Clarification regarding changes made or proposed in Budget 2012-2013

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..... nsidev:.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:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} Government of India Ministry of Finance Department of Revenue (Tax Research Unit) *** V. K. Garg Joint Secretary (Tax Research Unit) Telephone No. 011-23093027 Fax No. 011-23093037 E-mail: [email protected] D. O. F. No 334/1/2012-TRU New Delhi, dated 16th March, 2012. Dear Sir/Madam, Subject: Union Budget 2012: Changes in Service Tax-reg. It is said that in matters relating to taxes, questions rarely change, but the answers do. Budget 2012 has, however, changed a number of questions relating to service tax. 2. No more will the most often-asked question "which taxable service is being provided?" be relevant; no more will an exporter be asked whether an input service has been used in export to claim a Cenvat refund; and no more will a host of questions confront a tax-payer filing his new one page r .....

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..... s at present will be either rescinded, being no more needed, or modified in some manner, or merged in a mega notification, leaving the final tally of exemptions to just 10. 3.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 section 65B. This will also include certain activities that have been specified as declared services in section 66E. Most of these declared services are presently taxed as positive list. 4. The new charging section is contained in section 66B and levies taxes on all services, other than those in the negative list, provided or agreed to be provided in the taxable territory by one person to another. 5. The entire concept, including the key to understanding the various dimensions of the new taxation, together with answers to possible questions, is contained in a detailed draft Guidance Paper: A (GPA for short) and is attached as Annexure A to this letter. The negative list, the mega-exemption notification and list of other exemptions, being retained, are a part of GPA as Exhibits "A1", "A2" and "A3" respectively. 6. On the coming into force of the new provisions, the earlier provisions contained in sections 65, 65A, 66, 66A will cease to apply but will .....

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..... eing 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 present, first determination will be the value of service being the total amount charged for the contract reduced by the value of property transferred in goods for State VAT purpose; ii If value of goods is not intimated to State VAT, the assessees can still calculate the actual value of goods and the same will be relevant to deduce the value of the service involved in the works contract; iii If the value is not so deduced, and not merely as an option, the value shall be specified percentage of the total value as follows: a. for original works: 40% of the total amount; b. other contracts: 60% of the total amount; c. for contracts involving construction of complex or building for sale where any part of the consideration is received before the completion of the building: 25% of the total amount 14. Original works will include all new constructions and all types of additions and alterations to abandoned or damaged structures to make them workable. 15. The total amount will be gross amount .....

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..... dits under rule 6(3) of CCR, 2004. Interest on loans will now be an exempt income rather than an exclusion from value. iii Under the list of exclusions in sub-rule (2) from taxable value "accidental damages due to unforeseen actions not relatable to the provision of service" is being added. This again is in view of the negative list approach to taxation of services and to confine inclusions of demurrages to those under category I above and not beyond. 21. In the Negative List approach, Rule 7 may not be required; therefore it is proposed to omit the same. B.3(III). Abatements: 22. Certain changes are proposed to be introduced in the abatements along with negative list. The increase in taxable portion of value are accompanied with liberalization in input tax credits following the principle of neutrality of taxes that the burden of taxes should not raise the cost per se but passed on to the point of consumption. It is expected that, though the taxable portion of services may appear a little higher, but the availability of credits will lead to reduction in costs and hence prices for the consumers. 23. The existing and new abatements shall be as follows: S. No. Service Existing .....

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..... n 52 /2011-ST dated 30/12/2011 concerning refund service tax paid on export of goods at the post-manufacture/ removal stage, will be placed under this section. 29. This means that in future, service tax refunded will be recoverable, without any time bar from the exporter, against whose shipping bill, sale proceeds have not been received from abroad. Moreover the service-specific exemption will be revisited and suitably altered. B.3 (VI) SEZ changes: 30. There are no changes at present. However service-specific criterion for determination of services provided exclusively within the SEZ shall be taken care at the time of introducing negative list. C. Other legislative changes: C.1. General Changes 1. In Explanation to section 67, definition of money, in clause (b), is proposed for omission as nearly the same definition shall be available in section 65A for capturing the meaning of 'service'. 2. A new section: 67A is being inserted to prescribe the relevant date for the application of rate of exchange, valuation or rate of service tax. Rule 5B of ST Rules, which covers this aspect partially will be deleted. 3. Special audit provisions, available at present by way of section 14 .....

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..... ervice tax by amending section 83. 8. Clause (a) of section 89 relating to prosecution for non-issue of invoice is being replaced with the words "knowingly evades payment of service tax". This will meet the demand of business that mere non-issue of invoices should not be made punishable with prosecution, while giving a comprehensive coverage to offences and also aligning with other indirect laws. Simultaneously process of compounding of offences will be operationalized and the enabling rule making power has been obtained in the Act. 9. Powers of Advance Ruling Authority to hear cases relating to Cenvat credit will also cover cases of Central Excise duty. This was an anomaly due to the applicability of the then 2002 Cenvat rules only to service tax credits that has been corrected. C.2. Reverse charge provisions: 10. There are a number of changes relating to reverse charge provisions. First of all, the term "taxable territory" has been defined in the Act and only services provided in taxable territory will be liable to tax. Thus any service provided in the state of J&K will not be liable to tax. The Place of Supply Rules, 2012 will determine whether a service is being provided in .....

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..... utions Retail Vs UOI observed that 'on the question of penalty due to non-payment of tax, it is open to the Government to examine whether any waiver or exemption can be granted' [para 73]. Subsequently, in the matter of Retailers Assn. of India Vs Union of India, Honorable apex court, had ruled on October 14, 2011, that litigants should pay 50% of the arrears within six months in three equated installments. For the balance, solvent surety should be furnished to the satisfaction of the jurisdictional commissioner. 18. Against the above backdrop, it is proposed that penalty may be waived for those taxpayers who pay the service tax due on the renting of immovable property service (as on the sixth day of March, 2012), in full along with interest within six months. Section 80A is being introduced for this purpose. Those who fail to avail the benefit will be treated as if this section did not exist. C.4. Retrospective changes 19. Rule 6(6A) of the Cenvat Credit rules, introduced last year vide Notification 3/2011-CE (NT), dated 01/03/2011, is being given effect from February 10, 2006. This will neutralize the investigations or demands for reversal of credits in respect of services pro .....

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..... registration. 5. The definition of continuous supply of service is being amended to capture the concept in a more wholesome manner, namely the recurrent nature of services and the obligation for payment periodically or from time-to-time. 6. Since the essence of the rule in case of continuous supply of service is the same as the main Rule, the separate rule for continuous supply of service [Rule 6] is being merged with the main rule. Moreover the provisions of rules 4 and 5 relating to changes in rates or application of tax on new services would also be applicable to continuous supply of services; 7. In case of a new levy, no tax is chargeable on services where payment has been received and invoice issued within a period of 14 days. To provide certainty, clause (b) is being amended to specify that invoice should be issued within 14 days of the date of the new levy. 8. The "date of payment" could be a subject of litigation particularly when effective rate changes. A new rule has been created: Rule 2A, keeping in view the impending change in rate effective April 1, 2012 and introduction of Negative List at a later date. In normal circumstances this date shall be the earlier of th .....

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..... y B. Others: Quarterly 3. This will improve cash flow for small businesses registered as companies or other corporate bodies while making large non-corporates pay tax on monthly business. 4. The restrictions in Rule 6(4B) are being omitted allowing unlimited amount of permissible adjustments. 5. Changes at S. No 1 & 2 will come into force after inviting comments from stakeholders. S. No 4 will come into force from April 1, 2012. F. Cenvat Credit Rules, 2004: F.1. Simplified scheme for refunds: 1. A simplified scheme for refunds is being introduced by substituting the entire Rule 5 of CCR, 2004. The new scheme does not require the kind of correlation that is needed at present between exports and input services used in such exports. Duties or taxes paid on any goods or services that qualify as inputs or input services will be entitled to be refunded in the ratio of the export turnover to total turnover. 2. The notification prescribing the detailed manner and safeguards will be issued by the Policy wing shortly. F.2. Other changes: 3. Presently credit on all motor vehicles is not available except to a few specified service providers. This is being liberalised and credit on m .....

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..... he precise understanding sometimes. The wordings used in the statutory provisions and the notifications should be relied upon which alone have the legal standing. H. Miscellaneous: 1. You may go through all the changes together with both the guidance papers and provide your valuable observations as early as possible. The changes that have immediate implications for business may be intimated to them as efficiently as possible. 2. All my officers will be pleased to assist you in understanding the impact of these changes. I must clarify that, occasionally, due to the complex nature of the issues involved, and in order to provide you with our most informed response, it is not possible to give responses as expeditiously as you might desire. However, we have put in place a process that will help us consider all the various suggestions and would endeavor to clarify them as early as we can. 3. For the sake of convenience and better management of time on both sides, may I request you to correspond by e-mail, though any other form of communication is equally welcome. You may like to send your e-mails to [email protected] with a copy of important communications to me. 4. Our Board h .....

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..... March 16, 2012 In this guidance paper * Introduction * Guidance Note 2: What is service? * Guidance Note 3: Taxability of services * Guidance Note 4: Negative List * Guidance Note 5: Declared services * Guidance Note 6: Exemptions * Guidance Note 7: Rules of interpretation * Exhibit1:Negative List of services * Exhibit2: Exemptions in mega notification * Exhibit3: Other exemptions 1. Introduction 1.1 What is the significance of the changes due to the new system of taxation? Budget 2012 proposes to usher a paradigm shift in the manner services will be taxed in future. The transition involves shift from taxation of 119 service-specific descriptions to a new regime whereby all services will be taxed unless they are covered by any of the entries in the negative list or are otherwise exempted. The new system is a marked shift by way of comprehensive taxation of the entire service sector without getting into complex issues of classification of services. 1.2 What is the aim of this Guidance Paper? This draft guidance paper is aimed at explaining various aspects of the new concept in order to seek the inputs of all stakeholders and to address any issue that may .....

