act. Agreeing to the obligation to tolerate an act or a situation. Agreeing to the obligation to do an act. 5.7.1 Would non-compete agreements be considered a provision of service? Yes. In case a company or any other person enters into a non-compete agreement with another person for a consideration then it would be a provision of service. 5.8 Service portion in execution of a works contract Works contract has been defined in section 65B of the Act as a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, improvement, repair, renovation, alteration of any building or structure on land or for carrying out any other similar activity or a part thereof in relation to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or otherwise be treated as a works contract? Such contracts would be treated as works contracts if Transfer of property in goods is involved in such a contract; and The machinery equipment structures are attached or embedded to earth after erection commissioning or installation. 5.8.5 What is the scope of building or structure on land ? Buildings and structures on land means not only buildings or structures attached to earth but also things permanently fastened to a building or structure attached to earth. 5.8.6. Would contracts for painting of a building, repair of a building, renovation of a building, wall tiling, flooring be covered under works contract ? Yes, if such contracts involve provision of materials as well. 5.8.7 What is the way to segregate service portion in execution of a works contract from the total contract? A simplified manner for determining the value of service portion of a works contract from the total works contract is given in Rule 2A of the Service Tax (Determination of Value) Rules, 2006 ( which will be amended partially for the negative list). In brief the value of the service portion is the gross amount charged for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stering, floor and wall tiling, installation of electrical fittings. sixty percent of the total amount charged for the works contract Important - total amount referred to in the second column of the table above would be the sum total of gross amount and the value of all goods and services supplied free of cost for use in or in relation to the execution of works contract, under the same contract or any other contract and, in case of (ii) in the table above, including the value of land charged as a part of the total consideration. 5.8.9 How is the value of goods or services supplied free of cost be determined to arrive at the total amount charged for a works contract? If the value of goods and services supplied free of cost for use in or in relation to execution of a works contract is not ascertainable, the same shall be determined on the basis of the fair market value of the goods or services that have close resemblance to goods made available. 5.8.10 What are original works ? Original works means : all new constructions; all types of additions and alterations to abandoned or damaged structures on land that are required to make them workabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, and which has a license to serve alcoholic beverage. Below the threshold exemption 5.9.3. How is the value of service portion to be determined? The manner of determination of service portion in such an activity is very simple and is proposed to be given in Rule 2C of the the Service Tax (Determination of Value) Rules, 2006 (as amended for the negative list). In terms of the said rule value of the service portion shall be determined in the following manner- Value of service portion .. Shall be .. percentage of the total amount charged: In a restaurant 40 By an outdoor caterer 60 Important - Total amount referred to in the second column of the table above would be the sum total of gross amount and the value of all goods supplied free of cost for use in or in relation to the supply of food or any other article of human consumption or any drink, under the same contract or any other contract. 5.9.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds 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. Guidance Note 7 Rules of Interpretation Despite doing away with the service-specific descriptions, there will be some descriptions where some differential treatment will be available to a service or a class of services. Section 66F lays down the principles of interpretation of specified descriptions of services and bundled services. These are explained in paras below 7.1 Principles for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iption of estate agent , the same shall prevail. Pandal and Shamiana is an existing service and will remain a subject of taxation. Likewise service provided by way of catering is a taxable service and entitled to abatement. There is abatement when the two are provided in combination. Since the combination is more a specific entry than the two provided individually, there is no need to apply the later rule of bundled services, where the character could be judged by the service which provides it the essential character. 7.2 Taxability of bundled services . Bundled service means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services. An example of bundled service would be air transport services provided by airlines wherein an element of transportation of passenger by air is combined with an element of provision of catering service on board. Each service involves differential treatment as a manner of determination of value of two services for the purpose of charging service tax is different. Two rules have been prescribed for determining the taxabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in sub-section (3) relating to bundled services . In other words, if a bundled service falls under a service specified by way of a description then such service would be covered by the description so specified. The illustration, relating to a bundled service wherein a pandal and shamiana is provided in combination with catering service, given in the second bullet in para 7.1.2 above explains the operation of this rule. 7.2.4 Manner of determining if the services are bundled in the ordinary course of business Whether services are bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators few of which are listed below The perception of the consumer or the service receiver. If large number of service receivers of such bundle of services reasonably expect such services to be provided as a package then such a package could be treated as naturally bundled in the ordinary course of business. Majority of service providers in a particular area of business provide similar bundle of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness entities. (b) Services by the Reserve Bank of India. (c) Services by a foreign diplomatic mission located in India. (d) Services relating to agriculture by way of (i) agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing; (ii) supply of farm labour; (iii) processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter essential characteristics of agricultural produce but make it only marketable for the primary market; (iv) renting or leasing of agro machinery or vacant land with or without a structure incidental to its use; (v) loading, unloading, packing, storage or warehousing of agricultural produce; (vi) agricultural extension services; (vii) services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce. (e) Trading of goods. (f) Any process amounting to manufacture or pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a person by way of:-- (a) renting of precincts of a religious place meant for general public; or (b) conduct of any religious ceremony; 6. Services provided to any person other than a business entity by:- (a) an individual as an advocate; or (b) a person represented on and as arbitral tribunals; 7. Services by way of technical testing or analysis of newly developed drugs, including vaccines and herbal remedies, on human participants by a clinical research organisation approved to conduct clinical trials by the Drug Controller General of India; 8. Services by way of training or coaching in recreational activities relating to arts, culture or sports; 9. Services provided:- (a) to an educational institution by way of catering under any centrally assisted mid day meals scheme sponsored by Government; (b) to or by an institution in relation to educational services, where the educational services are exempt from the levy of service tax, by way of transportation of students or staff; (c) to or by an institution in relation to educational services, where the educational services are exempt from the levy of service tax, by way of services in relation to admission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices by way of erection or construction of original works pertaining to:- (a) airport, port or railways; (b) single residential unit otherwise as a part of a residential complex; (c) low- cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the Scheme of Affordable Housing in Partnership framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India; (d) post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes; or (e) mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages; 15. Temporary transfer or permitting the use or enjoyment of a copyright covered under clause (a) or (b) of sub-section (1) of section 13 of the Indian Copyright Act, 1957 (14 of 1957), relating to original literary, dramatic, musical, artistic works or cinematograph films; 16. Services by a performing artist in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre, excluding services provided by such artist as a brand ambassador; 17. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bengal; or (b) a contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire; 24. Services by way of motor vehicle parking to general public excluding leasing of space to an entity for providing such parking facility; 25. Services provided to the Government or a local authority by way of: (a) repair of a ship, boat or vessel; (b) effluents and sewerage treatment; (c) waste collection or disposal; (d) storage, treatment or testing of water for drinking purposes; or (e) transport of water by pipeline or conduit for drinking purposes; 26. Services of general insurance business provided under following schemes: (a) Hut Insurance Scheme; (b) Cattle Insurance under Swarnajaynti Gram Swarozgar Yojna (earlier known as Integrated Rural Development Programme); (c) Scheme for Insurance of Tribals; (d) Janata Personal Accident Policy and Gramin Accident Policy; (e) Group Personal Accident Policy for Self-Employed Women; (f) Agricultural Pumpset and Failed Well Insurance; (g) premia collected on export credit insurance; (h) Weather Based Crop Insurance Scheme or the Modified National Agricultural Insurance Scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lack, during the course of manufacture of parts of cycles or sewing machines upto an aggregate value of taxable service of the specified processes of one hundred and fifty lakh rupees in a financial year subject to the condition that such aggregate value had not exceeded one hundred and fifty lakh rupees during the preceding financial year; 31. Services by an organiser to any person in respect of a business exhibition held outside India; 32. Services by way of making telephone calls from: (a) departmentally run public telephones; (b) guaranteed public telephones operating only for local calls; or (c) free telephone at airport and hospitals where no bills are being issued; 33. Services by way of slaughtering of bovine animals; 34. Services received from a service provider located in a non- taxable territory by - (a) the Government, a local authority or an individual in relation to any purpose other than industry, business or commerce; or (b) an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) for the purposes of providing charitable activities. Definitions. - For the purpose of these exemptions, unless the context otherwise require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic 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; or Explanation: - For the purpose of this clause, general public means the body of people at large sufficiently defined by some common quality of public or impersonal nature, 10. commodity exchange means an association as defined in section 2 (j) and recognized under section 6 of the Forward Contracts (Regulation) Act,1952, 11. contract carriage has the meaning assigned to it in clause (7) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988), 12. de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to make them workable, 24. principal manufacturer means any person who gets goods manufactured or processed on his account from another person, 25. recognized sports body means:- (i) the Indian Olympic Association, (ii) Sports Authority of India, (iii) a national sports federation recognised by the Ministry of Sports and Youth Affairs of the Central Government, and its affiliate federations, (iv) national sports promotion organisations recognised by the Ministry of Sports and Youth Affairs of the Central Government, (v) the International Olympic Association or a federation recognised by the International Olympic Association or (vi) a federation or a body which regulates a sport at international level, 26. religious place means a place which is primarily meant for conduct of prayers