Service tax was introduced for the first time in the year 1994 through. the insertion of Chapter V in the Finance Act, This Chapter V in the

Transcription

1 Introduction Service tax was introduced for the first time in the year 1994 through the insertion of Chapter V in the Finance Act, This Chapter V in the Finance Act, 1994 initially contained sections 64 to 96 and the levy of service tax was confined to just three services in the organised sector i.e in General Insurance, Stock broking and Telephone. Since then the Act has been amended year after year, in order to bring more services into the tax net, as well as to insert certain new provisions found necessary. For ready reference, details of the services brought into the tax net in chronological order of their introduction are furnished in Appendix III. Many services which were defined under separate heads, in the course of time, have been merged under new heads and thus the total number of services have come down to 119 services. For example, the existing telecom services which were defined under separate heads, namely, telephone services, pager services, leased circuit services, telegraph services, telex services and facsimile services have been merged under the new head telecommunication service with effect from Effective from , service tax regime has shifted from selective taxation to comprehensive taxation. Thus all the services are taxable as service without reference to the specific service. The Budget 2012 has made a 104

2 paradigm shift for taxation of services and announced that service tax shall be levied on the basis of a negative list of services and accordingly, the Finance Act, 2012 has amended the Finance Act, 1994, which came in to force with effect from as notified by the Central Government. It means that if an activity meets the characteristics of a service it is taxable unless specified in the Negative list or otherwise exempted by an exemption Notification. 1 The Central Government has introduced various rules for the implementation of service tax in India and the list of rules, which are applicable as on are presented here. i) The Service Tax Rules, 1994 ii) The Point of Taxation Rules, 2011 iii) The Service Tax (registration of Special Category of Persons) Rules, 2005 iv) The service Tax Return Preparer Scheme, 2009 v) The Service Tax (Determination of value) Rules, 2006 vi) The Service Tax (Publication of Names) Rules, 2008 vii) The Service Tax (Provisional Attachment of Property) Rules, 2008 viii) The Service Tax (Advance Rulings) Rules, 2003 ix) The Authority for Advance Rulings (Customs, Central Excise and Service Tax) Procedures & Regulations x) The CENVAT Credit Rules,

3 xi) The Service Tax (Settlement of Cases) Rules, 2012 xii) The Service Tax (Compounding of Offences) Rules, 2012 Major Services in Tirunelveli Since this study relates to Tirunelveli Commissionerate, an attempt is made by the scholar to discuss the statues related with predominant services rendered in Tirunelveli Commissionerate in terms of service tax collected under each category of major services. The major services rendered in Tirunelveli Commissionerate are: 2 1 Banking and other Financial Service. 2 Business Auxiliary Service. 3 Commissioning and Installation Service 4 Construction Service (Commercial or Industrial). 5 Custom House Agents Service. 6 Goods Transport Agency Service. 7 Maintenance and Repair Service. 8 Manpower Recruitment or Supply Agency Service. 9 Port Service and 10 Telecommunication Services. Banking and other Financial Services The Finance Act, 2001 brought banking and other financial services provided by a banking company or financial institution including a non banking financial institution, under tax net with effect from The Finance Acts, 2002, 2003, 2004 and 2006 widened the scope of taxability of 106

4 banking and financial services by enlarging the category of service providers who are liable to pay tax on these services. The Finance Act, 2007 restricted such scope to some extent by reversing the expansion made vide the Finance Act, 2006 to make any person (other than those who were already taxable under this head) providing these services liable to pay service tax. There are two relevant sub-clauses in Section 65(105) of the Finance Act, 1994, which determine the meaning and scope of taxability of banking and other financial services. These sub-clauses are: Under Section 65(105)(zm) of the Finance Act, 1994, Taxable service means any service provided or to be provided to any person by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern, in relation to banking and other financial services Under Section 65(105)(zzk) of the Finance Act, 1994, Taxable service means any service provided or to be provided to any person by a foreign exchange broker, including an authorised dealer in foreign exchange or authorised money changer, other than a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern referred to in sub-clause (zm) of clause 105 of Section 65 of the Finance Act,

