P. K. Sahu, Advocate All India Chartered Accountants’ Society Workshop on Service Tax 2 nd July, 2011

P. K. Sahu, Advocate

All India All India CharteredChartered Accountants’ Society Accountants’ Society

Workshop on Service TaxWorkshop on Service Tax

22ndnd July, July, 20112011

PRESENTATIONPRESENTATION

BYBY

P. K. SAHU, AdvocateP. K. SAHU, Advocate

D-247 (SF), Defence ColonyD-247 (SF), Defence ColonyNew Delhi - 110024New Delhi - 110024

[email protected]: 9810008892


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ContentsContents

• Sale vs. ServiceSale vs. Service

• Classification of Service Classification of Service

• Composite and Bundled Services Composite and Bundled Services

• Interpretation of Service Tax LawInterpretation of Service Tax Law

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SALE VS. SERVICE


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Sale vs. Service Sale vs. Service

SaleSale• Independent existence of the thing, ownership of Independent existence of the thing, ownership of

which is to be transferred for a consideration which is to be transferred for a consideration

– Hindustan Shipyard Ltd. vs. State of A.P. (2000) 6 SCC 579 (SC)

P. K. Sahu, Advocate5



ServiceService• Economist’s Concept vs. Legal Concept Economist’s Concept vs. Legal Concept • Characteristics of Service Characteristics of Service

• Work and Labour Work and Labour

• Intangible Intangible

• Variability of Services - Significant Human Variability of Services - Significant Human ComponentComponent

• PerishablePerishable

• No Transfer of Ownership No Transfer of Ownership

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Sale or ServiceSale or Service

• Handing Over of PortraitHanding Over of Portrait

• Printing and Supply of University Question Printing and Supply of University Question Papers or Currency Notes Papers or Currency Notes

• Lease of Immoveable PropertyLease of Immoveable Property

• Sale of Flat by Builder Against Instalment Sale of Flat by Builder Against Instalment Payments Payments

• Sale of Recharge Coupons Sale of Recharge Coupons

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• Notification 12/2003-ST, Dated 20.06.2003- Exemption to value of goods sold

• “sale” or “purchase” with their grammatical variations and cognate expressions, means any transfer of possession of goods by one person to another in the ordinary course of business for cash or deferred payment or other valuable consideration – Section 2(h) of C.E. Act.

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CLASSIFICATION OF SERVICECLASSIFICATION OF SERVICE


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Section 65A Section 65A

• Rule of Classification – Section 65A(1) Rule of Classification – Section 65A(1)

– Classification shall be determined according to the terms Classification shall be determined according to the terms of the sub-clauses of Section 65(105) of the sub-clauses of Section 65(105)

• Rule of classification – Section 65A(2) Rule of classification – Section 65A(2)

– Clause which provides the most specific description Clause which provides the most specific description

– In case of composite service, which gives essential In case of composite service, which gives essential characteristics characteristics

– Clause which occurs firstClause which occurs first

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How to ClassifyHow to Classify

Services by director of company Joint Venture: Ports Railways, Franchise, Joint

Development of Real Estate Section 65(19)(vi) - Provision of service on behalf

of the client Broker vs. commission agent Services of club/association Fabrication of structure Subsequent entry

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Commercial Parlance TestCommercial Parlance Test

Bus ferrying employees/students - Tour operator?

Celebrity in advertisement clip - Advertising agency?

Air hostess training - Commercial training or coaching?

Deputation of employees - Manpower supply ?

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COMPOSITE AND BUNDLEDCOMPOSITE AND BUNDLED


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Composite or Multiple Composite or Multiple

Composite Contract • Customer is interested in the final outcome

• Constituent elements are integrally connected and interdependent

• Constituent service forms part of main supply and is not an aim in itself

Bundled Service• Customer is expecting several independent outcomes

• Lump sum payment for multiple services

• Constituent elements are economically dissociable

• Breach of conditions for one segment does not lead to breach of contract for the entire bundle of services

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Composite Contract...Composite Contract...

State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., (1958)9 STC 353 (SC) – No sale of building materials in construction contract

Sultan Brothers (P) Ltd. v. C.I.T, 1964(51)-ITR 353 (SC) – Two leases for building and furnitures & fixtures treated as one

Sentinel Rolling Shutters and Engg. Co. (P) Ltd. v. CST, (1978) 4 SCC 260 - Progressive release of payment not decisive

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Composite Contract...Composite Contract...

• BSNL vs. UOI (2006) 3 STT 245 (SC) – BSNL vs. UOI (2006) 3 STT 245 (SC) – Nature of Nature of composite contract should be decided on the basis of composite contract should be decided on the basis of dominant nature testdominant nature test

• BSES Ltd. vs. Fenner India Ltd., (2006) 2 SCC 728 – BSES Ltd. vs. Fenner India Ltd., (2006) 2 SCC 728 – Four contracts with bank guarantees and one wrap up Four contracts with bank guarantees and one wrap up agreement to perform contractual obligations on a turnkey agreement to perform contractual obligations on a turnkey basis-composite contract executable on a turnkey basisbasis-composite contract executable on a turnkey basis

• Customs and Excise Commissioners v British Customs and Excise Commissioners v British Telecommunications plc [1999] STC 758Telecommunications plc [1999] STC 758 – – Purchase of Purchase of car and transportation from manufacturer's factorycar and transportation from manufacturer's factory treated treated as sale of delivered car as sale of delivered car

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Composite or Bundled ?Composite or Bundled ?

• CCE vs. BSBK Pvt. Ltd., 2010(18) STR 555 (Tri.-LB) CCE vs. BSBK Pvt. Ltd., 2010(18) STR 555 (Tri.-LB)

• Alstom Projects India Limited vs. CST, [Alstom Projects India Limited vs. CST, [2011] 31 STT 2011] 31 STT 270 270

• Saya Ji Hotels Ltd vs. CCE, Indore, [2010] 29 STT 195Saya Ji Hotels Ltd vs. CCE, Indore, [2010] 29 STT 195

• Multimodal Transport Multimodal Transport

• Grant of Representational Right Along With Business Grant of Representational Right Along With Business Know-HowKnow-How

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Interpretation of Service Tax LawInterpretation of Service Tax Law


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• Peculiar Nature of Service TaxPeculiar Nature of Service Tax

• Not a Full-fledged Statute - Application of Central Not a Full-fledged Statute - Application of Central Excise Provisions Excise Provisions

• Scattered Provisions of Law Scattered Provisions of Law

• Unstable LawUnstable Law

• Credit Mechanism - Value Added Tax – Input and Credit Mechanism - Value Added Tax – Input and Input Services Input Services

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• Interpretation of Definition Clause Interpretation of Definition Clause

• Section 73 and 78 - Tax Paid and Informed to Section 73 and 78 - Tax Paid and Informed to Department Before SCNDepartment Before SCN

• Rule 6(3) of CCRRule 6(3) of CCR

• Export of Service –Microsoft CaseExport of Service –Microsoft Case

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• Territorial JurisdictionTerritorial Jurisdiction

• Reimbursement of Expenses Reimbursement of Expenses

• Reimbursement of Service Tax Paid, But Not Reimbursement of Service Tax Paid, But Not Contracted Contracted

• Excise Mindset - Principle of Equivalence Excise Mindset - Principle of Equivalence

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Thank Thank YYouou ! !

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Documents

P. K. Sahu, Advocate All India Chartered Accountants’ Society Workshop on Service Tax 2 nd July, 2011