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..... nd detailed guidance paper (GPB) has been issued. * To remove some ambiguities certain activities have been specifically defined by description as services and are referred as Declared Services (listed in section 66E). * In addition to the services specified in the negative list, certain exemptions have been given. Most of the exemptions are proposed to be consolidated in a single mega exemption for ease of reference. * Principles have been laid down in section 66F of the Act for interpretation wherever services have to be treated differentially for any reason and also for determining the taxability of bundled services. * The system of valuation of services for levy of service tax and of availment and utilization of Cenvat credits essentially remains the same with only incidental changes required for the new system of taxation Guidance Note 2 - What is Service? In the existing system, only the services specified in clause (105) of section 65 of the Finance Act, 1994 are taxed under the charging section 66. In the new system, all services, other than services specified in the negative list, provided or agreed to be provided in the taxable territory by a person to another w .....

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..... ation. 2.2.2 What are the implications of the condition that activity should be carried out for a 'consideration'? * To be taxable an activity should be carried out by a person for another for a 'consideration' * Activity carried out without any consideration like donations, gifts or free charities are therefore outside the ambit of service. For example grants given for a research where the researcher is under no obligation to carry out a particular research would not be a consideration for such research. * An act by a charity for consideration would be a service and taxable unless otherwise exempted. ( for exemptions to charities please see Guidance Note 6) * Conditions in a grant stipulating merely proper usage of funds and furnishing of account also will not result in making it a provision of service. * Donations to a charitable organization are not consideration unless charity is obligated to provide something in return e.g. display or advertise the name of the donor in a specified manner or such that it gives a business advantage to the donor. 2.2.3 What is the meaning of monetary consideration? Monetary consideration means any consideration received in the form o .....

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..... esearch grant is given with counter obligation on the researcher to provide IPR rights on the outcome of research or activity undertaken with the help of such grants then the grant is a consideration for the provision of service of research. General grants for researches will not amount to a consideration. 2.2.8 Would the payments in the nature as explained in column A of the table below constitute a consideration for provision of service? S. No. A B Nature of payment Whether consideration for service? 1. Amount received in settlement of dispute. Would depend on the nature of dispute. Per se such amounts are not consideration unless it represents a consideration. If the dispute itself pertains to consideration relating to service then it would be a part of consideration. For example the amount may represent payments for an executed works contract in dispute. 2. Amount received as advances for performance of service. Such advances are consideration for the agreement to perform a service. 3. Deposits returned on cancellation of an agreement to provide a service. Returned deposits are in the nature of a returned consideration. If tax has already been paid the tax payer .....

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..... n are taxable? Yes. Two exceptions have been carved out to the general rule that only services provided by a person to another are taxable. These exceptions, contained in Explanation 2 of clause (44) of section 65B, are: * an establishment of a person located in taxable territory and another establishment of such person located in non-taxable territory are treated as establishments of distinct persons. [Similar provision exists presently in section 66A(2)]. * an unincorporated association or body of persons and members thereof are also treated as distinct persons. [Also exists presently in the explanation to section 65]. Implications of these deeming provisions are that inter-se provision of services between such persons, deemed to be separate persons, would be taxable. For example, services provided by a club to its members and services provided by the branch office of a multi-national company to the headquarters of the multi-national company located outside India would be taxable provided other conditions relating to taxability of service are satisfied. 2.3.3 Who is a 'person'? Is it only a natural person or includes an artificial or a juridical person? 'Person' is not re .....

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..... s or immovable property by way of sale, gift or in any other manner for a consideration does not constitute service. * Goods has been defined in section 65B of the Act as 'every kind of moveable property other than actionable claims and money; and includes securities, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under contract of sale'. * Immovable property has not been defined in the Act. Therefore the definition of immovable property in the General Clauses Act, 1897 will be applicable which defines immovable property to include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth. 2.5.1 What is the significance of the phrase 'transfer of title'? 'Transfer of title' means change in ownership. Mere transfer of custody or possession over goods or immovable property where ownership is not transferred does not amount to transfer of title. For example giving the property on rent or goods for use on hire would not involve a transfer of title. 2.5.2 What is the significance of the word 'only' in the said exclusion clause in the defini .....

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..... of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366 (29A) continues to be - did the parties have in mind or intend separate rights arising out of the sale of goods. If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is the substance of the contract. We will, for the want of a better phrase, call this the dominant nature test." The following principles emerge from the said judgment for ascertaining the taxability of composite transactions- * Except in cases of works contracts or catering contracts [exact words in article 366(29A) being - 'service wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in an .....

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..... f title in goods are excluded. Therefore if goods are being sold by a service provider under a distinct and a separate contract then sale of such goods is excluded from the definition of service. If it is a 'composite contract' and dominant nature of the contract is that of provision of service then value of goods cannot be excluded and if the dominant nature is sale of goods then the contract is not taxable as service. In view of the above notification 12/2003-ST has been proposed to be deleted. 2.5.5 "Securities" has been included as goods. What are securities? * Securities has been defined in section 65B of the Act as having the same meaning assigned to it in clause (h) of section 2 of the Securities Contract (Regulation) Act, 1956 (42 0f 1956) in terms of which 'securities' includes - * Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate. * Derivative. * Security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. * Units or any other such instrument iss .....

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..... of the right to use any 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. Transfer of goods without transfer of possession and effective control over goods would not be a sale but a service (such transfer has also been declared as a service under section 66F of the Act) For guidance on 'transfer of right to use' please see Point no 5.6 of this Guidance Note. 2.5.9 What is the scope of the phrase 'delivery of goods on hire-purchase or any system of payment by installments'? Section 2 of the Hire Purchase Act, 1972 defines a "hire purchase agreement' as 'an agreement under which goods are let out on hire and under which the hirer has the option to purchase them in accordance with the terms of the agreement and includes an agreement under which- (i) possession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical installments, and (ii) the property in the goods i .....

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..... eases would be covered only if the terms and conditions of such leases have the ingredients as explained in point no. 2.5.9 above. 2.6 Transactions only in money or actionable claims do not constitute service 2.6.1 What kind of activities would come under 'transaction only in money'? * Deposits in or withdrawals from a bank account. * Advancement or repayment of principal sum on loan to someone. * Conversion of Rs 1,000 currency note into one rupee coins to the extent amount is received in money form. 2.6.2 Would a business chit fund come under 'transaction only in money'? In business chit fund since certain commission received from members is retained by the promoters as consideration for providing services in relation to the chit fund it is not a transaction only in money. The consideration received for such services is therefore chargeable to service tax. 2.6.3 Would the making of a draft or a pay order by a bank be a transaction only in money? No. Since the bank charges a commission for preparation of a bank draft or a pay order it is not a transaction only in money. However, for a draft or a pay order made by bank the service provided would be only to the extent of .....

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..... worker to employer who gives wages on daily basis to the worker These are services provided by the worker in the course of employment Casual workers are employed by a contractor, like a building contractor or a security services agency, who deploys them for execution of a contract or for provision of security services to a client Services provided by the workers to the contractor are services in the course of employment and hence not taxable. However, services provided by the contractor to his client by deploying such workers would not be a service provided by the workers to the client in the course of employment. The consideration received by the contractor would therefore be taxable if other conditions of taxability are present. 2.8 Exclusions from the definition of 'service' * Explanation 1 clarifies that 'service' does not cover functions or duties performed by Members of Parliament, State Legislatures, Panchayat, Municipalities or any other local authority, any person who holds any post in pursuance of the provisions of the Constitution or any person as a Chairperson or a Member or a Director in a body established by the Central or State Governments or local authority an .....

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..... f receipt of payment where payment is received before issuance of invoice or completion of service. Therefore agreements to provide taxable services will become taxable only on issuance of invoice or date of completion of service if invoice is not issued within prescribed period of completion or on receipt of payment. For specific cases covered under the said Rules, including continuous supply of service, please refer to the Point of Taxation Rules, 2011. 3.2 Provided in the taxable territory * Taxable territory has been defined in section 65B of the Act as the territory to which the Act applies i.e the whole of territory of India other than the State of Jammu and Kashmir. * Detailed rules called the Place of Provision of Service Rules, 2012 have been made which determine the place of provision of service depending on the nature and description of service. * Please refer to the Place of Provision of Service Rules, 2012 and the detailed Guidance Paper: B on Place of Provision of Service. 3.3 Service should not be specified in the negative list. As per section 66B, to be taxable a service should not be specified in the negative list. The negative list of services has been s .....

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..... given in column 2 of the table above THEN you are providing a 'taxable service' 3.4.2 Will I have to pay service tax for all taxable services provided in the taxable territory? No. You will not have to pay service tax on taxable services provided by you in the following cases: * if in the previous financial year the aggregate value of taxable services provided by you was less than Rs.10 lakh and in the present financial year the aggregate value of taxable services provided by you is also less than Rs.10 lakh. (you start paying service tax after crossing the threshold of Rs 10 lakh) For details please refer to the threshold exemption given in Exhibit A3 to this guidance Paper). * If the taxable service provided by you is covered under any one of the exemptions issued under section 93 of the Act. Service Tax is liable to be paid by you on all 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 n .....

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..... ies that have been excluded from the negative list entry are otherwise specified in the negative list then such services would also not be taxable. 4.1.3 'Government' has not been defined in the Act. What is the meaning of Government? Since 'Government' has not been defined in the Act, the definition of 'Government' as contained in the General Clauses Act, 1897 would be applicable as per which 'Government' includes both State Government and Central Government. Further as per the General Clause Act 1897, State includes Union Territory. 4.1.4 Are various corporations formed under Central Acts or State Acts or various government companies registered under the Companies Act, 1956 or autonomous institutions set up by a special Acts covered under the definition of 'Government'? No. In terms of the definition of '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 e .....

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..... council constituted under article 371A of the Constitution. 4.2 Services provided by Reserve Bank of India 4.2.1 Are all services provided by the Reserve Bank of India in the negative list? Yes. All services provided by the Reserve Bank of India are in the negative list. 4.2.2 What about services provided to the Reserve Bank of India? Services provided to the Reserve Bank of India are not in the negative list and would be taxable unless otherwise covered in any other entry in the negative list. 4.3 Services by a foreign diplomatic mission located in India Any service that is provided by a diplomatic mission of any country located in India are in the negative list. This entry does not cover services, if any, provided by any office or establishment of an international organization. 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 tend .....