5 According to these definitions, a service becomes taxable as banking and financial service, when: i. the service is provided in respect of banking and other financial services, ii. the service is provided by a banking company, non-banking financial institutions, any other body corporate or commercial concern or a foreign exchange broker and iii. the service is provided to any person. Under Section 65(12) of the Finance Act, 1994 Banking and other financial services means- (a) the services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern, namely i. financial leasing services including equipment leasing and hire purchase, ii. merchant banking service, iii. securities and foreign exchange (forex) broking, and purchase and sale of foreign currency including money changing, iv. asset management including portfolio management, all forms of fund management, pension fund management, custodial, depositary and trust services, 108

6 v. advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy, vi. provision and transfer of information and data processing and vii. banker to an issue service and viii. other financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit and bill of exchange, transfer of money including telegraphic transfer, mail transfer and electronic transfer, providing bank guarantee, overdraft facility, bill discounting facility, safe deposit locker, safe locker, safe vaults and operation of bank accounts (b) foreign exchange broking and purchase or sale of foreign currency, including money changing provided by a foreign exchange broker or an authorised dealer in foreign exchange or an authorised money changer, other than those covered under sub-clause (a) 3 Business Auxiliary Services Business auxiliary services were made taxable by the Finance Act, 2003, with effect from Initially only such business auxiliary activities which relates to promotion, marketing and customer care were taxable under business auxiliary service. The Finance Acts, 2004, 2005 widened the scope of taxability of business auxiliary services to such a large extent that almost every service of procurement of inputs for the client, production or processing of goods for and on behalf of the client and 109

7 provision service on behalf of the client has become taxable under this head. The Finance Acts, 2006, 2008, 2009 further widened the scope of taxability of business auxiliary services. Under Section 65(105) (zzb) of the Finance Act, 1994, Taxable service means any service provided or to be provided to a client by any person in relation to business auxiliary service. According to this definition, a service becomes taxable as business auxiliary services, when: i. the service is provided in relation to activities falling under business auxiliary services, ii. the service is provided by any person and iii. the service is provided to a client. Under Section 65(19) of the Finance Act, 1994 Business auxiliary services means any service in relation to, i. promotion or marketing or sale of goods produced or provided by or belonging to the client; or ii. promotion or marketing of service provided by the client; or iii. any customer care service provided on behalf of the client; or iv. procurement of goods or services, which are inputs for the client; v. production or processing of goods for, or on behalf of the client; or 110

8 vi. provision of service on behalf of the client; or vii. a service incidental or auxiliary to any activity such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts, inventory management, public relation services, management or supervision and includes services of commission agent. As per this statutes, the activities to be considered as business auxiliary services are: 4 i. any service in relation to promotion or marketing or sale of goods produced or provided or belonging to the client, ii. any service in relation to promotion or marketing of serviced provided by the client, iii. any customer care service provided on behalf the client, iv. procurement of goods or services, which are inputs for the client, v. production or processing of goods for or on behalf the client and vi. provision of service on behalf of the client. Commissioning and Installation Service The Finance Act, 2003 made the services of commissioning and installation of plant, machinery or equipment 5 taxable with effect from Every subsequent Finance Act enhanced the scope of these services. The Finance Act, 2004 included the services of erection in this list with effect from The Finance Act, 2005 included the services of installation of certain other items in addition to the plant, machinery and 111

9 equipments as taxable with effect from The Finance Act, 2006 included the services of erection, commissioning or installation of structures, whether pre-fabricated or otherwise under tax net with effect from With effect from , the Finance Act, 2007 introduced a new category of execution of works contracts as a taxable category. Under Section 65(105) (zzd) of the Finance Act, 1994, Taxable service means any service provided or to be provided to any person by a commissioning and installation agency in relation to erection, commissioning or installation. According to this definition, a service becomes taxable as service of commissioning, installation or erection, when; i. the service is in relation to Erection, Commissioning or installation, ii. the service is provided by a commissioning and installation agency and iii. the service is provided to any person. As per these statutes, the activities to be considered as erection, commissioning or installation are: i. any service provided by a commissioning or installation agency, ii. any service provided in relation to erection, commissioning or installation of plant, machinery, equipment or structures, whether prefabricated or otherwise and iii. any service provided in relation of certain items and similar services. 112

