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TMI BlogDeclared Services.X X X X Extracts X X X X X X X X Extracts X X X X ..... ate 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. The above activities when carried out by a person for another for consideration would amount to provision of service. Most of these services are presently also being taxed except in so far as SI. 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. 6.1 Renting of Immovable Property Renting has been defined in section 65B as "allowing, permitting or granting access, entry, occupation, usageor any such facility, wholly or partly, in an immovable property, with or without the transfer of possessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgeable 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 (including under a profitsharing arrangement) Chargeable to service tax as the arrangement amounts to renting of immovable property. 6.1.5 Whether hotels/restaurants/convention centres letting out their halls, rooms etc. for social, official or business functions or letting out of halls for cultural functions fall within the scope of this declared list service? Halls, rooms etc. let out by hotels/restaurants for a consideration for organizing social, official or business functions or letting out of halls for cultural functions are covered within the scope of renting of immovable property and would be taxable if other elements of taxability are present. 6.2 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 compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able. The fact that a taxable service is rendered in relation to an activity which occurs on land does not render the charging provision as imposing a tax on land and buildings. The charge continues to be a charge on taxable services. The charge is not a charge on land or buildings as a unit. The tax is not on the general ownership of land. The tax is not a tax which is directly imposed on land and buildings. The fact that land is subject to an activity involving construction of a building or a complex does not determine the legislative competence of Parliament. The fact that the activity in question is an activity which is rendered on land does not make the tax a taxon land. The charge is on rendering a taxable service and the fact that the service is rendered in relation to land does not alter the nature or character of the levy. The legislature has expanded the notion of taxable service by incorporating within the ambit of clause (zzq) and clause (zzzh) services rendered by a builder to the buyer in the course of an intended sale whether before, during or after construction. There is a legislative assessment underlying the imposition of the tax which is that during the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided by him, from two categories of service receivers. First category is the society/members of the society, who transfer development rights over the land (including the permission for additional number of flats), to the builder/developer. The second category of service receivers consist of buyers of flats other than the society/members. Generally, they pay by cash. Re-construction undertaken by a building society by directly engaging a builder/developer will be chargeable to service tax as works contract service for all the flats built now. 6.2.3 When a certain number of flats are given by the builder/developer to a land owner in a collaborative agreement to construct, lieu of the land or development rights transferred, will such transferee be required to pay service tax on further sale of flats to customers? Yes. The service tax will be required to be paid by such transferee if any consideration is received by him from any person before the receipt of completion certificate. 6.2.4 What would be the service tax liability on conversion of any hitherto untaxed construction /complex or part thereof into a building or civil structure to be used for commerce or industry, after l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , testing and analysis'. If the nature of concession is such that it amounts to 'renting of immovable property service' then the same would be taxable. The tax is required to be paid by the government as there is no reverse charge for services relating to renting of immovable property. In this model, though the concessionaire is undertaking construction of a building to be used wholly or partly for furtherance of business or commerce, he will not be treated as a service provider since such construction has been undertaken by him on his own account and he remains the owner of the building during the concession period. However, if an independent contractor is engaged by a concessionaire for undertaking construction for him, then service tax is payable on the construction service provided by the contractor to the concessionaire. At the third level, the concessionaire enters into agreement with several users for commercially exploiting the building developed/constructed by him, during the lease period. For example, the user may be paying a rent or premium on the sub-lease for temporary use of immovable property or part thereof, to the concessionaire. At this third level, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such an interest would be transfer of a benefit to arise out of land which as per the definition of immoveable property given in the General Clauses Act, 1897 is part of immoveable property. Such transfer would therefore be outside the ambit of 'service' being a transfer of title in immoveable property. 6.3 Temporary transfer or permitting the use or enjoyment of any intellectual property right 6.3.1 What is the scope of the term 'intellectual property right'? 'Intellectual property right' has not been defined in the Act. The phrase has to be understood as 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 6.3.2 Is the IPR required to be registered in India? 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 also be covered in this entry. However, it will b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (in case of painting) or computer discs or cassettes, and marketed would become "goods". We see no difference between a sale of a software programme on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is not just of the media which by itself has very little value. The software and the media cannot be split up. What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc or CD. Thus a transaction sale of computer software is clearly a sale of "goods" within the meaning of the term as defined in the said Act. The term "all materials, articles and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the license to use packaged software involves transfer of 'right to use' such software in the sense the phrase has been used in sub-clause (d) of article 366(29A) of the Constitution. (See point no 5.6.1). ♦ In case a license to use pre-packaged software imposes restrictions on the usage of such licenses, which interfere with the free enjoyment of the software, then such license would not result in transfer of right to use the software within the meaning of Clause 29(A) of Article 366 of the Constitution. Every condition imposed in this regard will not make it liable to service tax. The condition should be such as restraints the right to free enjoyment on the same lines as a person who has otherwise purchased goods is able to have. Any restriction of this kind on transfer of software so licensed would tantamount to such a restraint. ♦ Whether the license to use software is in the paper form or in electronic form makes no material difference to the transaction. ♦ However, the manner in which software is transferred makes material difference to the nature of transaction. If the software is put on the media like computer disks or even embedded on a comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try. 6.5.2 What is the scope of the phrase 'delivery of goods on hire-purchase or any system of payment by instalments'? 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 instalments, and (ii) the property in the goods is to pass to such person on the payment of the last of such instalments, and (iii) such person has a right to terminate the agreement at any time before the property so passes.' As per the Sales of Goods Act by Mulla (Seventh Edition. Page 14) delivery is 'voluntary dispossession in favour of another' and that 'in all cases the essence of delivery is that the deliverer, by some apt and manifest act, puts the deliveree in the same position of control over thing, either directly or through a custodian, which he held himself immediately before the act'. The nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said 'deemed sale' category. The essence of this deemed sale category is that the arrangement under which the goods are 'delivered' should be in the nature of a financing arrangement wherein the lessee pays maintenance costs and taxes and has the option of purchasing the asset so delivered at lease end. It may, however, be pointed out that in case an 'operating lease' has elements of transfer of 'right to use' then the same would be covered in the other 'deemed sale' category pertaining to 'transfer of right to use any goods' 6.5.5 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 v. Union of India [2010 (10) TMI 4 (SC)] 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r cannot again transfer the same right to others. Whether a transaction amounts to transfer of right or not cannot be determined with reference to a particular word or clause in the agreement. The agreement has to be read as a whole, to determine the nature of the transaction. 6.6.2 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r manner. Such action on the part of one person is also an activity for consideration and will be covered by the declared services. 6.8 Service portion in execution of a works contract Works contract has been defined in section 65B of the Act as a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any moveable or immoveable property or for carrying out any other similar activity or a part thereof in relation to such property. 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 (3) TMI 1 (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 bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract. 6.8.5. Would contracts for painting of a building, repair of a building, renovation of a building, wall tiling, flooring be covered under 'works contract'? Yes, if such contracts involve provision of materials as well. 6.8.6 Is the definition of 'works contract' in clause (54) of section 65B in line with the definition of 'works contract' in various State VAT laws? The definition of 'works contract' in clause (54) of section 65B covers such contracts which involve transfer of property in goods and are for carrying out the activities specified in the said clause (54) in respect of both moveable and immoveable properties. This is broadly in consonance with the definition of 'works contract' in most of the State VAT laws. However, each State has defined 'works contracts' differently while dealing with works contract as a category of deemed sales. There could, therefore, be variations from State to State. For service tax purposes the definition in clause (54) of section 65B would be applicable. 6.8.7 What is the way to segregate service portion in execution of a works contract from the total contract or what is the manner of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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