or worship pertaining to a religion, 27. residential complex means any complex comprising of a building or buildings, having more than one single residential unit, 25. rural area means the area comprised in a village as defined in land revenue records, excluding,- (i) the area under any municipal committee, municipal corporation, town area committee, cantonment board or n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st in India, or for personal use or for the use of the family members of diplomatic agents or career consular officers posted therein. E. Services by TBI or STEP 7. Taxable services provided by a Technology Business Incubator (TBI) or a Science and Technology Entrepreneurship Park (STEP) recognized by the National Science and Technology Entrepreneurship Development Board (NSTEDB) of the Department of Science and Technology, Government of India. F. Renting of an immovable property 8. Taxable service of renting of an immovable property, from so much of the service tax leviable theron, as is in excess of the service tax calculated on a value which is equivalent to the gross amount charged for renting of such immovable property less taxes on such property, namely property tax levied and collected by local bodies. G. Abatement 9. Exemption from so much of the service tax leviable, as is in excess of the service tax calculated on a value which is equivalent to a percentage specified in the corresponding entry in column (3) of the following Table, of the gross amount charged by such service provider for providing the said taxable service, subject to the relevant conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided to any person, by a tour operator in relation to a tour, if the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour 10 (i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii) The invoice, bill or challan issued indicates that it is towards the charges for such accommodation. (iii) This exemption shall not apply in such cases where the invoice, bill or challan issued by the tour operator, in relation to a tour, only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation. (iii) Services, other than services specified in (i) and (ii) above, provided or to be provided to any person, by a tour operator in relation to a tour 40 (i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii)The bill issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is realized that despite every effort made there would be some areas which require greater elaboration or even correction. Team TRU will be highly thankful for free and frank views on any aspect. 1.2 For whom are these rules meant? 1.2.1 These rules are primarily meant for persons who deal in cross border services. They will also be equally applicable for those who have operations with suppliers or customers in the state of Jammu and Kashmir. 1.2.2 Additionally service providers operating within India from multiple locations, without having centralized registration will find them useful in determining the precise taxable jurisdiction applicable to their operations. The rules will be equally relevant for determining services that are wholly consumed within a SEZ to avail the outright exemption. 1.2.3 As a precursor for the eventual roll out of a nation-wide GST, the new rules are also expected to provide a possible backdrop to initiate an honest debate in interested circles so as to fathom all the various issues that may arise in the taxation of inter-state services. 1.3 What is the basic philosophy of these rules? 1.3.1 The essence of indirect taxation is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s:- 1. Which rule applies to my service specifically? In case more than one rules apply equally, which of these come later in the order given in the rules? 2. What is the place of provision in terms of the above rule? 3. Is the place of provision in taxable territory? If yes, tax will be payable. If not, tax will not be payable. 4. Are you located in the taxable territory? If yes, you will pay the tax. 5. If not, is the service receiver located in taxable territory? If yes, he may be liable to pay tax on reverse charge basis. 6. Is the service receiver an individual or government receiving services for a non-business purpose, or a charity receiving services for a charitable activity? If yes, the same is exempted. 7. If not, he is liable to pay tax. 2.2 What is taxable territory ? What is its significance? 2.2.1 Taxable territory has been defined in sub-section 52 of section 65B. It means the territory to which the provisions of Chapter V of the Finance Act, 1994 apply i.e. whole of India excluding the state of Jammu and Kashmir. Non-taxable territory is defined in sub-section 35 ibid accordingly as the territory other than the taxable territory. 2.2.2 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewhere, the location of such establishment; iii. where services are provided or received at more than one establishment, whether business or fixed, the establishment most directly concerned with the provision or use of the service; and iv. in the absence of such places, the usual place of residence of the service provider or receiver. 2.4.2 This is indicated in Flow Diagram F1 on page 6 at the end of this section. 2.5 What is the meaning of business establishment ? 2.5.1 Business establishment is the place where the essential decisions concerning the general management of the business are adopted, and where the functions of its central administration are carried out. This could be the Head office, or a factory, or a workshop, or shop/ retail outlet. Most significantly, there is only one business establishment that a service provider or receiver can have. 2.6 What is the meaning of a fixed establishment ? 2.6.1 A fixed establishment is a place (other than the business establishment) which has the permanent presence of human and technical resources to provide or receive a service. Temporary presence of a staff by way of a short visit at a place cannot be calle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guage/other course). An individual cannot have more than one place of usual residence. 3. Rules Commentary 3.1 Main Rule- Rule 3- Location of the Receiver 3.1.1 What is the implication of this Rule? The main rule or the default rule provides that a service shall be deemed to be provided where the receiver is located. The main rule is applied when none of the other later rules apply (by virtue of rule 14 governing the order of application of rules- see para 3.12 of this guidance paper). In other words, if a service is not covered by an exception under one of the later rules, and is consequently covered under this default rule, then the receiver s location will determine whether the service is leviable to tax in the taxable territory. The principal effect of the Main Rule is that:- A. Where the location of receiver of a service is in the taxable territory, such service will be deemed to be provided in the taxable territory and service tax will be payable. B. However if the receiver is located outside the taxable territory, no service tax will be payable on the said service. 3.1.2 If the place of provision of a taxable service is the location of serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to make payment for the service provided on his behalf to another person. For instance, the provision of a service may be made at the headquarters of an entity by way of centralized sourcing of services whereas the actual provision is made at various locations. Here, the central office acts only as a facilitator to negotiate the contract on behalf of various geographical establishments. Each of the geographical establishments receives the service and is obligated to make the payment either through headquarters or sometimes directly. When the payment is made directly, there is no confusion. In other situations, where the payment is settled either by cash or through debit and credit note, it is clear that the payment is being made by such geographical location. It should be noted that in terms of proviso to section 66B, the establishments in a taxable and non-taxable territory are to be treated as distinct persons. Illustration The following example illustrates the above, by comparing the place of provision of services rendered under a Global Agreement1 vis- -vis a Global Framework Agreement2. AAA is a firm with its manufacturing unit and business establishment located in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y X)- under transaction 2, and By BBB-Y to AAA-Y (in country-Y) under transaction 3. c) AAA enters into separate agreements with AAA-X and AAA-Y, under which AAA Ltd provides IT services to them (transaction 4 and transaction 5). The transactions and provision of service under each are illustrated in the Flow diagram titled Scenario1 in the following page. Scenario 2 [See Flow Diagram F 3 below] AAA enters into a Framework Agreement with BBB for provision of IT services for the whole group. The Framework agreement covers the broad contours of supply between the two parties, payment milestones, obligations relating to confidentiality, penalty for default, limitations of liability and warranties etc, which would apply as and when group companies enter into separate agreements, in accordance with the terms envisaged in the framework agreement. BBB-X and BBB-Y could then enter into separate and independent business agreements with AAA-X and AAA-Y, in countries X and Y respectively, for provision of IT services. There are four agreements, but only three transactions involving provision of services, as indicated in the Flow diagram- Scenario 2 below. PROVISION OF SE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s services for clearance of imported personal effects, and furnish an address to which the goods are to be delivered. Normally in such cases, the provider will not be expected to make any detailed enquiry from a customer regarding his location , in the ordinary course of business. In such cases, it will be deemed that the place of provision of the service is the location of the service provider (in the taxable territory). 3.2 Rule 4- Performance based Services In case of certain specified categories of services, the place of provision shall be the place where the services are performed. These are discussed in the following paragraphs. 3.2.1 What are the services that are provided in respect of goods that are made physically available, by the receiver to the service provider, in order to provide the service ?- sub-rule (1): Services that are related to goods, and which require such goods to be made available to the service provider so that the service can be rendered, are covered here. Examples of such services are repair, reconditioning, or any other work on goods (not amounting to manufacture), storage and warehousing, courier service, cargo handling service (loading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation of this proviso:- An Electrical engineering firm located in India deputes its engineers to undertake repairs at a hydel power plant in Bhutan (which is owned by say, Govt of Bhutan). Place of provision of this service will be Bhutan i.e outside taxable territory. An airline company in India gets its aircraft repaired at a hanger at Mumbai airport, by engineers deputed by an overseas firm (say, Airbus, France) who travel from Toulouse, France to Mumbai for the purpose. The place of provision of this service is in the taxable territory, and more specifically, Mumbai. A foreign music troupe, undertaking a tour in four Indian cities, obtains the services of an Indian cargo handling firm to move its sound and music equipment between the four cities. The place of provision of this service is in the taxable territory, notwithstanding the location of the receiver. Illustration An IT firm located in Bangalore provides repair service in respect of software, to an IT company at its establishment in Singapore by way of electronic means. The place of provision of this service will be Singapore. The position will remain the same even if the service receiving firm has its bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice on behalf of the modeling agency. Hence, notwithstanding that the modeling agency does not qualify as the individual receiver in whose presence the service is rendered, the nature of the service is such as can be rendered only to an individual, thereby qualifying to be covered under this rule. Illustration 2 A modeling agency contracts with a beauty parlour for beauty treatment of say, 20 models. Here again is a situation where the modeling agency is the receiver of the service, but the service is rendered to the models, who are receiving the beauty treatment service on behalf of the modeling agency. Hence, notwithstanding that the modeling agency does not qualify as the individual receiver in whose presence the service is rendered, the nature of the service is such as can be rendered only to an individual, thereby qualifying to be covered under this rule. 3.3 Rule 5- Location of Immovable Property In the case of a service that is directly in relation to immovable property , the place of provision is where the immovable property (land or building) is located, irrespective of where the provider or receiver is located. 3.3.1 What is immovable property ? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting and decorating) of any building or civil engineering work; ii) Renting of immovable property; iii) Services of real estate agents, auctioneers, architects, engineers and similar experts or professional people, relating to land, buildings or civil engineering works. This includes the management, survey or valuation of property by a solicitor, surveyor or loss adjuster. iv) Services connected with oil/gas/mineral exploration or exploitation relating to specific sites of land or the seabed. v) The surveying (such as seismic, geological or geomagnetic) of land or seabed. vi) Legal services such as dealing with applications for planning permission. vii) Packages of property management services which may include rent collection, arranging repairs and the maintenance of financial accounts. viii) The supply of hotel accommodation or warehouse space. 3.3.4 What if a service is not directly related to immovable property? The place of provision of services rule applies only to services which relate directly to specific sites of land or property. It does not apply if a supply of services has only an indirect connection with the immovable property, or if the service is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be non-taxable. 3.4.3 What is a service ancillary to admission? A service of hiring a specific equipment to enjoy the event at the venue (against a charge that is not included in the price of entry ticket) is an example of a service that is ancillary to admission. For example, the service of providing facility of golf carts (with attendant/driver) to elderly persons, to facilitate their movement within the golf course, during a golf tournament. 3.4.4 What are event-related services that would be treated as not ancillary to admission to an event? A service of courier agency used for distribution of entry tickets for an event is a service that is not ancillary to admission to the event. 3.5 Rule 7- Part performance of a service at different locations 3.5.1 What does this Rule imply? This Rule covers situations where the actual performance of a service is at more than one location, and occasionally one (or more) such locations may be outside the taxable territory. This Rule states as follows:- Where any service stated in rules 4, 5, or 6 is provided at more than one location, including a location in the taxable territory, its place of provision shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the ordinary course. Similarly, in case of services rendered, where both the provider and receiver of the service are located outside the taxable territory, there is no mechanism to collect tax. An Indian firm provides a technical inspection and certification service for a newly developed product of an overseas firm (say, for a newly launched motorbike which has to meet emission standards in different states or countries). Say, the testing is carried out in Maharashtra (20%), Kerala (25%), and an international location (say, Colombo 55%). Notwithstanding the fact that the greatest proportion of service is outside the taxable territory, the place of provision will be the place in the taxable territory where the greatest proportion of service is provided, in this case Kerala. Illustration A helicopter of Pawan Hans Ltd (India based) develops a technical snag in Nepal. Say, engineers are deputed by Hindustan Aeronautics Ltd, Bangalore, to undertake repairs at the site in Nepal. But for this rule, Rule 4, sub-rule (1) would apply in this case, and the place of provision would be Nepal i.e outside the taxable territory. However, by application of Rule 7, since the servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... banking services; iii) Securities and foreign exchange (forex) broking, and purchase or sale of foreign currency, including money changing; iv) asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services; v) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy; vi) banker to an issue service. In the case of any service which does not qualify as a service provided to an account holder, the place of provision will be determined under the default rule i.e the Main Rule 3. Thus, it will be the location of the service receiver where it is known (ascertainable in the ordinary course of business), and the location of the service provider otherwise. 3.7.5 What is the place of provision of telecommunication services? The place of provision of telecommunication services provided to subscribers is the location of the service provider. Thus, a provider of telecommunication services, who is located in India, will be liable to pay tax on any service provided to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principal and the third party; and ii) the supply of his own service (agency service) to his principal, for which a fee or commission is usually charged. For the purpose of this rule, an intermediary in respect of goods (commission agent i.e a buying or selling agent) is excluded by definition. In order to determine whether a person is acting as an intermediary or not, the following factors need to be considered:- Nature and value: An intermediary cannot alter the nature or value of the service, the supply of which he facilitates on behalf of his principal, although the principal may authorize the intermediary to negotiate a different price. Also, the principal must know the exact value at which the service is supplied (or obtained) on his behalf, and any discounts that the intermediary obtains must be passed back to the principal. Separation of value: The value of an intermediary s service is invariably identifiable from the main supply of service that he is arranging. It can be based on an agreed percentage of the sale or purchase price. Generally, the amount charged by an agent from his principal is referred to as commission . Identity and title: The service pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lace of destination of goods, except in the case of services provided by a Goods Transportation Agency for transportation of goods by road, in which case the place of provision is the location of the person liable to pay tax (as determined in terms of rule 2(1)(d) of Service Tax Rules, 1994. Illustration A consignment of cut flowers is consigned from Chennai to Amsterdam. The place of provision of goods transportation service will be Amsterdam (outside India, hence not liable to service tax). Conversely, if a consignment of crystal ware is consigned from Paris to New Delhi, the place of provision will be New Delhi. 3.8.3 What does the proviso to this Rule imply? The proviso to this Rule states as under:- Provided that the place of provision of services of transportation of goods by goods transportation agency shall be the location of the person liable to pay tax. Sub-rule 2(1)(d) of Service Tax Rules, 1994 provides that where a service of transportation of goods is provided by a goods transportation agency , and the consignor or consignee is covered under any of the specified categories prescribed therein , the person liable to tax is the person who pays, or is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onveyance for a continuous journey. 3.9.2 What does a continuous journey mean? A continuous journey means a journey for which:- (i) a single ticket has been issued for the entire journey; or (ii) more than one ticket or invoice has been issued for the journey, by one service provider, or by an agent on behalf of more than one service providers, at the same time, and there is no scheduled stopover in the journey 3.9.3 What is a stopover ? Stopover means a place where a passenger disembarks from the conveyance. 3.9.4 The Table below contains illustrations which explain the principle enunciated in this Rule. Illustrations S. No. Journey Place of Provision Taxability Single Ticket 1 Mumbai-Delhi Mumbai Yes, Mumbai, being the place of only embarkation 2 Mumbai-Delhi-Mumbai Mumbai Yes, Mumbai, being the place of embarkation where the continuous journey begins 3 Mumbai-Delhi-London-Delhi-London Mumbai -do- 4 Delhi-London-New York-London-New York Delhi Yes, New Delhi, being the place of provision for con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.10 Rule 12- Services provided on board conveyances 3.10.1 What are services provided on board conveyances? Any service provided on board a conveyance (aircraft, vessel, rail, or roadways bus) will be covered here. Some examples are on-board service of movies/music/video/ software games on demand, beauty treatment etc, albeit only when provided against a specific charge, and not supplied as part of the fare. 3.10.2 What is the place of provision of services provided on board conveyances? The place of provision of services provided on board a conveyance during the course of a passenger transport operation is the first scheduled point of departure of that conveyance for the journey. Illustration A video game or a movie-on-demand is provided as on-board entertainment during the Kolkata-Delhi leg of a Bangkok-Kolkata-Delhi flight. The place of provision of this service will be Bangkok (outside taxable territory, hence not liable to tax). If the above service is provided on a Delhi-Kolkata-Bangkok-Jakarta flight during the Bangkok-Jakarta leg, then the place of provision will be Delhi (in the taxable territory, hence liable to tax). 3.11 Rule 13- Power to noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e Dubai (outside the taxable territory). With this result, the service would not be taxable in India. Whereas, by application of Rule 8, since both the provider and the receiver are located in taxable territory, the place of provision would be the location of the service receiver i.e New Delhi. Place of provision being in the taxable territory, the service tax would be taxable in India. By application of Rule 14, the later of the Rules i.e Rule 8 would be applied to determine the place of provision. Illustration 2 For the Ms Universe Contest planned to be held in South Africa, the Indian pageant (say, located in Mumbai) avails the services of Indian beauticians, fashion designers, videographers, and photographers. The service providers travel as part of the Indian pageant s entourage to South Africa. Some of these services are in the nature of personalized services, for which the place of provision would normally be the location where performed (Performance rule-Rule 4), while for others, under the main rule (Receiver location) the place of provision would be the location of receiver. Whereas, by application of Rule 8, since both the provider and the receiver are located ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of service between two or more persons; (g) leg of journey means a part of the journey that begins where passengers embark or disembark the conveyance, or where it is stopped to allow for its servicing or refueling, and ends where it is next stopped for any of those purposes; (h) location of the service provider means- (A). where the service provider has obtained a single registration, whether centralized or otherwise, the premises for which such registration has been obtained; (B). where the service provider is not covered under sub-clause (A): (i) the location of his business establishment; or (ii) where the services are provided from a place other than the business establishment, that is to say, a fixed establishment elsewhere, the location of such establishment; or (iii) where services are provided from more than one establishment, whether business or fixed, the establishment most directly concerned with the provision of the service; and (iv) in the absence of such places, the usual place of residence of the service provider. (i) location of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he location of the service receiver: Provided that in case the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the service provider. 4. Place of provision of performance based services.- The place of provision of following services shall be the location where the services are actually performed, namely:- (a) services provided in respect of goods that are required to be made physically available by the service receiver to the service provider, in order to provide the service: Provided that when such services are provided from a remote location by way of electronic means the place of provision shall be the location where goods are situated at the time of provision of service; (b) services provided in conjunction with the supply of goods under another contract by the service provider; (c) services provided entirely or predominantly, in the ordinary course of business, in the physical presence of an individual, represented either as the service receiver or a person acting on behalf of the receiver. 5. Place of provision of services relating to immovable property.- The place of provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passenger transportation services.- The place of provision in respect of a passenger transportation service shall be the place where the passenger embarks on the conveyance for a continuous journey. 12. Place of provision of services provided on board a conveyance.- Place of provision of services provided on board a conveyance during the course of a passenger transport operation, including services intended to be wholly or substantially consumed while on board, shall be the first scheduled point of departure of that conveyance for the journey. 13. Powers to notify description of services or circumstances for certain purposes.