10 Construction Service (Commercial or Industrial) With effect from , the Finance Act, 2004 brought the services of construction of new buildings or civil structures used for commercial or industrial purposes and repair, alternation or restoration activities of such buildings and civil structures under service tax net. The Finance Act, 2005, with effect from renamed such construction service as commercial and industrial construction service and enhanced the scope of taxability under this head by specifically including therein the services of renovation of a commercial or industrial building or civil structure, post construction completion and finishing services like glazing and painting, and construction, repair, alteration, renovation or restoration of pipeline or conduit. The Finance Act, 2006 made any person providing these services liable to pay tax. Prior to , only a commercial concern was liable to service tax for providing commercial or industrial construction services. The Finance Act, 2007, with effect from , introduced a new category of execution of works contracts service as a taxable category which covers works contracts in relation to commercial construction service. Under Section 65(105) (zzq) of the Finance Act, 1994, Taxable service means any service provided or to be provided to any person by any other person, in relation to commercial or industrial construction. 113

11 According to this statute, a service becomes taxable as service of commercial or industrial construction, when: i. the service is in relation to commercial or industrial construction and ii. the service is provided to any person Under Section 65(25b) of the Finance Act, 1994 Commercial or industrial construction means any service provided by any person in relation to, a. construction of a new building or a civil structure or a part thereof; b. construction of pipeline or conduit; or c. completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or d. repair, alternation, renovation or restoration of or similar services in relation to building or civil structure or conduit. 6 Custom House Agents Service The Finance Act, 1997, with effect from brought the services of custom house agent under service tax net. Initially only the service charges collected by the custom house agents for rendering their services were taxable. With effect from , with the advent of the Valuation Rules in service tax, the entire amount charged by the custom 114

12 house agents for rendering their service were taxable unless the charges collected is reimbursement of expenses incurred by him as pure agent. Under Section 65(105) (h) of the Finance Act, 1994, Taxable service means any service provided or to be provided to any person by a custom house agent, in relation to the entry or departure of conveyance or the import or export of goods. According to this statute, a service becomes taxable as custom house agent s service, when: 1. the service is provided by a custom house agent, 2. the service is provided in relation to the entry or departure of conveyance or the import or export of goods and 3. the service is provided to any person. Clause 35 of Section 65 of the Finance Act, 1994 defines the meaning of custom house agent as a person licensed, temporarily or otherwise, under the regulations made under sub-section (2) of Section 146 of the Customs Act, As per the this definition, a custom house agent; i. is a person, ii. who has license to act as custom house agent under the Customs Act, The license may be temporary or otherwise. 115

13 It is only the services provided by a custom house agent in relation to entry or departure of conveyance or the import of goods which is taxable as custom house agent service under service tax. The services provided by a custom house agent in relation to entry or departure of conveyance may consist of services like. i. filing of Import General Manifest or Export General Manifest, ii. arranging for loading or discharge of cargo and iii. obtaining entry inwards or entry outwards etc. The services provided by a custom house agent in relation to import or export of goods are mainly for the clearing of the import and export consignment. However, the custom house agent service includes i. loading / unloading of import or export goods from / at the premises of exporter / importer, ii. the packing, weighment, measurement of the export / import goods, iii. the transportation of the export goods to the port or the import goods from the port to the importer s premises and iv. carrying out of various statutory and other formalities such as payment of expenses on account of octroi, destuffing, fumication, testing charges, labour charges etc. 7 Goods Transport Agency Service Service tax was first introduced on Goods Transport Operator services with effect from But later this tax was withdrawn with 116

14 effect from The tax has been reintroduced on Goods Transport Agency services with effect from by the Finance Act, It may be noted that under the earlier provisions the term Goods Transport Operator has been used to define the taxable service and under the existing provisions the term Goods Transport Agency is used. The difference in the terminology bears significance as to the taxability aspect of the services. Under Section 65(105) (zzp) of the Finance Act, 1994, Taxable service means any service provided or to be provided to any person by a goods transport agency, in relation to transport of goods by road in a goods carriage. According to this statute, a service becomes taxable as goods transport agency s service, when: i. the service is provided by a goods transport agency in relation to transport of goods by road, ii. goods are transported in a goods carriage and iii. the service is provided to any person. Under Section 65(50b) of the Finance Act, 1994 Goods Transport Agency means any person who provides service in relation to transport of goods by road and issue consignment note, by whatever name called 8 117