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..... cteristic of farm produce (potatoes and tomatoes in this case). 4.4.6 Would leasing of vacant land with a green house or a storage shed meant for agricultural produce be covered in the negative list? Yes. In terms of the specified services relating to agriculture 'leasing' of vacant land with or without structure incidental to its use' is covered in the negative list. Therefore, if vacant land has a structure like storage shed or a green house built on it which is incidental to its use for agriculture then its lease would be covered under the negative list entry. 4.4.7 What is the meaning of agricultural extension services? Agricultural extension services have also been defined in section 65B of the Act as application of scientific research and knowledge 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 .....

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..... ss on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 (1 of 1944) or any process amounting to manufacture of alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act. This entry, therefore, covers manufacturing activity carried out on contract or job work basis provided duties of excise are leviable on such processes under the Central Excise Act, 1944 or any of the State Acts. 4.6.1 Would service tax be leviable on processes which do not amount to manufacture or production of goods? Yes. Service tax would be levied on processes, unless otherwise specified in the negative list, not amounting 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 m .....

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..... 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? * This would be a case of bundled services taxability of which ha .....

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..... iding 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 programme, drama or a ballet preformed in the open does not cease to be a theatrical performance provided .....

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..... s 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 education coupled with other services like providing dwelling units for residence and food. This may be a case of bundled services if the char .....

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..... s 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 recognized by law for the time being in force (please refer to point no 4.12.3 above). 4.12.9 In addition to the services specified in the negative list, which educa .....

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..... ken 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 dwelling 4.14 Financial sector 4.14.1 What are the "services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount"? Illustrations of such services are - * Fixed deposits or saving deposits .....

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..... f 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 goods transport agency excluded from the negative list? Yes. However, there are separate exemptions available to the services provided by the goods transport agency. These are services by way of transportation of - * fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage; * goods where gross a .....

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..... 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 purchase or any system of payment by instalments; 8. service portion in execution of a works contract; 9. service portion in an activity 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 activity. If the above activities are carried out by a person for another for consideration it would amount to provision of service. Most of these servic .....

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..... ist 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 arrangement amounts to renting of immovable property. 5.1.5 Would service tax be chargeable on renting of property located outside the taxable territory but where the property is owned by a person located in the taxable territory? In respect of a service relating to immovable property the place of provision of service is the location of immovable property. If the immovable property is located outside taxable territory then it becomes a service provided outside the taxable territory even if the property owners is located in the taxable territory and would hence not be taxable. For details p .....

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..... tood 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 the place of provision of service of temporary transfer of intellectual property right is in taxable territory. For details please see the Guidance Paper: B on the Place of Provision of Service. 5.4 Development, design, programming, customization, adaptation, up gradation, enhancement, implementation of information technology software The term 'information technology software' has been defined in section 65B of the Act as 'any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to .....

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..... 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 leasing/hire-purchase agreements there are two different and distinct transactions, viz., the financing transaction and the equipment leasing/hire-purchase transaction and that the financing transaction, consideration for which was represented by way of interest or other charges like lease management fee, processing fee, documentation charges and administrative fees, which is chargeable to service tax. Therefore, such financial services that accompany a hire-purchase agreement fall in the ambit of this entry of declared services. 5.5.4 Is service tax leviable on the entire quantum of interest and other charges received in relation to a hire purchase? No. In .....

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..... 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/mileage basis Right to use is not transferred as the car owner retains the permissions and licenses relating to the cab. Therefore possession and effective control remains with the owner (Delhi High Court Judgment in the case of International Travel House in Sales Tax Appeal no 10/2009 refers). The service is, therefore covered in the declared list entry. 2 Supply of equipment like excavators, wheel loaders, dump trucks, cranes, etc for use in a particular project where the person to whom such equipment is supplied is subject to such terms and conditions in the contract relating to the manner of use of such equipment, return of such equipment after a specified time, maintenance and upkeep of such equipment. Th .....

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..... 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 any building or structure on land. Typically every works contract involves an element of sale of goods and provision of service. In terms of Article 366 (29A) of the Constitution of India transfer of property in goods involved in execution of works contract is deemed to be a sale of such goods. It is a well settled position of law, declared by the Supreme Court in BSNL's case [2006(2) STR 161 (SC)], that a works contract can be segregated into a contract of sale of goods and contract of provision of service. This declared list entry has been incorporated to capture this position of law in simple terms. Further, with a view to bring certainty and simplicity the manner of determining the value of service portion in works contracts will be given in the Valuation Rules. 5.8.1 Would labour contracts in relation to .....

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..... om 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 the works contract less the value of transfer of property in goods involved in the execution of the said works contract. Gross amount includes Gross amount does not include Labour charges for execution of the works Value of transfer of property in goods involved in the execution of the said works contract. Note: Where Value Added Tax has been paid on the actual value of transfer of property in goods involved in the execution of the works contract, then such value adopted for the purposes of payment of Value Added Tax, shall be taken as the value of transfer of property in goods involved in the execution of the said works contract. Amount paid to a sub-contractor for labour and services Charges for planning, designing and architect's fees Charges for obtaining on hire or otherwise, machinery and tools used for the execution of the wo .....

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..... 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 workable; 5.8.11 Is duty paid on any goods, property in which is transferred (whether as goods or in some other form) in the execution of works contract, available as Cenvat credit? No. Such Cenvat credit is not available, irrespective of the fact that the value of service portion in execution of the works contract is determined in the manner explained at Point no. 5.8.7 or 5.8.8 above, since such goods are not inputs for the service provided. However, the goods not forming part of such transfer will be eligible for input tax credit subject to the provisions of the Cenvat Credit Rules, 2004 including the provisions relating to reversal of credits contained in rule 6 of the said rules. 5.9 Service portion in an activity 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 activity In terms of article 366(29A) of the Constitution of India supply of any goods, being food or any other art .....

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..... 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 What are the restrictions, if any, on availment of Cenvat credit by such service providers? In terms of the Explanation2 to the proposed Valuation rules any goods meant for human consumption classifiable under chapters 1 - 22 of Central Excise Tariff are not 'inputs' for provision of such service. Cenvat Credit is, therefore, not available on these items. Availability of Cenvat credit on other inputs, input services and capital goods would be subject to the provisions of the Cenvat Credit Rules, 2004 including the provisions relating to reversal of credits contained in rule 6 of the said rules. Guidance Note 6 - Exemptions Under the present system there are 88 exemption notifications. The need for exemptions is not obliterated with the introduction of negative list. While some existing exemptions have been built into the negative list, others, wherever necessary, have been retained as exemptions. In addition new exemptions are proposed to be introduced in the context of the negative list. For ease of reference and simplicity most of the .....

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..... al establishment would be in the capacity of employee and not provided in independent capacity and will thus be considered as services by such clinical establishment. Similarly services of assisting an authorized medical professional would be considered as services by such authorized medical professional only. 6.3 Charities (Details at Sr. No. 4 of Exhibit A2) 6.3.1 I am a registered charity. How do I know that activities provided by me are charitable activities? You are doing charitable activities if you are registered with income tax authorities for this purpose under section 12AA the Income Tax Act, 1961 and carry out one or more of the specified charitable activities. Following are the specified charitable activities:- (a) public health by way of - (I) care or counseling of (i) terminally ill persons or persons with severe physical or mental disability, (ii) persons afflicted with HIV or AIDS, or (iii) persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or (II) public awareness of preventive health, family planning or prevention of HIV infection; (b) advancement of religion; (c) advancement of educational programmes or skill developmen .....

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..... ning relating to all forms of dance, music, painting, sculpture making, theatre and sports etc. 6.6 Sports (Details at Sr. No 10 of Exhibit A2) 6.6.1 What is the tax liability on services provided to a recognized sports body? Services provided to a recognized sports body by an individual as a player, referee, umpire, coach or manager for participation in a tournament or championship organized by a recognized sports body are exempt from service tax. Similarly services by a recognized sports body to another are exempt. Services by individuals such as selectors, commentators, curators, technical experts etc are taxable. Recognized sports body has been defined in the notification. 6.7 Construction (Details at Sr No 12 to 14 of Exhibit A2) 6.7.1 I am a contractor in number of projects for constructing roads. What is my tax liability on construction of roads under different types of projects? Construction of roads for use by general public is exempt from service tax. Construction of roads which are not for general public use e.g. construction of roads in a factory, residential complex etc would be taxable. 6.7.2 I am in to construction of hospitals and educational institutes. Am I .....

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..... ng artist in folk or classical art forms of music, dance, or theatre are not subjected to service tax. All other activities by an artist in other art forms e.g. magic shows, mimicry, western music or dance, modern theatres, performance of actors in films or television serials would be taxable. Services provided by such an artist as brand ambassador is also taxable. 6.9.2 I have a bus with a contract permit and operating the bus on a route. The passengers embark or disembark from the bus at any place falling on the route and pay separate fares either for the whole or for the stages of journey. Am I required to pay tax? No. However, transport of passengers in a contract carriage for the transportation of passengers, for tourism, conducted tour, charter or hire is taxable. 6.9.3 I have taken on rent a piece of vacant land from its owner. The land will be used for providing the facility of motor vehicles parking on payment. What is my service tax liability? You are not required to pay tax on providing the facility of motor vehicle parking to general public. However, if you are providing the facility of parking of vehicles to a car dealer, you are be required to pay tax as parking f .....

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..... les for interpretation of specified descriptions of services Although the negative list approach largely obviates the need for descriptions of services, such descriptions continue to exist in the following areas - * In the negative list of services. * In the declared list of services. * In exemption notifications. * In the Place of Provision of Service Rules, 2012 * In few other rules and notifications. There are two principles laid down which are contained in clauses (1) and (2) of section 66F of the Act. 7.1.1 What is the scope of the clause (1) of section 66F: 'Unless otherwise specified, reference to a service (hereinafter referred to as the "main service") shall not include reference to a service which is used for providing the main service' This rule can be best understood with few illustrations which are given below - · 'Provision of access to any road or bridge on payment of toll' is a specified entry in the negative list in section 66D of the Act. Any service provided 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 t .....