- In order to prevent double taxation or non-taxation of the provision of a service, or for the uniform application of rules, the Central Government shall have the power to notify any description of service or circumstances in which the place of provision shall be the place of effective use and enjoyment of a service. 14. Order of application of rules.- Notwithstanding anything stated in any rule, where the provision of a service is, prima facie, determinable in terms of more than one rule, it shall be determined in accordance with the rule that oc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Central Excise, as the case may be, within a period of thirty days of such change or addition. (6) The registration on an application made under sub-rule (1) or sub-rule (4), as the case may be, shall be granted by the Superintendent of Central Excise. (7) The Superintendent of Central Excise shall grant a certificate of registration or a revised certificate of registration pursuant to information furnished under sub- rule (5) in Form ST-2 within seven days from the date of receipt of the completed application or the information under sub-rule (5). If the registration certificate or the revised certificate is not granted within the said period, the registration applied for shall be deemed to have been granted or the information furnished under sub-rule (5) shall be deemed to be incorporated in the registration certificate. (8) Where the registered assessee transfers his business to another person, the transferee shall obtain a fresh certificate of registration. (9) Every registered assessee who ceases to provide taxable services shall submit his request for surrender of his registration certificate to the Superintendant of Central Excise within seven days after submittin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... <![endif]--><!--[if gte mso 10]> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin-top:0in; mso-para-margin-right:0in; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0in; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} table.MsoTableGrid {mso-style-name:"Table Grid"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-priority:59; mso-style-unhide:no; border:solid windowtext 1.0pt; mso-border-alt:solid windowtext .5pt; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-border-insideh:.5pt solid windowtext; mso-border-insidev:.5pt solid windowtext; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e existing rates proportionately by 20%; iii Distributor or selling agent of lotteries: Raising the specified amounts proportionately and suitably rounded off to Rs 7,000 and 11,000; iv For works contracts from 4% to 4.8%. 3. The rate for Cenvat reversal for exempt services has been revised likewise from 5% to 6% in Rule 6(3) of Cenvat Credit Rules (CCR), 2004 . 4. The dual tax structure for air transportation: partly specific, partly ad valorem - is being replaced with a uniform ad-valorem levy at standard rate with an abatement of 60% on all sectors and all classes. 5. All these changes will be effective April 1, 2012. B. Taxation of services: B.1. Negative List: 1. There is paradigm shift in the way services are proposed to be taxed in future. Taxation will be based on what is popularly known as Negative List of Services . 2. In simple words, it means that if an activity meets the characteristics of a service it is taxable unless specified in the Negative list, comprising 17 heads listed in proposed new section 66D, or otherwise exempted by a notification issued under section 93 of the Act. Most of the 88 exemptions at present will be either rescind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... changes in respect of person liable to pay tax: to provide for recipient persons relating to services provided to business entities by government, advocates or arbitrators, change in services provided from non-taxable territory, some changes to services provided by GTA and the deletion of all those services that are now exempt e.g. mutual funds agents and distributers. 11. Since the Export Rules will cease to apply, the required provisions will be incorporated in Service Tax Rules. A transaction will qualify as export when it meets following requirements: i The service provider is located in Taxable territory; ii Service recipient is located outside India; iii Service provided is a service other than in the negative list. iv The Place of Provision of the service is outside India; and v The payment is received in convertible foreign exchange B. 3(II). Valuation Rules 12. Negative list will require movement away from service-specific provisions. As such, the abatements under Notification 1/2006-ST and composition rate under the Works Contract (composition scheme for payment of service tax) Rules, 2007 will need some reformulations. 13. A new valuation rule is be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . S. No.1 provided from a premises elsewhere(outdoor catering) 50% 60% 19. Further, it is proposed to amend Rule 3 of valuation rules to provide that prescribed manner in Rule 3 will be applicable only in the cases where valuation is not ascertainable. At present Rule 3 has been inadvertently made applicable to situation where consideration received is not wholly or partly consisting of money, which is fully covered by the Act. 20. Rule 6 of Valuation Rules prescribes inclusions and exclusions to the taxable value. Following changes are being made here: i Sub-rule (1) to include any amount realized as demurrage, or by any other name, for the provision of a service beyond the period originally contracted or in any other manner relatable to the provision of service . This change will become relevant in the context of negative list where such amounts may be collected in the name of demurrage but will actually be in all respects a service. ii In sub-rule (2) clause (iv) regarding exclusion of interest on loans is proposed for substitution with interest on (a) deposits; and (b) delayed payment of any consideration for the provisions made (services/g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he definition of output service such that it includes exports of service and that too without payment being received until the period available under the RBI requirements. This will allow continuation of the benefit of not reversing the input tax credits for exports without treating them exempt until the period specified for realizing export proceeds. 26. Interest on loans, advances will now be an exempt service. This will require reversal of credits used for earning such income. For the banking and financial sector, provisions are available to reverse credits up to 50% in rule 6(3D). It is being proposed to change this formula to actual basis, the value of service being net interest i.e. interest earned less interest paid on deposits, subject to a minimum of 50% 0f interest paid on deposits. For the non-financial sector it is being proposed that they may reverse credits on gross interest basis. B. 3(V). Rebate of service tax on export of goods: 27. The scheme for electronic refund of service tax paid on taxable services (eighteen different taxable services) used for export of goods at the post-manufacture /post-removal stage has been made operational since 3rd January, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent to the previous notice(s) on same grounds; iii Reference to sub-section (3) is being deleted in sub-section (4A) so that the latter section will not overrule the earlier; 5. Provisions relating to Settlement Commission are being brought in the Service Tax by adding sections 31, 32 and 32A to 32P of the Central Excise Act in section 83. On the date of the enactment of the Finance Bill, notification containing Service Tax (Settlement of Cases) Rules, 2007 along the lines of Central Excise (Settlement of Cases) Rules, 2007, will come into effect. This should encourage quick settlement of disputes and save the business from the worries of prosecution in certain situations. 6. The periods for filing appeals in service tax are being aligned with Central Excise. These are captured by relevant amendments in sections 85 and 86. New limitations will apply to decisions or orders passed after the date on which Finance Bill, 2012, receives the assent of the President. 7. At present in service tax, appeals against the order of commissioner (appeals) lie before the Tribunal; whereas in Central Excise, a revision mechanism is available to hear certain specified matters i.e. cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d taxable services and to the extent specified against each one of them. 14. The scheme is being introduced for three services where the service provider is either an individual or a firm or LLP and the recipient is a body corporate. The three services and the portion of tax payable are as follows: Sl. No. Description of service Service recipient Service provider 1. Hiring of a motor vehicle designed to carry passengers: (a) with abatement (b) without abatement 100% 40% NIL 60% 2. Supply of manpower for any purpose 75% 25% 3. Works contract service 50% 50% 15. It is clarified that the liability of the two persons is for respective amounts and is not influenced by compliance or the lack of it by the other side. Service provider is allowed Cenvat credit of tax paid by him on inputs and input services. The respective portions have been attempted such that the credits available will be well below the amount required to be paid by such persons. In extreme situations the small service provider is also being allowed the refund of unutilized C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e negative list when such repair will be exempted by the new mega notification. 23. These changes will come into effect when the Bill receives the Presidential assent barring C.1.1 reverse charge that will come into effect along with Negative List. D. Point of Taxation Rules, 2011 1. The time period for issuance of invoice is being increased to 30 days ordinarily and 45 days for banks and financial institutions (to reconcile with the business practice of issuing monthly statement). These changes are being provided in Rule 4A of Service Tax Rules and the time period so defined is being incorporated in POT Rules. 2. In case of export of services and eight specified services provided by individuals or firms, the point of taxation is the date of payment. The special dispensation is being shifted from the POT Rules to the Service Tax Rules. This would help provide certainty in the application of rate of tax while retaining the benefit of payment of tax until payment is received. 3. In case of exporters, the period extended by the Reserve Bank of India is now explicitly included in the period for which the tax is allowed to be deferred. 4. The benefit available to individ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of added facilitation, an option has been provided to determine the point of taxation in respect of small advances up to Rs 1000, in excess of the amount indicated in the invoice, on the basis of invoice or completion of service rather than payment. Such provision is expected to address the accounting problems faced by service providers in telecommunications, credit card businesses who regularly receive minor excess payments from their customers. 11. A residual rule has been made by way of best judgement to handle situations where the tax-payer is unable to furnish one or more of the details needed i.e. date of payment or date of invoice or both to determine POT. 12. And lastly, the small scale exemption has also been amended recognizing that the first clearances up to Rs 10 lakhs will be in terms of invoices and not mere payments received. 13. These changes come into effect from April 1, 2012. E. Service Tax Rules, 1994: 1. A common simplified registration format for Central Excise and Service Tax is being placed for public comments, together with further liberalization in registration requirements, particularly centralized registrations. The proposed changes are at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey are brought to the premises of the service provider. Sub-rules 4(1) and 4(2) have been amended to allow credit without bringing them into premises subject to due documentation regarding their delivery and location. 6. Rule 9(1)(e) is being amended to allow availment of credit on the tax payment challan in case of payment of service tax by all service receivers on reverse charge. 7. Changes are being made in Rule 7 relating to distribution of credits of input services by an input service distributer (ISD) to ensure their scientific allocation to only such units where they have been put to use and proportionate to turnover. For example in case of services by way of advertisement- i if the advertisement is for a product or service provided from only one unit, the said credit shall be distributed only to that unit; and if two units, the said credit shall be distributed only to those two units, in proportion to the respective turnovers; ii if the advertisement is for the company as such, the said credit shall be distributed only to the extent of the turnover of units registered and entitled to avail Cenvat credit to the total turnover of the company including unregistered un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teps of fruition. The best part of the whole exercise has been the process of transparency that could be observed in putting, not one but two, concept papers in public domain as also the whole-hearted contribution of uncountable people through their valuable comments and insights. 