15 Maintenance and Repair Service Maintenance or repair service has been brought under service tax net with effect from by the Finance Act, Since , services relating to restoration and reconditioning of goods and equipment and maintenance or management of immovable property such as roads, airports, railways, buildings, parks and electrical installations etc. have also been covered under the purview of service tax. The Finance Act, 2006, with effect from , has further extended the coverage of taxable services under this category by including therein the services of management of property other than immovable property. The Finance Act, 2007, with effect from has inserted an explanation to the definition of management, maintenance or repair service to clarify that goods include computer software for the purpose of this taxable service. The Finance Act, 2008, with effect from has further expanded this explanation to clarify that properties include information technology software and thus management, maintenance or repair of computer software made taxable. Under Section 65(105) (zzg) of the Finance Act, 1994, Taxable service means any service provided or to be provided to any person by any person in relation to management, maintenance or repair. According to this statute, a service becomes taxable as management or repair service, when: 118

16 i. the service is provided in relation to management, maintenance or repair, ii. the service is provided by any person and iii. the service is provided to any person. Under Section 65(64) of the Finance Act, 1994 management, maintenance or repair means any service provided by i. any person under a contract or an agreement; or ii. a manufacturer or any person authorised by him, in relation to a. management of properties, whether immovable or not or b. maintenance or repair of properties, whether immovable or not; or c. maintenance or repair including reconditioning or restoration, or servicing of any goods, excluding a motor vehicle. Here a. goods includes computer software and b. properties includes information technology software. 9 Manpower Recruitment or Supply Agency Service Services of manpower recruitment agency have been brought under the net of service tax by the Finance Act, 1997, with effect from These services covered manpower services provided by a manpower recruitment agency. With effect from , the Finance Act, 2005, enhanced the scope of these services by including temporary supply of manpower therein and renamed it as manpower recruitment or supply agency. The Finance Act, 2006, with effect from , further 119

17 enhanced the scope of taxability of these services by providing that any person providing manpower recruitment or supply services can be considered as manpower recruitment or supply agency. Prior to the date, only a commercial concern providing such services was liable to service tax as manpower recruitment or supply agency. The Finance Act, 2007, with effect from , has added an explanation to the definition of taxable service to clarify that manpower recruitment or supply agency service includes services in relation to pre-recruitment screening, verifying the credentials of the candidate, authenticity of the documents submitted by the candidates and verification of antecedents. Under Section 65(105) (k) of the Finance Act, 1994, Taxable service means any service provided or to be provided to any person by a manpower recruitment or supply agency in relation to the recruitment or supply of manpower, temporarily or otherwise, in any manner. According to this statute, a service becomes taxable as manpower recruitment or supply agency, when: i. the service is provided by a manpower recruitment or supply agency or ii. the service is in relation to recruitment or supply of manpower or iii. the service may be provided temporarily or otherwise or iv. the service is provided to any person. 120

18 Under Section 65(68) of the Finance Act, 1994 Manpower Recruitment or Supply Agency means any person engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise. 10 Port Service The port services were initially brought under the service tax net by the Finance Act, 2001, with effect from However, the taxability covered only to the major ports. With effect from , the Finance Act, 2003, enhanced the taxability under port services to all ports. Thus the existing position is that the port service provided by any port to which the Indian Port Act applies is taxable under this head. According to the Finance Act, 2010, with effect from , taxable services include all services provided entirely within the port premises. For example if services like cargo handling service or cleaning service is rendered within port area, they would be classified under port services. Under Section 65(105) (zzl) of the Finance Act, 1994, Taxable service means any service provided or to be provided to any person by any other person in relation to port services in other port, in any manner. 121

19 According to this statute, a service becomes taxable as port service, when: i. the service is provided in relation to port service or ii. iii. iv. the service is provided within a port (major port & other port) or the service is provided by any person to any other person or the service may be provided in any manner. Thus practically there is one parameter of the port service, i.e., the service should be provided within a port. Certain activities undertaken within the ports have been kept out of service tax by exempting them viz. supply of water, supply of electricity, repair of ships & boats or vessels owned by the Navy, Coast Guard or Customs but does not include Government owned public sector undertaking. 11 Telecommunication Services The Finance Act, 2007, with effect from , has brought the telecommunication service under the service tax net as a comprehensive head to tax all telecom services provided by a telegraph authority. The existing telecom services which were defined under separate heads, namely, telephone services, pager services, leased circuit services, telegraph services, telex services and facsimile services have been merged under the new head telecommunication service. The Finance Act, 2008, with effect from 122