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..... such services in clause (3) of section 66F of the Act. These rules, which are explained below, are subject to the provisions of the rule contained in sub section (2) of section 66F, viz a specific description will be preferred over a general description as explained in para 7.1.2 above. 7.2.1 Services which are naturally bundled in the ordinary course of business The rule is - 'If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character' Illustrations - * A 5-star hotel in Gurgaon (Haryana) provides a 4-D/3-N package with the facility breakfast. This is a natural bundling of services in the ordinary course of business. The service of hotel accommodation gives the bundle the essential character and would, therefore, be treated as service of providing hotel accommodation. 7.2.2 Services which are not naturally bundled in the ordinary 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 highes .....

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..... atering on board and transport by air is a bundle offered by a majority of airlines. * The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such that one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service. For example service of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per day. Such service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business. * Other illustrative indicators, not determinative but indicative of bundling of services in ordinary course of business are - * There is a single price or the customer pays 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 .....

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..... advertisements other than advertisements broadcast by radio or television. (h) Service by way of access to a road or a bridge on payment of toll charges. (i) Betting, gambling or lottery. (j) Admission to entertainment events or access to amusement facilities. (k) Transmission or distribution of electricity by an electricity transmission or distribution utility. (l) Services by way of - (i) pre-school education and education up to higher secondary school or equivalent; (ii) education as a part of a curriculum for obtaining a qualification recognized by law; (iii) education as a part of an approved vocational education course. (m) Services by way of renting of residential dwelling for use as residence; (n) Services by way of - (i) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount; (ii) inter-se sale or purchase of foreign currency amongst banks or 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 con .....

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..... , referee, umpire, coach or manager for participation in a tournament or championship organized by a recognized sports body; (b) another recognised sports body; 11. Services by way of sponsorship of tournaments or championships organized:- (a) by a national sports federation, or its affiliated federations, where the participating teams or individuals represent any district, state or zone; (b) by Association of Indian Universities, Inter-University Sports Board, School Games Federation of India, All India Sports Council for the Deaf, Paralympic Committee of India, Special Olympics Bharat; (c) by Central Civil Services Cultural and Sports Board; (d) as part of national games, by Indian Olympic Association; or (e) under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA) Scheme; 12. Services provided to the Government or local authority by way of erection, construction, maintenance, 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 unde .....

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..... by way of 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 one thousand rupees per day or equivalent; 19. Services provided in relation 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 licence to serve alcoholic beverages; 20. Services by way of transportation by rail or a vessel from one port in India to another of the following goods:- (a) petroleum and petroleum products falling under Chapter heading 2710 and 2711 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986); (b) relief materials meant for victims of natural or man-made disasters, 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, s .....

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..... hi Bima Yojana); (k) Pilot Scheme on Seed Crop Insurance; (l) Central Sector Scheme on Cattle Insurance; (m) Universal Health Insurance Scheme; (n) Rashtriya Swasthya Bima Yojana; or (o) Coconut Palm Insurance Scheme; 27. Services provided by an incubatee up to a total business turnover of fifty lakh rupees in a financial year subject to the following conditions, namely:- (a) the total business turnover had not exceeded fifty lakh rupees during the preceding financial year; and (b) a period of three years has not lapsed from the date of entering into an agreement as an incubatee; 28. Service by an unincorporated body or an entity registered as a society to own members by way of reimbursement of charges or share of contribution:- (a) as a trade union; (b) for the provision of exempt services by the 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 perso .....

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..... der a Central or a State Act, but shall not include 'Nil' rate of duty or duty wholly exempt, 3. "arbitral tribunal" has the meaning assigned to it in clause (d) of section 2 of the Arbitration and Conciliation Act, 1996 (26 of 1996), 4. "authorised medical practitioner" means any medical practitioner registered with any of the Councils of the recognised system of medicine and includes medical professional having the requisite qualification to practice in any recognised system of medicine as per any law for the time being in force, 5. "authorised person" means and includes any person whether being an individual, partnership firm, limited liability partnership or body corporate, who is appointed as such either by a stock broker including trading member or by a member of commodity 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 facilitato .....

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..... lished charges for such unit, 13. "distributor or selling agent" has the meaning assigned to them in clause (c) of the rule 2 of the Lottery (Regulation) Rules, 2010 notified by the Government of India in the Ministry of Home Affairs published in the Gazette of India, Extraordinary, Part-II, Section 3, Sub-section (i), vide number G.S.R. 278(E), dated the 1st April, 2010 and shall include distributor or selling agent authorised by the lottery organising State, 14. "general insurance business" has the meaning assigned to it in clause (g) of section 3 of General Insurance Business (Nationalisation) Act, 1972 (57 of 1972), 15. "goods carriage" has the meaning assigned to it in clause (14) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988), 16."health 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 .....

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..... ry requirements, 29. "specified international organisation" means an international organisation declared by the Central Government in pursuance of section 3 of the United Nations (Privileges and Immunities) Act, 1947 (46 of 1947), to which the provisions of the Schedule to the said Act apply, 30. "state transport undertaking" has the meaning assigned to it in clause (42) of Section 2 of the Motor Vehicles Act, 1988 (59 of 1988), 31. "sub-broker" has the meaning assigned to it in sub-clause (gc) of clause 2 of the Securities and Exchange Board of India (Stock Brokers and Sub-brokers) (Second Amendment) Regulations, 2006, 30."trade union" has the meaning assigned to it in clause (h) of section 2 of the Trade Unions Act,1926(16 of 1926). 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 t .....

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..... 3 Transport of passengers, with or without accompanied belongings by rail 30 Nil. 4 Supply of food or any other article of human consumption or any drink, in a premises, including hotel, convention center, club, pandal, shamiana or any place specially arranged for organizing a function 70 CENVAT credit on any goods classifiable under chapter 1 to 22 of the Central Excise Tariff Act, 1985 (5 of 1986) has not been taken under the provisions of the CENVAT Credit Rules, 2004. 5 Transport of passengers by air, with or without accompanied belongings 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 .....

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..... tion of all services except those specified in the negative list or otherwise exempted. An important key for its implementation is to identify the taxing jurisdiction for a service. 1.1.2 So far the task of identifying the jurisdiction was largely 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 wh .....

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..... not be available e.g. services supplied electronically. As a result it is necessary to lay down rules determining the exact place of provision to capture the place of consumption, while ensuring a certain level of harmonization with 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 negativ .....

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..... B, enables taxation of only such services as are provided in taxable territory. Thus services that are provided in a non-taxable territory are not chargeable to service tax. 2.3 What is the significance 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 receiv .....

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..... n India, and branches in London, Dubai, Singapore and New York. Its business establishment is in India. Illustration 2 An overseas business house sets up offices 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 .....

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..... a recipient DEF located in non-taxable territory, the provision of such service is not taxable, since the receiver is located outside the taxable territory. If the same service were to be provided to PQR (located in taxable territory) by an overseas provider XYZ (located in non-taxable territory), the service would be taxable, since the recipient is located in the taxable territory. However, since the service provider is located in a non-taxable territory, the tax liability would be discharged by the receiver, under the reverse charge principle (also referred to as "tax shift"). 3.1.3 Who is the service receiver? Normally, the person who receives a service and, therefore, becomes obliged to make payment, is the receiver of a service, whether or not he actually makes the payment or someone else makes the payment on his behalf. Illustration A lady leaves her car at a service station for the purpose of servicing. She asks her chauffer to collect the car from the service station later in the day, after the servicing is over. The chauffer makes the payment on behalf of the lady owner and collects the car. Here the lady is the 'person obliged to make the payment' towards servicing .....

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..... tion later in the day, after the servicing is over. The chauffer makes the payment on behalf of the lady owner and collects the car. Here the lady is the 'person obliged to make the payment' towards servicing charges, and therefore, she is the receiver of the service. and Y (say, AAA-X and AAA-Y respectively). AAA wishes to obtain IT services for a new production process for its three manufacturing plants in the region. BBB is an IT firm located in the taxable territory (location of business establishment). BBB Ltd also has fixed establishments (subsidiaries) located in country X (say BBB-X) and in country Y (say, BBB- Y). AAA engages BBB for meeting its IT service requirement. Scenario 1 [See Flow Diagram F 2 below] AAA enters into a Global (centralized purchasing) agreement with BBB for provision of IT services for the whole group. Following are the different transactions under which services are provided:- a) Under the global agreement, some component of IT service is provided by BBB to AAA in country A (say, Transaction 1). b) To meet the requirements of providing IT solutions specific to the plants AAA-X and AAA-Y in countries X and Y, BBB enters into agreements with its .....

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..... able territory. Under Agreement 3, service 2 is provided by BBB-X to AAA-X, and the place of provision of this service, under the main rule, is country X i.e outside AAA Parent BBB Parent AAA-X Subsidiary AAA-Y Subsidiary BBB-X Subsidiary BBB-Y Subsidiary the taxable territory. Under Agreement 4, service 3 is provided by BBB-Y to AAA-Y, and the place of provision of this service, again under the main rule, is country Y i.e outside the taxable territory. 3.1.5 What is the place of provision where the location of receiver is not ascertainable in the ordinary course of business? Generally, in case of a service provided to a person who is in business, the provider of the service will be in a position to ascertain the location of the recipient's registered location, or his business establishment, or his fixed establishment etc, as the case may be. However, in case of certain services (which are not covered by the exceptions to the main rule), the service provider may not be in a position to ascertain the location of the service receiver, in the ordinary course of his business. This will also be the case where a service is provided to an individual customer who comes to the premises of .....

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..... 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. Illustration 3 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. 3.2.2 What is the implication of the proviso to sub-rule (1)? The proviso to this rule states as follows:- "Provided further that where 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." In the field of Information Technology, it is not uncommon to provide services in relation to tangible goods located distantly from a remote location. Thus the actual place of performance of the service could be quite different from the actual location of the tangible goods. This proviso requires that .....