6. Our journey so far has emboldened us to place before all stakeholders both the draft guidance papers as well as acquaint them with practically all the changes that will unfold later when the negative list is introduced. We remain conscious that these clarifications may not sometime capture all the various complexities of diverse businesses that service tax is required to confront with. To that extent the quest to pursue doubts and improve upon the answers already furnished will persist. 7. We expect the negative list, together with all the other changes, to spearhead the most positive changes in the field of service taxation: to reduce litigation and compliance costs and pave the way for long-term stability. If this dream is realized, it would be worth all the effort that the team has relentlessly put in over the last one year. 8. And before concluding, respectful thanks to all my seniors for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all stakeholders before it attains finality. 1.3 What is the key to using this Guidance Paper? The guidance paper consists of a number of Guidance Notes. Each of the notes deals with a specific topic relating to the proposed new system of taxation based on the negative list, as summed up in para 1.2 above. The list of these guidance notes is as follows- Guidance Note 1 Introduction Guidance Note 2 What is service ? Guidance Note 3 Taxability of a service Guidance Note 4 Negative List Guidance Note 5 Declared Services Guidance Note 6 Exemptions Guidance Note 7 Rules of interpretation In addition, the Guidance Paper has the following three Exhibits: Exhibit A1 - List of services specified in the negative list Exhibit A2 List of exemptions in mega notification Exhibit A3 - Gist of other proposed exemptions 1.4 What is the broad the scheme of new taxation? In the new system, service tax will be levied on all services provided in a taxable territory other than the services specified in the negative list. The key features of this system are as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of sale, gift or in any other manner a transaction only in (iii) money or (iv) actionable claim any service provided by an employee to an employer in the course of the employment. fees payable to a court or a tribunal set up under a law for the time being in force There are three explanations appended to the definition of service which are dealt with in later part of this Guidance Note. Each of the ingredients bulleted above have been explained in the points below. 2.1 Activity 2.1.1 What does the word activity signify? Activity has not been defined in the Act. In terms of the common understanding of the word activity would include an act done, a work done, a deed done, an operation carried out, execution of an act, provision of a facility etc. It is a term with very wide connotation. Activity could be active or passive and would also include forbearance to act. Agreeing to the obligation to refrain from an act or to tolerate an act or a situation has also been specified as a declared service under section 66E of the Act. 2.2 Consideration 2.2.1 The phrase consideration has not been defined in the Act. What is, therefore, the meaning of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning or forbearing to do an act in return for provision of service Tolerating an act or a situation in return for provision of a service Doing or agreeing to do an act in return for provision of service Illustrations If And in return A agrees to dry clean B s clothes B agrees to click A s photograph A agrees not to open dry clean shop in B s neighborhood B agrees not to open photography shop in A s neighborhood A agrees to design B s house B agrees not to object to construction of A s house in his neighborhood A agrees to construct 3 flats for B on land owned by B B agrees to provide one flat to A without any monetary consideration Then For the services provided by A to B, the acts of B specified in 2nd column are non- monetary consideration provided by B to A. Conversely, for services provided by B to A, similar reasoning will be adopted. 2.2.5 Is the value of non-monetary consideration important? Yes. The non-monetary consideration also needs to be valued for determining the tax payable on the taxable service since service tax is levied on the value of consideration rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the agreement that was entered into for provision of service. 5. Security deposit that is returnable on completion of provision of service. Returnable deposit is in the nature of security and hence do not represent consideration for service. 6. Security deposits forfeited for damages done by service receiver in the course of receiving a service If the forfeited deposits relate to accidental damages due to unforeseen actions not relatable to provision of service then such forfeited deposits would not be a consideration in terms a clause proposed to be inserted in rule 6 of the Valuation Rules. 7. Fines and penalties paid for violation of provisions of law. These are not considerations as no service is received in lieu of payment of such fines and penalties. 8. Excess payment made as a result of a mistake If returned it is not consideration. If not returned and retained by the service provider it becomes a part of the taxable value. 9. Demurrages payable for use of services beyond the period initially agreed upon e.g. use of containers beyond the normal period. This will be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t: an individual a Hindu undivided family a company a society a limited liability partnership a firm an association or body of individuals, whether incorporated or not Government (Central and State Governments, will be separate persons) a local authority, or every artificial juridical person, not falling within any of the preceding sub-clauses. 2.3.4 Are Government and local authorities also liable to pay tax? Yes. However, most of the services provided by the Government or local authorities are in the negative list. 2.3.5 What is the rationale behind taxing certain activities of the Government or local authorities? Only those activities of Government or local authorities are taxed where they compete with private entities. The rationale is as follows- to provide a level playing field to private entities in these areas as exemption to Government in such activities would lead to competitive inequities; and to avoid break in Cenvat chain as the support services provided by Government are normally in the nature of intermediary services. 2.3.6 Would taxable services provided by Government or local authorities still be taxable if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty is not included as service. A transaction which in addition to a transfer of title in goods or immovable property involves an element of another activity carried out or to be carried out by the person transferring the title would not be excluded from the definition of service. 2.5.3 Would the answer to 2.5.2 mean that all composite transactions which in addition to a transfer of title in goods involve an element of provision of service be considered as a service and taxable as such? No. The manner of treatment of such composite transactions for the purpose of taxation, i.e. are they to be treated as sale of goods or provision of service, has been laid down by the Honorable Supreme Court in the case of Bharat Sanchar Nigam Limited vs Union of India [2006(2)STR161(SC)]. The relevant paras 42 and 43 of the said judgment are reproduced below - 42. Of all the different kinds of composite transactions the drafters of the 46th Amendment chose three specific situations, a works contract, a hire purchase contract and a catering contract to bring within the fiction of a deemed sale. Of these three, the first and third involve a kind of service and sale at the same time. Apa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice. The test whether a transaction is a composite transaction is that did the parties intend or have in mind that separate rights arise out of the constituent contract of sale and contract of service. If no then such transaction is a composite transaction even if the contracts could be disintegrated. The nature of a composite transaction, except in case of two exceptions carved out by the Constitution, would be determined by the element which determines the dominant nature of the transaction. If the dominant nature of such a transaction is sale of goods or immovable property then such transaction would be treated as such. If the dominant nature of such a transaction is provision of a service then such transaction would be treated as a service and taxed as such even if the transaction involves an element of sale of goods. In case of works contracts and service wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as part of the service the dominant nature test does not apply and service portion is taxable as a service This has also been declared as a service under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be declared by the Central Government to be securities. Rights or interest in securities. 2.5.6 What are the implications of inclusion of securities as goods ? The definition of goods has essentially been borrowed from the Sale of Goods Act, 1930 with the only variation that in the inclusion clause of the said definition the phrase stocks and shares been replaced with securities . In effect, therefore, activities that are in the nature of only transfer of title by way of sale, redemption, purchase or acquisition of securities on principal-to-principal basis, excluding services of dealers, brokers or agents in relation to such transactions, are outside the ambit of services. However activities which are not in the nature of transfer of title in securities (for example a person agreeing not to exercise his right in a security for a given period of time for a consideration) would not be included in this exclusion clause to the definition of service. 2.5.7 Are deemed sales defined in article 366(29A) of the Constitution also included in the ambit of sale ? Yes. The six categories of deemed sales as defined in article 366(29A) of the Constitution are also i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son has a right to terminate the agreement at any time before the property so passes. As per the Sales of Goods Act by Mulla (Seventh Edition. Page 14) delivery is voluntary dispossession in favour of another and that in all cases the essence of delivery is that the deliveror, by some apt and manifest act, puts the deliveree in the same position of control over thing, either directly or through a custodian, which he held himself immediately before the act . The nature of such arrangements has been explained by the Supreme Court in the case of Association Of Leasing Financial Service Companies Vs Union Of India [2010 (20) S.T.R. 417 (S.C.)]. The relevant extract in para 20 of the said judgement is reproduced below: 20. According to Sale of Goods Act by Mulla [6th Edition] a common method of selling goods is by means of an agreement commonly known as a hire-purchase agreement which is more aptly described as a hiring agreement coupled with an option to purchase, i.e., to say that the owner lets out the chattel on hire and undertakes to sell it to the hirer on his making certain number of payments. Key ingredients of the deemed sale category of delivery of goods on hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey received for the face value of such instrument would not be consideration for a service since to the extent of face value of the instrument it is only a transaction in money. 2.6.4 Would debt collection services or credit control services be considered to be transaction only in money? No. Such services provided for consideration are taxable. 2.6.5 What are actionable claims? As per section 3 of the Transfer of Property Act, 1893 actionable claims means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent. Illustrations of actionable claims are - Unsecured debts Right to participate in the draw to be held in a lottery. 2.6.6 If an unsecured debt is transferred to a third person for a consideration would this activity be treated as service? No. Since unsecured debt is an actionable claim, a transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho is not deemed as an employee. Explanation 2 creates two exceptions, by way of a deeming provision, to the general rule that only services provided by a person to another are taxable. As per these deeming provisions establishment of a person located in taxable territory and establishment of such person located in non-taxable territory are deemed to be establishments of distinct persons. Further an unincorporated association or body of persons and members thereof are also deemed as separate persons. For implications please see point no 2.3.2 of this Guidance Paper. Explanation 3 explains that a branch or an agency of a person through which the person carries out business is also an establishment of such person. Guidance Note 3 Taxability of services The taxability of services or the charge of service tax has been specified in section 66B of the Act. To be a taxable a service should be provided or agreed to be provided by a person to another in the taxable territory and should not be specified in the negative list. 3.1 Provided or agreed to be provided 3.1.1 What is the significance of the phrase agreed to be provided ? The phrase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of services has been specified in section 66D of the Act. For the sake of simplicity the negative list of services has been reproduced in Exhibit AI to this Guidance Paper. For guidance on the negative list please refer to Guidance Note 4. 