20 , has introduced a new category of internet telecommunication services under the service tax net. Under Section 65(105)(zzzx) of the Finance Act, 1994, Taxable service means any service provided or to be provided to any person, by a telegraphic authority in relation to telecommunication service. According to this statute, a service becomes taxable as telecommunication service, when: i. the service is provided in relation to telecommunication service or ii. the service is provided by the telegraph authority or iii. the service is provided to any person. Under Section 65(109a) of the Finance Act, 1994, Telecommunication service means any transmission, emission or reception of signs, signals, writing, images and sounds or intelligence or information of any nature, by wire, radio, optical, visual or other electromagnetic means or systems, including the related transfer or assignment of the right to use capacity for such transmission, emission or reception by a person who has been granted a licence under the Indian telegraphic Act, 1885 and includes voice mail, data services, fixed telephone services, cellular mobile telephone services, private network services, data 123

21 transmission services, communication through facsimile, pager, telegraph and telex. 12 Small Scale Service provider (Threshold Exemption) Prior to , service tax was leviable on all taxable services irrespective of the quantum of turnover of a service provider. To save the small service providers from the levy of service tax, a threshold exemption scheme has been introduced with effect from exempting service tax on aggregate value of taxable services not exceeding four lakhs rupees received by the service provider during a financial year. This limit of four lakhs rupees was further enhanced to eight lakhs rupees effective from and further enhanced to ten lakhs rupees effective from This threshold limit of ten lakhs rupees has been retained in the new regime also by Notification No. 33/2012-ST dated subject to certain conditions. A small service provider is eligible to avail exemption from service tax on the aggregate value of taxable services not exceeding ten lakhs rupees in any financial year subject to the condition that during the preceding financial year, the aggregate value of taxable services provided by him from one or more premises, excluding the exempted services, did not exceed ten lakhs rupees. Two categories of persons are excluded from the purview of this exemption benefit. The exemption under the notification shall not apply 124

22 to taxable services provided by a person under a brand name or trade name of another person. For example, an authorised service station of M/s Maruti Udyog Ltd (car dealer) is not eligible to avail this exemption for the taxable service of authorised service station as he is using the brand name of the car manufacturer while providing the taxable service of authorised service station. In general, the service tax is to be paid by the service providers rendering the service. 13 These ten services constitute the major share in the service tax revenue collection of Tirunelveli Commissionerate. The service tax revenue collected in Tirunelveli Commissionerate during from these 10 services is furnished in Table No

23 Table 3.1 Service Tax Revenue in Tirunelveli Commissionerate (Rs in Crores) S. No Services Revenue Percentage 1 Banking and other Financial Services Business Auxiliary Services Commissioning and Installation Services Construction Service (Commercial or Industrial) Custom House Agents Service Goods Transport Agency Service Maintenance and Repair Service Manpower Recruitment or Supply Agency Service Port Service Telecommunication Service Total of these 10 Services All Services Source: PUB Central- Excise Pub Thirunelveli More than 100 services are under service tax net. But as seen from Table No 3.1, in Tirunelveli Commissionerate, the top 10 services have fetched a total revenue of Rs Crores and it constitutes 54.5 per cent 126

24 of the total service tax revenue collected in Tirunelveli Commissionerate. Among these top 10 services, it is Port Trust which earned the highest share of revenue to the exchequer. About 17.3 per cent of the total service tax revenue was mobilised through this service. Next in importance comes Goods Transport Agency Service which accounted for 5.58 per cent of the service tax revenue collected in Tirunelveli Commissionerate during Banking and other Financial Services contributed 5.42 per cent of the revenue to total service tax collections of Tirunelveli Commissionerate during the year under consideration. It shows the importance of these 10 services in mobilising revenue to the government in this region. 127

25 REFERENCES 1 Gupta S.S., Taxmann s Service Tax, 22nd Edition, Vol.1, May 2007, pp Statistic Section of Tirunelveli Commissionerate Rohini Aggarwal, Service tax law & practice, 11 th Edition, Vol. 3, May 2013, pp, G G Ibid. pp G.243- G Ibid.4, pp G.319- G Ibid. 4, pp G.407- G Ibid. 4, pp G G Ibid. 4, pp G G Ibid. 4, pp G.657- G Gupta S.S., op.cit., Vol.2, pp Ibid. pp Rohini Aggarwal., op.cit., Vol.1, pp B.207 B