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..... vident from these examples, the nature of services covered here is such as are rendered in person and in the receiver's physical presence. Though these are generally rendered at the service provider's premises (at a cosmetic or plastic surgery clinic, or beauty parlor, or health and fitness center, or internet café), they could also be provided at the customer's premises, or occasionally while the receiver is on the move (say, a personal security service; or a beauty treatment on board an aircraft). 3.2.5 What is the significance of "..in the physical presence of an individual, whether represented either as the service receiver or a person acting on behalf of the receiver" in this rule? This implies that while a service in this category is capable of being rendered only in the presence of an individual, it will not matter if, in terms of the contractual arrangement between the provider and the receiver (formal or informal, written or oral), the service is actually rendered by the provider to a person other than the receiver, who is acting on behalf of the receiver. Illustration 1 A company contracts with a fitness centre for 10 annual memberships, which are availed by th .....

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..... es to preparing the property for development or redevelopment or the environment within the limits of the property (e.g. engineering, architectural services, surveying and sub-dividing, management services, security services etc); iii) the purpose of the service is: a) the transfer or conveyance of the property or the proposed transfer or conveyance of the property (e.g., real estate services in relation to the actual or proposed acquisition, lease or rental of property, legal services rendered to the owner or beneficiary or potential owner or beneficiary of property as a result of a will or testament); b) the determination of the title to the property. There must be more than a mere indirect or incidental connection between a service provided in relation to an immovable property, and the underlying immovable property. For example, a legal firm's general opinion with respect to the capital gains tax liability arising from the sale of a commercial property in India is basically advice on taxation legislation in general even though it relates to the subject of an immovable property. This will not be treated as a service in respect of the immovable property. 3.3.3 Examples of lan .....

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..... 4 Rule 6- Services relating to Events 3.4.1 What is the place of provision of services relating to events? Place of provision of services provided by way of admission to, or organization of, a cultural, artistic, sporting, scientific, educational, entertainment event, or a celebration, conference, fair, exhibition, or any other similar event, and of services ancillary to such admission, shall be the place where the event is held. 3.4.2 What are the services that will be covered in this category? Services in relation to admission as well as organization of events such as conventions, conferences, exhibitions, fairs, seminars, workshops, weddings, sports and cultural events are covered under this Rule. Illustration 1 A management school located in USA intends to organize a road show in Mumbai and New Delhi for prospective students. Any service provided by an event manager, or the right to entry (participation fee for prospective students, say) will be taxable in India. Illustration 2 An Indian fashion design firm hosts a show at Toronto, Canada. The firm receives the services of a Canadian event organizer. The place of provision of this service is the location of the event, w .....

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..... Kerala. 3.6 Rule 8- Services where the Provider as well as Receiver is located in Taxable Territory 3.6.1 What is the place of provision of a service where the location of the service provider and that of the service receiver is in the taxable territory? The place of provision of a service, which is provided by a provider located in the taxable territory to a receiver who is also in the taxable territory, will be the location of the receiver. 3.6.2 What is the implication of this Rule? This Rule covers situations where the place of provision of a service provided in the taxable territory may be determinable to be outside the taxable territory, in terms of the application of one of the earlier Rules i.e. Rule 4 to 6, but the service provider, as well as the service receiver, are located in the taxable territory. The implication of this Rule is that in all such cases, the place of provision will be deemed to be in the taxable territory, notwithstanding the earlier rules. The presence of both the service provider and the service receiver in the taxable territory indicates that the place of consumption of the service is in the taxable territory. Moreover, it is not possible for a .....

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..... esident ordinary) accounts will be covered under this rule. Banking services provided to persons other than account holders will be covered under the main rule (Rule 3- location of receiver). 3.7.3 What are the services that are provided by a banking company to an account holder (holder of an account bearing interest to the depositor)? Following are examples of services that are provided by a banking company or financial institution to an "account holder", in the ordinary course of business:- i) services linked to or requiring opening and operation of bank accounts such as lending, deposits, safe deposit locker etc; ii) transfer of money including telegraphic transfer, mail transfer, electronic transfer etc. 3.7.4 What are the services that are not provided by a banking company or financial institution to an account holder, in the ordinary course of business, and will consequently be covered under another Rule? Following are examples of services that are generally NOT provided by a banking company or financial institution to an account holder (holder of a deposit account bearing interest), in the ordinary course of business:- i) financial leasing services including equipment .....

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..... nd financial data, matrimonial services, social networking sites; ii) digitized content of books and other electronic publications, subscription of online newspapers and journals, online news, flight information and weather reports; iii) Web-based services providing access or download of digital content. The following services will not be treated as "online information and database access or retrieval services":- i) Sale or purchase of goods, articles etc over the internet; ii) Telecommunication services provided over the internet, including fax, telephony, audio conferencing, and videoconferencing; iii) A service which is rendered over the internet, such as an architectural drawing, or management consultancy through e-mail; iv) Repair of software, or of hardware, through the internet, from a remote location; v) Internet backbone services, and internet access services. 3.7.7 What are "Intermediary Services"? An "intermediary" is a person who arranges or facilitates a supply of goods, or a provision of service, or both, between two persons, without material alteration or further processing. Thus, an intermediary is involved with two supplies at any one time: i) the supply .....

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..... ners used to store or carry goods while being transported; iii) Dredgers, or the like. 3.7.9 What if I provide a service of hiring of a fleet of cars to a company on an annual contract? What will be place of provision of my service if my business establishment is located in New Delhi, and the company is located in Faridabad (Haryana)? This Rule covers a situation where the hiring is for a period of upto one month. Since hiring period is more than one month, this sub-rule cannot be applied to the situation. The place of provision of your service will be determined in terms of the default rule i.e Rule 3 i.e. receiver location, which in this case is Faridabad (Haryana). 3.8 Rule 10- Place of Provision of a service of transportation of goods 3.8.1 What are the services covered under this Rule? Any service of transportation of goods, by any mode of transport (air, vessel, rail or by a goods transportation agency), is covered here. However, transportation of goods by courier or mail is not covered here. 3.8.2 What is the place of provision of a service of transportation of goods? Place of provision of a service of transportation of goods is the place of destination of goods, exc .....

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..... dealer in Bhopal, Madhya Pradesh. Say, XYZ is a registered assessee and is also the person liable to pay freight and hence person liable to pay tax, in this case. Here, the place of provision of the service of transportation of goods will be the location of XYZ i.e Haryana. Illustration 2 A goods transportation agency ABC located in Delhi transports a consignment of new motorcycles from the factory of XYZ in Gurgaon (Haryana), to the premises of a dealer in Jammu (non-taxable territory). Say, as per mutually agreed terms between ABC and XYZ, the dealer in Jammu is the person liable to pay freight. Here, in terms of amended provisions of rule 2(1)(d), since the person liable to pay freight is located in non-taxable territory, the person liable to pay tax will be ABC. Accordingly, the place of provision of the service of transportation of goods will be the location of ABC i.e. Delhi. 3.9 Rule 11- Passenger Transportation Services 3.9.1 What is the place of provision of passenger transportation services? The place of provision of a passenger transportation service is the place where the passenger embarks on the conveyance for a continuous journey. 3.9.2 What does a "continuous .....

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..... f provision is in taxable territory. 4 (a) Jammu-Delhi-Jammu (b) Delhi-Bangkok-Delhi Jammu is place of provision for journey (a); Delhi is place of provision for journey (b) Journey (a)is not taxable since place of provision is outside taxable territory Journey (b) is taxable, since place of provision is in taxable territory 5 (a) Jammu-Delhi (b) Delhi-Bangkok-Delhi (c) Delhi-Lucknow (d) Lucknow-Jammu Jammu is place of provision for journey (a); Delhi is place of provision for journey (b); Delhi is place of provision for journey (c); Lucknow is place of provision for journey (d) Journey (a) is not taxable since place of provision is not in taxable territory; Journeys (b), (c) and (d) are taxable since place of provision is in taxable territory. 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 .....

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..... deo 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). Illustration 1 An architect based in Mumbai provides his service to an Indian Hotel Chain (which has business establishment in New Delhi) for its newly acquired property in Dubai. If Rule 5 (Property rule) were to be applied, the place of provision would be the location of the property 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 .....

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..... to the depositor, and includes a non-resident external account and a non-resident ordinary account; (c) "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); (d) "continuous journey" means a journey for which a single or more than one ticket or invoice is issued at the same time, either by one service provider or through one agent acting on behalf of more than one service provider, and which involves no stopover between any of the legs of the journey for which one or more separate tickets or invoices are issued; (e) "financial institution" has the meaning assigned to it in clause (c) of section 45-I of the Reserve Bank of India Act,1934 (2 of 1934); (f) "intermediary" 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) .....

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..... rmation, retrievable or otherwise, to any person, in electronic form through a computer network; (m) "person liable to pay tax" shall mean the person liable to pay service tax under section 68 of the Act or under sub-clause (d) of sub-rule (1) of rule (2) of the Service Tax Rules, 1994. (n) "provided" includes the expression "to be provided"; (o) "received" includes the expression "to be received"; (p) "registration" means the registration under rule 4 of the Service Tax Rules, 1994; (q) words and expressions used in these rules and not defined, but defined in the Act, shall have the meanings respectively assigned to them in the Act. 3. Place of provision generally.- The place of provision of a service shall be the 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 physic .....

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..... pany, or a financial institution, or a non-banking financial company, to account holders; b) Telecommunication services provided to subscribers; c) Online information and database access or retrieval services; d) Intermediary services; e) Service consisting of hiring of means of transport, upto a period of one month. 10. Place of provision of goods transportation services.- The place of provision of services of transportation of goods, other than by way of mail or courier, shall be the place of destination of the goods: Provided that the place of provision of services of goods transportation agency shall be the location of the person liable to pay tax. 11. Place of provision of 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 d .....

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..... mises, which are engaged in relation to such service in any other manner, making such person liable for paying service tax, and has centralized billing system or centralized accounting system in respect of such service, and such centralized billing or centralized accounting systems are located in one or more premises, he may, at his option, centrally register at the premises from where the centralized billing or accounting is done. (5) When there is any change in or addition to the information that has been furnished earlier, such change or addition shall be intimated by the assessee to the jurisdictional Assistant Commissioner or Deputy Commissioner 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 .....

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..... 9; 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:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} Government o .....

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..... t 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 section 65B. This will also include certain activities that have been specified as declared services in section 66E. Most of these declared services are present .....