3.4 Relevant Questions relating to taxability of services 3.4.1 How do I know that I am performing a taxable service in the absence of a positive list? The drill to identify whether you are providing taxable service is very simple. Pose the questions listed in Step 1 and Step 2 below- Step 1 To determine whether you are providing a Service Pose the following questions to yourself S.NO. QUESTION ANSWER 1 2 1 Am I doing an activity (including, but not limited to, an activity specified in section 65E of the Act) for another person*? Yes 2 Am I doing such activity for a consideration? Yes 3 Does this activity consist only of transfer of title in goods or immovable property by way of sale, gift or in any other manner? No 5 Does this activity consist only of a transaction in money or actionable claim? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other taxable services provided by you. 3.4.3 How do I know that the service provided by me is an exempt service? There are nearly 10 exemption notifications that will be finally issued under section 93 of the Act of which the main exemption is proposed to have 34 heads (mega notification). If the service provided by you fits into the nature and description of services specified in these notifications then the service being provided by you is an exempted service. For the sake of convenience the proposed mega exemption notification and gist of other proposed notifications has been reproduced in Exhibits A2 and A3 of this Guidance Paper respectively. (Please also refer to Guidance Note 6 for guidance on exemptions) 3.4.4 Are declared services also covered by exemptions? Yes. 3.4.5 Are services other than declared services taxable? Yes. All services, whether declared or not, which are covered under Section 66B of the Act are taxable if elements of taxability are present. The only purpose behind declaring activities as service is to bring uniformity in assessment of such activity across the country. Guidance Note 4 Negative List of Services In terms of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government as contained in the General Clause Act, 1857 and as per the settled position of law such corporations or authorities or companies are not included in the definition of Government . Services provided by such entities would, therefore, not be entitled to the negative list entry relating to the Government . It would also not include regulatory bodies. 4.1.5 What entities are then covered under Government ? Government would include various departments and offices of the Central or State Government or the U.T. Administrations which carry out their functions in the name and by order of the President of India or the Governor of a State. 4.1.6 Would a department of the Government need to get itself registered for each of the services listed in answer to Q. No.4.1.1 above? For the support services provided by the Government to business entities government departments will not have to get registered because service tax will be payable on such services by the service receiver i.e. the business entities receiving the service under reverse charge mechanism in terms of the provisions of section 68 of the Act and the notification proposed to be issued under the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. 4.4 Services relating to agriculture The services relating to agriculture that are specified in the negative list are services relating to agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing; supply of farm labour; processes carried out at the agricultural farm including tending, pruning, cutting, harvesting, drying cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter essential characteristics of agricultural produce but makes it only marketable for the primary market; renting of agro machinery or vacant land with or without a structure incidental to its use; loading, unloading, packing, storage and warehousing of agricultural produce; agricultural extension services; services provided by any Agricultural Produce Marketing Committee or Board or services provided by commission agent for sale or purchase of agricultural produce; 4.4.1 What is the meaning of agriculture ? Agriculture has been defined in the Act as cultivation of plants and reari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edge to agricultural practices through farmer education or training. 4.4.8 What are the services referred to in the negative list entry pertaining to Agricultural Produce Marketing Committee or Board? Agricultural Produce Marketing Committees or Boards are set up under a State Law for purpose of regulating the marketing of agricultural produce. Such marketing committees or boards have been set up in most of the States and provide a variety of support services for facilitating the marketing of agricultural produce by provision of facilities and amenities like shops, sheds, water, light, electricity, grading facilities etc. They also take measures for prevention of sale or purchase of agricultural produce below the minimum support price. APMCs collect market fees, license fees, rents etc. Services provided by such Agricultural Produce Marketing Committee or Board are covered in the negative list. 4.5 Trading of goods 4.5.1 Would activities of a commission agent or a clearing and forwarding agent who sells goods on behalf of another for a commission be included in trading of goods? No. The services provided by commission agent or a clearing and forwarding agent are not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to manufacture or production of goods carried out by a person for another for consideration. Some of such services relating to processes not amounting to manufacture are exempt as specified in entry no. 30 of Exhibit A2. 4.6.2 Would service tax be leviable on processes on which Central Excise Duty is leviable under the Central Excise Act, 1944 but are otherwise exempted? No. If Central Excise duty is leviable on a particular process as the same amounts to manufacture then such process would be covered in the negative list even if there is a central excise duty exemption for such process. 4.7 Selling of space or time slots for advertisements other than advertisements broadcast by radio or television Advertisement has been defined in section 65 B of the Act as form of presentation for promotion of, or bringing awareness about, any event, idea, immovable property, person, service, goods or actionable claim through newspaper, television, radio or any other means but does not include any presentation made in person. 4.7.1 Sale of space of time for advertisements not including sale of space for advertisement in print media and sale of time by a broadcasting agency or o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in this entry? Yes. National highways or state highways are also roads and hence covered in this entry. 4.8.2. Are collection charges or service charges paid to any toll collecting agency also covered? No. The negative list entry only covers access to a road or a bridge on payment of toll charges. Services of toll collection on behalf of an agency authorized to levy toll are in the nature of services used for providing the negative list services. As per the principle laid down in sub section (1) of section 66F of the Act the reference to a service by nature or description in the Act will not include reference to a service used for providing such service. 4.9 Betting, gambling or lottery Betting or gambling has been defined in section 65B of the Act as putting on stake something of value, particularly money, with consciousness of risk and hope of gain on the outcome of a game or a contest, whose result may be determined by chance or accident, or on the likelihood of anything occurring or not occurring . 4.9.1. Are auxiliary services that are used for organizing or promoting betting or gambling events also covered in this entry? No. These services are in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainment to an entertainment event organizer be covered in this entry? No. Such services are in the nature of services used for providing the service specified in this negative list entry and w2ould not be covered in the ambit of such specified service by operation of the rule of interpretation contained in clause (1) of section 66F of the Act. For guidance on the rules of interpretation please refer to Guidance Note 7. 4.11 Transmission or distribution of electricity 4.11.1 What is the meaning of electricity transmission or distribution utility? An electricity transmission or distribution utility has also been defined in section 65B of the act. It includes the following the Central Electricity Authority a State Electricity Board the Central Transmission Utility (CTU) a State Transmission Utility (STU) notified under the Electricity Act, 2003 (36 of 2003) a distribution or transmission licensee licensed under the said Act any other entity entrusted with such function by the Central or State Government 4.11.2 If charges are collected by a developer or a housing society for distribution of electricity within a residential complex then are such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utions are separately exempted by a notification: Services to an educational institution by way of catering under the centrally assisted mid day meals scheme sponsored by government. Transport to and fro such exempt institutes. Services to or by an institution in relation to educational services, where the educational services are exempt from the levy of service tax, by way of services in relation to admission to such education. 4.12.4 Are private tuitions covered in the entry relating to education? No. However, private tutors can avail the benefit of threshold exemption. 4.12.5 Are services provided by way of education as a part of a prescribed curriculum for obtaining a qualification recognized by a law of a foreign country covered in the negative list entry? No. To be covered in the negative list a course should be recognized by an Indian law. 4.12.6 If a course in a college leads to dual qualification only one of which is recognized by law would the service provided by the college by way of such education be covered in this entry? Provision of dual qualifications is in the nature of two separate services as the curriculum and fees for each of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Development Corporation set up by the Government of India. 4.13 Services by way of renting of residential dwelling for use as residence Renting has been defined in section 65B as allowing, permitting or granting access, entry, occupation, usage or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property . 4.13.1 What is a residential dwelling ? The phrase residential dwelling has not been defined in the Act. It has therefore to be interpreted in terms of the normal trade parlance as per which it is any residential accommodation, but does not include hotel, motel, inn, guest house, camp site, lodge, house boat, or like places meant for temporary stay. 4.13.2 Would renting of a residential dwelling which is for use partly as a residence and partly for non residential purpose like an office of a lawyer or the clinic of a doctor be covered under this entry? This would also be a case of bundled services as renting service is being provided both for residential use and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances or deposits are exempt in so far as the consideration is represented by way of interest or discount. Any charges or amounts collected over and above the interest or discount amounts would represent taxable consideration. 4.14.3 To what extent is invoice discounting covered in the negative list entry? Invoice discounting is covered only to the extent consideration is represented by way of discount. 4.14.4 Would services provided by banks or authorized dealers of foreign exchange by way of sale of foreign exchange to general public be covered in this entry? No. This entry only covers sale and purchase of foreign exchange between banks or authorized dealers of foreign exchange or between banks and such dealers 4.15 Service relating to transportation of passengers The following services relating to transportation of passengers, with or without accompanied belongings, have been specified in the negative list. Services by: a stage carriage; railways in a class other than (i) first class; or (ii) an AC coach; metro, monorail or tramway; inland waterways; public transport, other than predominantly for tourism purpose, in a vessel of less than fift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of transportation of goods covered in the negative list entry? Nature of service relating to transportation of goods Whether covered in the negative list entry? By railways No By air within the country or abroad No By a vessel in the coastal waters No By a vessel on a national waterway Yes Services provided by a GTA No 4.16.4 Are services provided as agents for inland waterways covered by this entry? No. these are in the nature of services used for providing the negative list entry service of transport of goods on inland waterways and would not be covered by application of the rule for interpretation where services are specified by way of description contained in clause (1) of section 66F of the Act.