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..... nce 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 present, first determination will be the value of service being the total amount charged for the contract reduced by the value of property transferred in goods for State VAT purpose; ii If value of go .....

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..... es 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 exclusion from value. iii Under the list of exclusions in sub-rule (2) from taxable value "accidental damages due to unforeseen actions not relatable to the provision of service" is being added. This again is in view of the negative list approach to taxation of services and to confine inclusion .....

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..... 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. To strengthen the electronic refund further, it is proposed to amend section 93A of Finance Act, 1994. After its enactment, Notification 52 /2011-ST dated 30/12/2011 concerning refund service tax paid on export of goods at the post-manufacture/ removal stage, will be placed under this section. 29. This means that in future, service tax refunded will be recoverable, without any time bar from the exporter, against whose shipping bill, sale proceeds have not been received from abroad. Moreover the service-specific exemption .....

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..... ing 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, to the extent applicable. Accordingly, Central Excise provisions relating to revision mechanism (section 35EE of Central Excise Act) are being made applicable to service tax by amending section 83. 8. Clause (a) of section 89 relating to prosecution for non-issue of invoice is being replaced with the words "knowingly evades payment of service tax". This will meet the demand of business that mere non-issue of invoices should not be made punishable with prosecution, while giving a comprehensive coverage to offences and also aligning with other indirec .....

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..... 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 proposed to time it with Negative List approach as a part of the comprehensive reform. C.3 Penalty waiver for renting of immovable property service: 17. Recently, Delhi High Court while examining the issue of constitutionality of service tax on renting of immovable property service in the matter of Home Solutions Retail Vs UOI observed that 'on the question of penalty due to non-payment of tax, it is open to the Government to examine whether any waiver or exemption can be granted' [para 73]. Subsequently, in the matter of Retailers Assn. of India Vs Union of India, Honorable apex court, had ruled on October 14, 2011, that litigants should pay 50% of the arrears within six months in three equa .....

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..... n 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 available to individuals and partnership firms (including limited liability partnership) up to a turnover of Rs 50 lakh in a financial year provided the taxable turnover did not exceed this limit in the previous financial year. For computing the above limits, the turnover of the whole entity is required to be summed up and not any single registration. 5. The definition of continuous supply of service is being amended to capture the concept in a more wholesome manner, namely the recurrent nature of services and the obligation for payment periodically or from time-to-time. 6. Since the essence of the rule in case of continuous supply of service is the same as the main Rule, the separate rule for continuous supply of servic .....

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..... ervice 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 the return is given as Annexure D. It is also being proposed that the cycles for the payment service tax and filing of return should coincide. To this end the tax payment requirement is proposed to be revised as follows: A. Assessees who paid tax of Rs 25 lakh or more in previous year and new assessees other than individuals and firms: Monthly B. Others: Quarterly 3. This will improve cash flow for small businesses registered as companies or other corporate bodies while making large non-corporates pay tax on monthly business. 4. The restrictions in Rule 6(4B) are being omitted allowing unlimited amount of permissible adjustments. 5. Changes at S. No 1 & 2 will come into force after inviting comments from stakeholders. S. No .....

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..... ers; 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 service tax. These may be referred to in JS, TRU-I's letter. G. Disclaimer: The changes mentioned in this letter are intended to provide you a quick glimpse of the budgetary changes. They are neither exhaustive nor meant to be used to interpret any provision. For the sake of easier understanding legal texts have been avoided in the writing of this letter, which may impact the precise understanding sometimes. The wordings used in the statutory provisions and the notifications should be relied upon which alone have the legal standing. H. Miscellaneous: 1. You may go through all the changes together with both the guidance papers and provide your valuable observations as early as possible. The changes that have immediate implications for business may be intimat .....

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..... d 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 Secretary (TRU-II) To: All Chief Commissioners/ Directors General/CDR; All Commissioners: of Customs/Central Excise/Service Tax; Commissioner DPPR/ Logistics/Legal Affairs/ Data Management; Commissioner (ST) CBEC/ ADG DGST Annexure "A" Draft Guidance Paper: A Taxation of Services based on Negative List TRU, Central Board of Excise & Customs, Department of Revenue, Ministry of Finance March 16, 2012 In this guidance paper * Introduction * Guidance Note 2: What is service? * Guidance Note 3: Taxability of services * Guidance Note 4: Negative List * Guidance Note 5: Declared services * Guidance Note 6: Exemptions * Guidance Note 7: Rules of interpretation * Exhibit1:Negative List of services * Exhibit2: Exemptions in mega notification * Exhibit3: Oth .....

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..... 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 levied on all services provided or agreed to be provided in a taxable territory, other than services specified in the negative list. * The negative list of services is contained in section 66D of the Act. * Since provision of service in the taxable territory is an important ingredient of taxability, section 66C empowers the Central Government to make rules for determination of place of provision of service. Under these provisions the Place of Provision of Services Rules, 2012 have been made for which a separate and detailed guidance paper (GPB) has been issued. * To remove some ambiguities certain activities have been specifically defined by description as services and are referred as Declared Services (listed in section 66E). * In addition to the services specified in the negative list, certain exemptions have been given. Most of the exemptions are proposed to be consolidated in a single mega .....

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..... eration' 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 concept of consideration. When so applied to the Act, 'consideration' for a service provided or agreed to be provided by service provider would mean anything which the service receiver or any other person has done or abstained from doing, or does or abstain from doing, or promises to do or to abstain from doing for receiving the service. In simple term, 'consideration' means everything received in return for a provision of service which includes monetary payment and any consideration of non- monetary nature as well as deferred consideration. 2.2.2 What are the implications of the condition that activity should be carried out for a 'consideration'? * To be taxable an activity should be carried out by a person for another for a 'consideration' * Activity carried out without any consideration like donations, gifts or free charities are therefore outside the ambit of service. For example grants given for a research wher .....

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..... 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-monetary consideration is determined as per section 67 of the Act and the Service Tax (Determination of Value) Rules 2006, which is equivalent money value of such consideration and if not ascertainable, then as follows:- * On the basis of gross amount charged for similar service provided to other person in the ordinary course of trade; * Where value cannot be so determined, the equivalent money value of such consideration, not less than the cost of provision of service. 2.2.7 Are research grant with counter obligation on researcher to provide IPR rights on outcome of a research a consideration? In case research grant is given with counter obligation on the researcher to provide IPR rights on the outcome of research or activity undertaken with the help of such grants then the grant is a consideration for the provision of service of research. General grants for researches will not amount to a consideration. 2.2.8 Would the payments in the nature as explained in column A of the table below c .....

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..... . The consideration for a service may be provided by a person other than the person receiving the benefit of service as long as there is a link between the provision of service and the consideration. For example, holding company may pay for works contract service or architect services that are provided to its associated companies. 2.3 By a person for another 2.3.1 What is the significance of the phrase 'carried out by a person for another'? The phrase 'provided by one person to another' signifies that services provided by a person to self are outside the ambit of taxable service. Example of such service would include a service provided by one branch of a company to another or to its head office or vice-versa. 2.3.2 Are there any exceptions wherein services provided by person to the same person are taxable? Yes. Two exceptions have been carved out to the general rule that only services provided by a person to another are taxable. These exceptions, contained in Explanation 2 of clause (44) of section 65B, are: * an establishment of a person located in taxable territory and another establishment of such person located in non-taxable territory are treated as establishments of di .....

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..... has separately been specified in the negative list of services. The specified services provided by the Government or local authorities are taxable only to the extent they are not covered elsewhere i.e. either in the negative list or in the exemptions. 2.4 Activities specified in the declared list are services. Declared Services are activities that have been specified in Section 66 E of the Act. When such activities are carried out by one person for another in the taxable territory for a consideration then such activities are taxable services. For guidance on the declared services please refer to Guidance Note 5. 2.5 Activity to be taxable should not constitute only a transfer in title of goods or immovable property by way of sale, gift or in any other manner * Mere transfer of title in goods or immovable property by way of sale, gift or in any other manner for a consideration does not constitute service. * Goods has been defined in section 65B of the Act as 'every kind of moveable property other than actionable claims and money; and includes securities, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or unde .....

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..... ospital services. Therefore, if during the treatment of a patient in a hospital, he or she is given a pill, can the sales tax authorities tax the transaction as a sale? Doctors, lawyers and other professionals render service in the course of which can it be said that there is a sale of goods when a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client? Strictly speaking with the payment of fees, consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases. 43. The reason why these services do not involve a sale for the purposes of Entry 54 of List II is, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerley's case, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts .....

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..... tinct and separate contracts and is discernible as such then contract of service in such transaction would be segregated and chargeable to service tax if other elements of taxability are present. This would apply even if a single invoice is issued. The principles explained above would, mutatis mutandis, apply to composite transactions involving an element of transfer of title in immovable property. 2.5.4 Why is notification 12/2003-ST proposed for deletion? Notification 12/2003 - ST exempted so much of the value of all taxable services as was equal to the value of goods and materials sold by the service provider to the service recipient subject to condition that there is documentary proof of such value of goods and materials. Under the negative list scheme, transactions that involve transfer of title in goods are excluded. Therefore if goods are being sold by a service provider under a distinct and a separate contract then sale of such goods is excluded from the definition of service. If it is a 'composite contract' and dominant nature of the contract is that of provision of service then value of goods cannot be excluded and if the dominant nature is sale of goods then the contr .....

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..... goods (whether as goods or in some other form) involved in the execution of a works contract * delivery of goods on hire-purchase or any system of payment by installments * transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration * supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration * supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration. 2.5.8 What is the meaning of 'transfer of the right to use any 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. Transfer of goods without transfer of possession and effective c .....

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..... a hire-purchase agreement? In a mere hiring agreement the hirer has no option to purchase the goods hired and the risks and rewards incidental to ownership of goods remain with the owner and are not transferred to the hirer. In a hire-purchase agreement the hirer has an option or an obligation to purchase goods. 2.5.11 If 'delivery of goods on hire-purchase or any system of payment by installments' then what is scope of the declared service entry 'activities relating to delivery of goods on hire-purchase or any system of payment by installments'? For answers to this query please refer to point no. 5.5 of this Guidance Paper. 2.5.12 Are 'financial leases', 'operating leases' and 'equipment leases' covered as 'delivery of goods on hire purchase or any system of payment of installments'? Such leases would be covered only if the terms and conditions of such leases have the ingredients as explained in point no. 2.5.9 above. 2.6 Transactions only in money or actionable claims do not constitute service 2.6.1 What kind of activities would come under 'transaction only in money'? * Deposits in or withdrawals from a bank account. * Advancement or repayment of principal sum on loan .....

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..... e outside the ambit of services. Services provided outside ambit of employment for a consideration would be a service. For example, if an employee provides his services on contract basis to an associate company of the employer, then this would be treated as provision of service. Likewise a person engaged by the employer in private capacity and beyond the demands of employment will be taxable. 2.7.2 Would services provided on contract basis by a person to another be treated as services in the course of employment? No. Services provided on contract basis i.e. principal-to-principal basis are not services provided in the course of employment. 2.7.3 What is the status of services provided by casual workers or contract labour? If……. Then…… Services provided by casual worker to employer who gives wages on daily basis to the worker These are services provided by the worker in the course of employment Casual workers are employed by a contractor, like a building contractor or a security services agency, who deploys them for execution of a contract or for provision of security services to a client Services provided by the workers to the contractor are ser .....

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..... es that are retained by the service provider in the event of cancellation of contract of service by the service receiver become taxable as these represent consideration for a service that was agreed to be provided. 3.1.2 Does the liability to pay the service tax on a taxable service arise the moment it is agreed to be provided without actual provision of service? No. The point of taxation is determined in terms of the Point of Taxation Rules, 2011. As per these Rules point of taxation is - * the time when the invoice for the service provided or agreed to be provided is issued; * if invoice is not issued within prescribed time period( 30 days except for specified financial sector where it is 45 days) of completion of provision of service then the date of completion of service; * the date of receipt of payment where payment is received before issuance of invoice or completion of service. Therefore agreements to provide taxable services will become taxable only on issuance of invoice or date of completion of service if invoice is not issued within prescribed period of completion or on receipt of payment. For specific cases covered under the said Rules, including continuous su .....

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..... a member thereof then please see Explanation 2 to clause (44) of section 65B of the Act before answering this question] If the answer to the above questions is as per the answers indicated in column 2 of the table above THEN you are providing a service. Step 2 To determine whether service provided by you is taxable If you are providing a 'service' (Step 1) and then pose the following Questions to yourself- S.NO. QUESTION ANSWER 1 2 4 Am I providing or have I agreed to provide the service? Yes Am I providing or have I agreed to provide the service in the taxable territory? Yes 5 Is this activity entirely covered in any of the services described in the negative list of services contained in section 66D of the Act? No If the answer to the above questions is also as per the answers given in column 2 of the table above THEN you are providing a 'taxable service' 3.4.2 Will I have to pay service tax for all taxable services provided in the taxable territory? No. You will not have to pay service tax on taxable services provided by you in the following cases: * if in the previous financial year the aggregate value of taxable services provided by you was less than Rs.10 .....

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..... e negative list? No. Most services provided by the Central or state Government or local authorities are in the negative list except the following: a) services provided by the Department of Posts by way of speed post, express parcel post, life insurance and agency services carried out on payment of commission on non government business; b) services in relation to a vessel or an aircraft inside or outside the precincts of a port or an airport; c) transport of goods and/or passengers; d) support services, other than those covered by clauses (a) to (c) above, to business entities. 4.1.2 Would the taxable services provided by the Government be charged to tax if they are otherwise exempt or specified elsewhere in the negative list? No. If the services provided by the government or local authorities that have been excluded from the negative list entry are otherwise specified in the negative list then such services would also not be taxable. 4.1.3 'Government' has not been defined in the Act. What is the meaning of Government? Since 'Government' has not been defined in the Act, the definition of 'Government' as contained in the General Clauses Act, 1897 would be applicable as per .....

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..... overeign right to business entities are not support services e.g. grant of mining or licensing rights. 4.1.8 What is the meaning of local authority? Local authority is defined in 65B and means the following:- * A Panchayat as referred to in clause (d) of article 243 of the Constitution * A Municipality as referred to in clause (e) of article 243P of the Constitution * A Municipal Committee and a District Board, legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund * A Cantonment Board as defined in section 3 of the Cantonments Act, 2006 * A regional council or a district council constituted under the Sixth Schedule to the Constitution * A development board constituted under article 371 of the Constitution, or * A regional council constituted under article 371A of the Constitution. 4.2 Services provided by Reserve Bank of India 4.2.1 Are all services provided by the Reserve Bank of India in the negative list? Yes. All services provided by the Reserve Bank of India are in the negative list. 4.2.2 What about services provided to the Reserve Bank of India? Services provided to the Reserve Bank of India are .....

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..... ry market. It also includes specified processes in the definition like tending, pruning, grading, sorting etc. which may be carried out at the farm or elsewhere as long as they do not alter the essential characteristics. 4.4.4 Would plantation crops like rubber, tea or coffee be also covered under agricultural produce? Yes. Such plantation crops are also covered under agricultural produce. 4.4.5 Would potato chips or tomato ketchup qualify as agricultural produce? No. In terms of the definition of agricultural produce, only such processing should be carried out as is usually done by cultivator producers which does not alter its essential characteristics but makes it marketable for primary market. Potato chips of tomato ketchup are manufactured through processes which alter the essential characteristic of farm produce (potatoes and tomatoes in this case). 4.4.6 Would leasing of vacant land with a green house or a storage shed meant for agricultural produce be covered in the negative list? Yes. In terms of the specified services relating to agriculture 'leasing' of vacant land with or without structure incidental to its use' is covered in the negative list. Therefore, if vacant .....

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..... purchaser under a futures contract normally offsets all obligations or closes out by selling an equal quantity of goods of the same description under another contract for delivery on the same date. There are, therefore, two contracts of sale/purchase involved which would fall in the category of trading of goods. 4.5.4 Would auxiliary services relating to future contracts or commodity futures be covered in the negative list entry relating to trading of goods? No. Such services provided by commodity exchanges clearing houses or agents would not be covered in the negative list entry relating to trading of goods. 4.6 Processes amounting to manufacture or production of goods The phrase 'processes amounting to manufacture or production of goods' has been defined in section 65B of the Act as a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 (1 of 1944) or any process amounting to manufacture of alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act. This entry, therefore, covers manufacturing activity carried out on contract or job work .....

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..... ist 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? * This would be a case of bundled services taxability of which has to be determined in terms of the principles laid down in section 66F of the Act. * Bundled services have been defined in the said section as provision of one type of service with another type or types of services. * If such services are bundled in the ordinary course of business then the bundle of services will be treated as consisting entirely of such service which determines the dominant nature of such a bundle. * If such services are not bundled in the ordinary course of business then the bundle of services will be treated as consisting entirely of such service which attracts the highest liability of .....

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..... eans 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 programme, drama or a ballet preformed in the open does not cease to be a theatrical performance provided it is preformed in the manner it is preformed in a theatre, i.e. before an audience. 4.10.2 Would a standalone ride set up in a mall qualify as an amusement facility? Yes. A standalone amusement ride in a mall is also a facility in which fun or recreation is provided by means of a ride. Access to such amusement ride on payment of charges would be covered in the negative list. 4.10.3 Would entry to video parlors exhibiting movies played on a DVD player and displayed through a TV screen be covered in the entry? Yes. Such exhibition is an exhibition of cinematographic film. 4.10.4 Would membership of a club q .....

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..... 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 education coupled with other services like providing dwelling units for residence and food. This may be a case of bundled services if the charges for education and lodging and boarding are inseparable. Their taxability will be determined in terms of the principles laid down in section 66F of the Act. Such services in the case of boarding schools are bundled in the ordinary course of business. Therefore the bundle of services will be treated as consisting entirely of such service which determines the dominant nature of such a bundle. In this case since dominant nature is determined by the service of education other dominant service of providing residential dwelling is also covered in a separate entry of the negative list, the entire bundle would be tre .....

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..... vided 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 recognized by law for the time being in force (please refer to point no 4.12.3 above). 4.12.9 In addition to the services specified in the negative list, which educational services are exempt if provided by a charitable organization? Please refer to point no 6.3 4.12.10 What are the courses which would qualify as an approved vocational education courses? Approved vocational education courses have been specified in section 65B of the Act. These are - * a course run by an industrial training institute or an industrial training centre affiliated to the National Council for Vocational Training, offering courses in designated trades as notified under the Apprentices Act, 1961(52 of 1961) * a Modular Employable Skill Course, approved by the National Council of Vocational T .....

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..... 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 dwelling 4.14 Financial sector 4.14.1 What are the "services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount"? Illustrations of such services are - * Fixed deposits or saving deposits or any other such deposits in a bank for which return is received by way of interest. * Providing a loan or over draft facility for in consideration for payment of interest. * Mortgages or loans with a collateral security to the extent that the consideration for advancing such loans or advances are represented by way of interest. * Corporate deposits to the extent that the consideration for advancing such loans or advances are represented by way of interest or discount. 4.14.2 If any service charges or administrative charges or entry charges are recovered in addition to interest on a loan, advance or a de .....

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..... * 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 goods transport agency excluded from the negative list? Yes. However, there are separate exemptions available to the services provided by the goods transport agency. These are services by way of transportation of - * fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage; * goods where gross amount charged on a consignment transported in a single goods carriage does not exceed one thousand five hundred rupees; or * 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. 4.16.2 Are goods transport agencies liable to pay tax in all cases or are provisions relating to reverse charge also applicable after introduction of negative list? The provisions relating to reverse charge, i.e. service tax is liable to be paid by the consigner or consignee in specified cases, are applicable even after the intro .....

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..... sing, licensing or any such manner without transfer of right to use such goods; 7. activities in relation to delivery of goods on hire purchase or any system of payment by instalments; 8. service portion in execution of a works contract; 9. service portion in an activity 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 activity. If the above activities are carried out by a person for another for consideration it would amount to provision of service. Most of these services are presently also being taxed except in so far as Sl. No.5 is concerned. It is clarified that they are amply covered by the definition of service but have been declared with a view to remove any ambiguity for the purpose of uniform application of law all over the country. 5.1 Renting of Immovable Property 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 .....