(for guidance on this rule please refer to Guidance Note 7) 4.16.5 If transportation of goods takes place from Delhi to Jammu by road then how would the taxability of such transportation be determined considering that Jammu is located in at a place outside taxable territory? Please refer to Guidance Paper: GPB on Place of Provision of service. 4.17 Funeral, burial, cremat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property 5.1.1 Is renting of all kinds of immovable property taxable? No. Renting of certain kinds of property is specified in the negative list. These are renting of vacant land, with or without a structure incidental to its use, relating to agriculture. (sl no 4 of Appendix 1) renting of residential dwelling for use as residence (sl no 13 of appendix 1) renting out of any property by Reserve Bank of India renting out of any property by a Government or a local authority to all non-business entity. Renting of all other immovable properties would be taxable unless covered by an exemption (refer 5.1.2). 5.1.2 Are there any exemptions in respect of renting of immovable property? Yes. These are: Threshold level exemption up to Rs. 10 lakh. Renting of precincts of a religious place meant for general public is exempt. Renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a room below rupees one thousand per day or equivalent is exempt. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of construction of residential complex service under clause (zzzh) of sub-section 105 of section 65 of the Act and as part of service in relation to commercial or industrial construction under clause (zzq) of sub-section 105 of section 65 of the Act. This entry covers the services provided by builders or developers where building complexes, civil structure or part thereof are offered for sale but the payment for such building or complex or part thereof is received before the issuance of completion certificate by a competent authority. 5.2.1 There are various types of arrangements under which builders or developers sell buildings, flats, office space etc. to buyers where entire consideration is received before completion certificate is issued including tripartite model, redevelopment model, investment model, reconversion model, BOT projects and joint development agreement model. How will the taxability of such arrangements be determined? A detailed circular has been issued by the Board dealing with such arrangements in the context of existing taxable service of same description vide Circular no 151/2/2012 ST dated 10/2/12 issued from F.No. 332/13/2011 TRU. The said circul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Yes. On site development of software is covered under the category of development of information technology software. 5.4.3 Would providing advice, consultancy and assistance on matters relating to information technology software be chargeable to service tax? These services may not be covered under the declared list entry relating to information technology software. However, such activities when carried out by person for another for consideration would fall within the definition of service and hence chargeable to service tax if other requirements of taxability are satisfied. 5.4.4 Would providing a license to use prepackaged software be a taxable service? It is a settled position of law that prepackaged software or canned software or shrink wrapped software is goods. (Supreme Court judgment in case of Tata Consultancy Services vs State of Andhra Pradesh [2002(178) ELT 22(SC) refers]. To determine whether providing license to use a software is a service or sale of goods it would need to be seen whether the license to use packaged software tantamount to transfer of right to use goods . Transfer of right to use goods is deemed to be a sale under Article 366(29A) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or hiring basis does not result in transfer of right to use goods. Transfer of right of goods involves transfer of possession and effective control over such goods. For Details please see Point no 5.6 of this Guidance Note. 5.6 Transfer of goods by way of hiring, leasing, licensing or any such manner without transfer of right to use such goods 5.6.1 What is the meaning and scope of the phrase transfer of right to use such goods Transfer of right to use goods is a well recognized constitutional and legal concept. Every transfer of goods on lease, license or hiring basis does not result in transfer of right to use goods. Transfer of right of goods involves transfer of possession and effective control over such goods in terms of the judgement of the Supreme Court in the case of State of Andhra Pradesh vs Rashtriya Ispat Nigam Ltd [Judgment dated 6/2/2002 in Civil Appeal no. 31 of 1991]. Transfer of custody along with permission to use or enjoy such goods, per se, does not lead to transfer of possession and effective control. The test laid down by the Supreme Court in the case of Bharat Sanchar Nigam Limited vs Union of India [2006(2)STR161(SC)] to determine w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e such equipment. The receiver is not free to use such equipment in any manner as he likes and conditions have been imposed on use and control of such equipment. 3 Hiring of bank lockers The transaction does not involve the right to use goods as possession of the lockers is not transferred to the hirer even though the contents of the locker would be in the possession of the hirer.(refer to Andhra Pradesh High Court Judgment in the case of State Bank of India Vs State of Andhra Pradesh) 4 Hiring out of vehicles where it is the responsibility of the owner to abide by all the laws relating to motor vehicles No transfer of right to use goods as effective control and possession is not transferred ( Allahabad High Court judgement in Ahuja Goods Agency vs State of UP [(1997)106STC540] refers) 5 Hiring of audio visual equipment where risk is of the owner No transfer of right to use goods as effective control and possession is not transferred Note: The list in the table above is only illustrative to demonstrate how courts have interpreted terms and conditions of various types of contracts to see if a transaction involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty in goods involved in the execution of such contract which is leviable to tax as sale of goods. Pure labour contracts are therefore not works contracts and would be leviable to service tax like any other service and on full value. 5.8.2 Would contracts for tailoring of clothes or development of photographs also be treated as works contracts as these are also for carrying out a particular work? No. The phrase used is works contract and not work contract. Works has a defined and accepted legal meaning. As per Black s Law dictionary works means buildings or structures on land . Moreover works contract has been defined in the Act as contract for carrying our specified activity, like construction, erection, commissioning, installation, completion, fitting out, improvement, repair, renovation, alteration etc., or a part thereof in relation to any building or structure on land. Therefore contracts which do not pertain to building or structures on land would be out of the ambit of works contracts. 5.8.3 Would contracts for construction of a pipe line or conduit be covered under works contract? Yes. As pipeline or conduits are structures on land contracts for construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cost of establishment of the contractor relatable to supply of labour and services and other similar expenses relatable to supply of labour and services Value Added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract Profit earned by the service provider relatable to supply of labour and services 5.8.8 Is there any simplified scheme for determining the value of service portion in a works contract? Yes. The scheme will be contained in the revised Rule 2A of the Service Tax (Determination of Value) Rules, 2006. As per this scheme the value of the service portion, where value has not been determined in the manner as explained at 5.8.7 above, shall be determined in the manner explained in the table below Where works contract is for Value of the service portion shall be (i) execution of original works forty percent of the total amount charged for the works contract (ii) execution of original works and the gross amount charged includes the value of land twenty five per cent of the total amount charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of human consumption or any drink (whether or not intoxicating) in any manner as part of a service for cash, deferred payment or other valuable consideration is deemed to be a sale of such goods. Such a service therefore cannot be treated as service to the extent of the value of goods so supplied. The remaining portion however constitutes a service. It is a well settled position of law, declared by the Supreme Court in BSNL s case [2006(2)STR161(SC)], that such a contract involving service along with supply of such goods can be dissected into a contract of sale of goods and contract of provision of service. This declared list entry is has been incorporated to capture this position of law in simple terms. 5.9.1 What are the activities covered in this declared list entry? The following activities are illustration of activities covered in this entry- Supply of food or drinks in a restaurant; Supply of foods and drinks by an outdoor caterer. 5.9.2 Are services provided by any kind of restaurant, big or small, covered in this entry? Yes. Although services provided by any kind of restaurant are covered in this entry, the emphasis is to levy tax on services provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction; (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 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided in relation to collection of tolls or for security of a toll road would be in the nature of service used for providing such specified service and will not be entitled to the benefit of the negative list entry. Transportation of goods on an inland waterway is a specified entry in the negative list in section 66D of the Act. Services provided by an agent to book such transportation of goods on inland waterways or to facilitate such transportation would not be entitled to the negative list entry. 7.1.2 What is the scope of clause (1) of section 66F: where a service is capable of differential treatment for any purpose based on its description, the most specific description shall be preferred over a more general description . This rule can also be best understood with few illustrations which are given below The services provided by a real estate agent are in the nature of intermediary services relating to immovable property. As per the proposed Place of Provision of Service Rule, 2012, the place of provision of services provided in relation to immovable property is the location of the immovable property. However in terms of the rule 5 pertaining to services pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry course of business The rule is If various elements of a bundled service are not naturally bundled in the ordinary course of business, it shall be treated as provision of a service which attracts the highest amount of service tax. Illustrations - A house is given on rent one floor of which is to be used as residence and the other for housing a printing press. Such renting for two different purposes is not naturally bundled in the ordinary course of business. Therefore, if a single rent deed is executed it will be treated as a service comprising entirely of such service which attracts highest liability of service tax. In this case renting for use as residence is a negative list service while renting for non-residence use is chargeable to tax. Since the latter category attracts highest liability of service tax amongst the two services bundled together, the entire bundle would be treated as renting of commercial property. 7.2.3 Significance of the condition that the rule relating to bundled service is subject to the provisions of sub-section (2) of section 66F. Sub-section (2) of section 66 lays down : where a service is capable of differential treatment f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the same amount, no matter how much of the package they actually receive or use. The elements are normally advertised as a package. The different elements are not available separately. The different elements are integral to one overall supply if one or more is removed, the nature of the supply would be affected. No straight jacket formula can be laid down to determine whether a service is naturally bundled in the ordinary course of business. Each case has to be individually examined in the backdrop of several factors some of which are outlined above. 