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..... s to renting of immovable property. 5.1.5 Would service tax be chargeable on renting of property located outside the taxable territory but where the property is owned by a person located in the taxable territory? In respect of a service relating to immovable property the place of provision of service is the location of immovable property. If the immovable property is located outside taxable territory then it becomes a service provided outside the taxable territory even if the property owners is located in the taxable territory and would hence not be taxable. For details please see the Guidance Paper: GPB on the Place of Provision of Service Rules, 2012. 5.2 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. This service is already taxable as 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-sect .....

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..... y transfer of intellectual property right is in taxable territory. For details please see the Guidance Paper: B on the Place of Provision of Service. 5.4 Development, design, programming, customization, adaptation, up gradation, enhancement, implementation of information technology software The term 'information technology software' has been defined in section 65B of the Act as 'any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment'. 5.4.1 Would sale of pre-packaged or canned software be included in this entry? No. Sale of pre-packaged or canned software is in the nature of sale of goods and is not covered in this entry. 5.4.2 Is on site development of software covered under this entry? 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 se .....

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..... z., the financing transaction and the equipment leasing/hire-purchase transaction and that the financing transaction, consideration for which was represented by way of interest or other charges like lease management fee, processing fee, documentation charges and administrative fees, which is chargeable to service tax. Therefore, such financial services that accompany a hire-purchase agreement fall in the ambit of this entry of declared services. 5.5.4 Is service tax leviable on the entire quantum of interest and other charges received in relation to a hire purchase? No. In terms of the exemption notification relating to such activities, service tax is leviable only on 10% of the amount representing interest. No exemption is available in respect of other charges. Important 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. For Details please see Point no 5.6 of this Guidance Note. 5.6 Transfer of goods by way of hiring, leasing, licens .....

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..... and effective control remains with the owner (Delhi High Court Judgment in the case of International Travel House in Sales Tax Appeal no 10/2009 refers). The service is, therefore covered in the declared list entry. 2 Supply of equipment like excavators, wheel loaders, dump trucks, cranes, etc for use in a particular project where the person to whom such equipment is supplied is subject to such terms and conditions in the contract relating to the manner of use of such equipment, return of such equipment after a specified time, maintenance and upkeep of such equipment. The transaction will not involve transfer of right to use such equipment as in terms of the agreement the possession and effective control over such equipment has not been transferred even though the custody may have been transferred along with permission to use 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 th .....

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..... f works contract is deemed to be a sale of such goods. It is a well settled position of law, declared by the Supreme Court in BSNL's case [2006(2) STR 161 (SC)], that a works contract can be segregated into a contract of sale of goods and contract of provision of service. This declared list entry has been incorporated to capture this position of law in simple terms. Further, with a view to bring certainty and simplicity the manner of determining the value of service portion in works contracts will be given in the Valuation Rules. 5.8.1 Would labour contracts in relation to a building or structure treated as a works contract? No. Labour Contracts do not fall in the definition of works contract. It is necessary that there should be transfer of property 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 .....

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..... e execution of the said works contract. Note: Where Value Added Tax has been paid on the actual value of transfer of property in goods involved in the execution of the works contract, then such value adopted for the purposes of payment of Value Added Tax, shall be taken as the value of transfer of property in goods involved in the execution of the said works contract. Amount paid to a sub-contractor for labour and services Charges for planning, designing and architect's fees Charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract Cost of consumables such as water, electricity, fuel, used in the execution of the works contract 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 .....

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..... puts for the service provided. However, the goods not forming part of such transfer will be eligible for input tax credit subject to the provisions of the Cenvat Credit Rules, 2004 including the provisions relating to reversal of credits contained in rule 6 of the said rules. 5.9 Service portion in an activity 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 activity In terms of article 366(29A) of the Constitution of India supply of any goods, being food or any other article 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. .....

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..... f the Cenvat Credit Rules, 2004 including the provisions relating to reversal of credits contained in rule 6 of the said rules. Guidance Note 6 - Exemptions Under the present system there are 88 exemption notifications. The need for exemptions is not obliterated with the introduction of negative list. While some existing exemptions have been built into the negative list, others, wherever necessary, have been retained as exemptions. In addition new exemptions are proposed to be introduced in the context of the negative list. For ease of reference and simplicity most of the exemptions are part of one single mega exemption notification (list of such proposed exemptions is placed as Exhibit A2). In addition there are 9 more exemption notifications (list of such proposed exemptions is placed as Exhibit A3). The total number of exemption notifications, therefore, proposed to be issued in the new system would be only 10. 6.1 Are services provided to all international organizations exempt? NO. Services to only specified organizations are exempt which are as follows: 1. International Civil Aviation Organisation 2. World Health Organisation 3. International Labor Organisation 4. Food .....

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..... nd carry out one or more of the specified charitable activities. Following are the specified charitable activities:- (a) public health by way of - (I) care or counseling of (i) terminally ill persons or persons with severe physical or mental disability, (ii) persons afflicted with HIV or AIDS, or (iii) persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or (II) public awareness of preventive health, family planning or prevention of HIV infection; (b) advancement of religion; (c) advancement of educational programmes or skill development relating to,- (I) abandoned, orphaned or homeless children; (II) physically or mentally abused and traumatized persons; (III) prisoners; or (IV) persons over the age of 65 years residing in a rural area; (d) preservation of environment including watershed, forests and wildlife; or (e) advancement of any other object of general public utility up to a value of twenty five lakh rupees in a financial year subject to the condition that total value of such activities had not exceeded twenty five lakh rupees during the preceding financial year. 6.3.2 What is the tax liability of a registered charity on their a .....

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..... taxable. Recognized sports body has been defined in the notification. 6.7 Construction (Details at Sr No 12 to 14 of Exhibit A2) 6.7.1 I am a contractor in number of projects for constructing roads. What is my tax liability on construction of roads under different types of projects? Construction of roads for use by general public is exempt from service tax. Construction of roads which are not for general public use e.g. construction of roads in a factory, residential complex etc would be taxable. 6.7.2 I am in to construction of hospitals and educational institutes. Am I required to pay service tax? If you are constructing such structures for the government or local authority, you are not required to pay service tax. If you are constructing for others, you are required to pay tax. 6.7.3 I am setting up a wheat flour mill. The supplier of machines is demanding service tax on erection and installation of machineries and equipments in the flour mill. Is he is right in demanding service tax? There is no service tax liability on erection or installation of machineries or equipments for units processing agricultural produce as food stuff excluding alcoholic beverages. You are proc .....

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..... ay tax? No. However, transport of passengers in a contract carriage for the transportation of passengers, for tourism, conducted tour, charter or hire is taxable. 6.9.3 I have taken on rent a piece of vacant land from its owner. The land will be used for providing the facility of motor vehicles parking on payment. What is my service tax liability? You are not required to pay tax on providing the facility of motor vehicle parking to general public. However, if you are providing the facility of parking of vehicles to a car dealer, you are be required to pay tax as parking facility is not for general public. Moreover, land owner is liable to pay service tax on renting of his land to you. 6.9.4 I am a Resident welfare Association (RWA). The members contribute an amount to RWA for holding camps to provide health care services to poor men and women. Am I required to pay tax on contribution received from members? No. You are not required to pay service tax on the contribution received as you are providing exempt health care services to third persons. If contribution is for the taxable services to be provided to third persons, you are required to pay service tax. 6.9.5 What is the ta .....

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..... ce to a service (hereinafter referred to as the "main service") shall not include reference to a service which is used for providing the main service' This rule can be best understood with few illustrations which are given below - · 'Provision of access to any road or bridge on payment of toll' is a specified entry in the negative list in section 66D of the Act. Any service provided 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 .....

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..... l in Gurgaon (Haryana) provides a 4-D/3-N package with the facility breakfast. This is a natural bundling of services in the ordinary course of business. The service of hotel accommodation gives the bundle the essential character and would, therefore, be treated as service of providing hotel accommodation. 7.2.2 Services which are not naturally bundled in the ordinary 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 .....

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..... ervice is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business. * Other illustrative indicators, not determinative but indicative of bundling of services in ordinary course of business are - * There is a single price or the customer pays 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) Servic .....

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..... ional education course. (m) Services by way of renting of residential dwelling for use as residence; (n) Services by way of - (i) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount; (ii) inter-se sale or purchase of foreign currency amongst banks or 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 .....

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..... l Services Cultural and Sports Board; (d) as part of national games, by Indian Olympic Association; or (e) under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA) Scheme; 12. Services provided to the Government or local authority by way of erection, construction, maintenance, 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, construct .....

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..... following goods:- (a) petroleum and petroleum products falling under Chapter heading 2710 and 2711 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986); (b) relief materials meant for victims of natural or man-made disasters, 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 st .....

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..... orporated body or an entity registered as a society to own members by way of reimbursement of charges or share of contribution:- (a) as a trade union; (b) for the provision of exempt services by the 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 diamon .....

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..... al, partnership firm, limited liability partnership or body corporate, who is appointed as such either by a stock broker including trading member or by a member of commodity 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 .....

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..... of 1972), 15. "goods carriage" has the meaning assigned to it in clause (14) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988), 16."health 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 .....

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..... ions, 2006, 30."trade union" has the meaning assigned to it in clause (h) of section 2 of the Trade Unions Act,1926(16 of 1926). 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 equivalen .....

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..... oviding 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 provisions of the CENVAT Credit Rules, 2004. (ii) The bill issued for this purpose indicates that it is inclusive of charges for such a tour. (ii)Services provided or to be provided to any person, by a tour operator in relation to a .....

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..... e 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 loss of legitimate revenue for the government. The final guidance will follow when the rules are to be operationalized. 1.1.5 The guidance has been prepared in Q&A form for easy understanding. 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 vi .....

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..... f 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 Note 7' for this purpose. Step 2: To determine whether the place of provision of service is in the taxable territory: You need to ask the following questions sequentially, applying these rules:- 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 ab .....

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..... le 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 covered by A above: i. the location of his business establishment; or ii. where services are provided or received at a place other than the business establishment i.e. a fixed establishment elsewhere, 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. .....

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