7.2.5 Manner of determination of taxability composite transactions wherein an element of provision of service is combined with an element of sale of goods Please refer to point no 2.5.3 of this Guidance Note. ***** Exhibit A1: Negative List of Services (a) Services by Government or a local authority excluding the following services to the extent they are not covered elsewhere: (i) services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government; (ii) services in relation to an aircraft or a vessel, inside o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r authorized dealers of foreign exchange or amongst banks and such dealers; (o) Service of transportation of passengers, with or without accompanied belongings, by (i) a stage carriage; (ii) railways in a class other than (A) first class; or (B) an air conditioned coach; (iii) metro, monorail or tramway; (iv) inland waterways; (v) public transport in a vessel of less than fifteen tonne net, other than predominantly for tourism purpose; and (vi) metered cabs, radio taxis or auto rickshaws; (p) Services by way of transportation of goods (i) by road except the services of (A) a goods transportation agency; or (B) a courier agency; (ii) by an aircraft or a vessel from a place outside India to the first customs station of landing in India; or (iii) by inland waterways; (q) Funeral, burial, crematorium or mortuary services including transportation of the deceased. Exhibit A2: Proposed exemptions under Mega Notification 1. Services provided to the United Nations or a specified international organization; 2. Health care services by a clinical establishment, an authorised medical practitioner or para-medics; 3. Services by a veterinary clini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance, repair, alteration, renovation or restoration of: (a) a civil structure or any other original works meant predominantly for a non-industrial or non-commercial use; (b) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958); (c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; (d) canal, dam or other irrigation works; (e) pipeline, conduit or plant for (i) drinking water supply (ii) water treatment (iii)sewerage treatment or disposal; or (f) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Finance Act; 13. Services provided by way of erection, construction, maintenance, repair, alteration, renovation or restoration of:- (a) road, bridge, tunnel, or terminal for road transportation for use by general public; (b) building owned by an entity registered under section 12 AA of the Income tax Act, 1961(43 of 1961) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, calamities, accidents or mishap; (c) defence or military equipments; (d) postal mail, mail bags or household effects; (e) newspaper or magazines registered with Registrar of Newspapers; (f) railway equipments or materials; (g) agricultural produce; (h) foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages; or (i) chemical fertilizer and oilcakes; 21. Services provided by a goods transport agency by way of transportation of: (a) fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage; (b) goods where gross amount charged on a consignment transported in a single goods carriage does not exceed one thousand five hundred rupees; or (c) goods, where gross amount charged for transportation of all such goods for a single consignee in the goods carriage does not exceed rupees seven hundred fifty; 22. Services by way of giving on hire:- (a) to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers; or (b) to a goods transport agency, a means of transportation of goods; 23. Transport of passengers, with or without accompanied belongings, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity to third persons; or (c) up to an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex; 29. Services by the following persons in respective capacities: (a) a sub-broker or an authorised person to a stock broker; (b) an authorised person to a member of a commodity exchange; (c) a mutual fund agent or distributor to mutual fund or asset management company for distribution or marketing of mutual fund; (d) a selling or marketing agent of lottery tickets to a distributer or a selling agent; (e) a selling agent or a distributer of SIM cards or recharge coupon vouchers; or (f) a business facilitator or a business correspondent to a banking company or an insurance company in a rural area; 30. Carrying out an intermediate production process as job work in relation to: (a) agriculture, printing or textile processing; (b) cut and polished diamonds and gemstones; or plain and studded jewellery of gold and other precious metals, falling under Chapter 71 of the Central Excise Tariff Act ,1985 (5 of 1986); (c) any goods on which app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity exchange and who provides access to trading platform of a stock exchange or a commodity exchange, as an agent of the stock broker or member of a commodity exchange, 6. banking company has the meaning assigned to it in clause (a) of section 45A of the Reserve Bank of India Act,1934(2 of 1934), 7. business facilitator or business correspondent means an intermediary appointed under business facilitator model or business correspondent model by a banking company or an insurance company under the guidelines issued by Reserve Bank of India, 8. "clinical establishment" means a hospital, nursing home, clinic, sanatorium or an institution by, whatever name called, that offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicine, established and administered or maintained by any person or a place established as an independent entity or a part of an establishment to carry out diagnostic or investigative services of diseases, 9. charitable activities means activities relating to a) public health by way of I. care or counseling of (i) terminally ill persons or persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th care services means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicine and includes services by way of supply of meals for the patient or transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma, 17. incubatee means an entrepreneur located within the premises of a Technology Business Incubator (TBI) or Science and Technology Entrepreneurship Park (STEP) recognised by the National Science and Technology Entrepreneurship Development Board (NSTEDB) of the Department of Science and Technology, Government of India and who has entered into an agreement with the TBI or the STEP to enable himself to develop and produce hi-tech and innovative products, 18. insurance company means a company carrying on life insurance business or general insurance business, 19. life insurance business has the meaning assigned to it in clause (11) of section 2 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Exhibit A3: Gist of other exemptions A. Small scale exemption 1. For the service provider for the taxable services of aggregate value not exceeding ten lakh rupees in a financial year subject to certain conditions. B. Exporters/ SEZ 2. Transportation of export goods by Goods Transport Agency in a goods carriage received by an exporter for transport of the said goods directly from - i. any container freight station or inland container depot to the port or airport, from where the goods are exported; ii. his place of removal, to an inland container depot, a container freight station, a port or airport, from where the goods are exported. 3. Refund of service tax paid on certain specified taxable services received by an exporter of goods and used for export of goods, subject to certain specified conditions. 4. Taxable services, received by a unit located in a Special Economic Zone or Developer of SEZ for the authorised operations. C. Import of technology 5. Taxable service involving import of technology, from so much of service tax, as is equivalent to the extent of amount of cess payable on the said transfer of technology under the provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elongings 40 CENVAT credit on inputs or capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. 6 Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes 60 Same as above. 7 Transport of goods by road by Goods Transport Agency 25 CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. 8 Services provided in relation to chit 70 Same as above. 9 Renting of any motor vehicle designed to carry passengers 40 Same as above. 10 Transport of goods in a vessel from one port in India to another 50 Same as above. 11 (i)Services provided or to be provided to any person, by a tour operator in relation to a package tour 25 (i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly limited in the context of import or export of services. For this purpose rules were formulated which handled the subject of place of provision of services somewhat indirectly confining to define the circumstances in which a provision of service will constitute import or exports and thus limiting their scope more to their taxability or otherwise of a service. 1.1.3 The new rules will, on the other hand, determine the place where a service shall be deemed to be provided. Its taxability will be determined based on the location of its provision. The Place of Provision of Services Rules, 2012 will replace the Export of Services, Rules, 2005 and Taxation of Services (Provided from outside India and received in India) Rules, 2006. 1.1.4 This is a draft guidance mainly to help both the departmental officials and business to understand the new provisions better and to make some of the advance preparations to implement the changes as and when made applicable. In the meanwhile both sides may also provide useful feedback on any aspect of the rules, particularly where the provisions are likely to create situations that may place legitimate business in any disadvantageous position or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international practices in order to avoid both the double taxation as well as double non-taxation of services. 1.3.3 It is also a common practice to largely tax services provided by business to other business entities, based on the location of the customers and other services from business to consumers based on the location of the service provider. Since the determination in terms of above principle is not easy, or sometimes not practicable, nearest proxies are adopted to provide specificity in the interpretation as well as application of the law. 2. Basic Framework 2.1 How will I know that I am providing a service that may be taxable? 2.1 How will I know that I am providing a service that may be taxable in India? 2.1.1 The following 2-step process will help to determine this. Step 1: To ascertain the nature of service If you are providing a service, then first you need to check as to whether the service provided is excluded either by the negative list or is otherwise exempted. If it is not so covered, try to capture the nature of the service, if necessary by applying the principles indicated in section 66F. You may refer to the Guidance Paper: A, Guidance Not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nificance of Location of a Service Provider or Receiver for determining taxing jurisdiction? 2.3.1 In terms of explanation (2) to sub-section 44 of section 65B, an establishment of a person outside the taxable territory is a person distinct from an establishment in a taxable territory. Thus, services provided from overseas are to be carefully judged whether they are being rendered by the establishment outside the taxable territory or within. 2.3.2 Similarly, from the taxpayer s perspective, the jurisdiction of the field formation, which is relevant for compliance with registration formalities, filing of returns, refund claims etc. by the person liable to pay tax (provider or receiver as the case may be), will be the location as determined in terms of these rules. 2.4 How will such location be determined? 2.4.1 The location of a service provider or receiver (as the case may be) is to be determined by applying the following steps sequentially: A. where the service provider or receiver has obtained only one registration, whether centralized or otherwise, the premises for which such registration has been obtained; B. where the service provider or receiver is not cov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices with staff in India to provide services to Indian customers. Its fixed establishment is in India. Illustration 3 A company with a business establishment abroad buys a property in India which it leases to a tenant. The property by itself does not create a fixed establishment. If the company sets up an office in India to carry on its business by managing the property, this will create a fixed establishment in India. Illustration 4 A company is incorporated in India, but provides its services entirely from Singapore. The location of this service provider is Singapore, being the place where the establishment most directly concerned with the supply is located. 2.8 What does usual place of residence mean? 2.7.1 The usual place of residence, in case of a body corporate, has been specified as the place where it is incorporated or otherwise legally constituted. 2.7.2 The usual place of residence of an individual is the place (country, state etc) where the individual spends most of his time for the period in question. It is likely to be the place where the individual has set up his home, or where he lives with his family and is in full time employment. Individ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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