PROJECT REPORT ON

“Service Tax”

Submitted toUniversity of Mumbai

In Partial Fulfillment of the Requirement

For

M.Com (Accountancy) Semester IVIn the subjectIndirect Tax

By

Name of the student : - Vivek ShriramMahajanRoll No. : - 15 -9672

Name and address of the collegeK. V. Pendharkar College

Of Arts, Science & CommerceDombivli (E), 421203

MARCH 2016

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DECLARATION

I VIVEK SHRIRAM MAHAJAN Roll No. 15 – 9672, the student of

M.Com (Accountancy) Semester IV (2016), K. V. Pendharkar College,

Dombivli, Affiliated to University of Mumbai, hereby declare that the

project for the subject Indirect Tax of Project report on “Service Tax”

submitted by me to University of Mumbai, for semester IV examination is

based on actual work carried by me.

I further state that this work is original and not submitted anywhere else for any examination.

Place: Dombivli

Date:

Signature of the Student

Name: - Vivek Shriram Mahajan Roll No: - 15 -9672

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ACKNOWLEDGEMENT

It is a pleasure to thank all those who made this project work possible.

I Thank the Almighty God for his blessings in completing this task. The successful completion of this project is possible only due to support and cooperation of my teachers, relatives, friends and well-wishers. I would like to extend my sincere gratitude to all of them.

I am highly indebted to Principal A.K.Ranade, Co-ordinater P.V.Limaye, and my subject teacher Prajakta Karmarkar for their encouragement, guidance and support.

I also take this opportunity to express sense of gratitude to my parents for their support and co-operation in completing this project.

Finally I would express my gratitude to all those who directly and indirectly helped me in completing this project.

Name of the studentVivek Shriram Mahajan

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Table of Contents:CHAPTER No Topic Page no

CHAPTER 1 Introduction

Introduction to Subject………………………. 5

CHAPTER 2 Types of Taxes

Direct Tax......................Indirect Tax …................................

79

CHAPTER 3 Service Tax

Definitions ……………………...............Chargeability..................................................Negative List..........................................Excluded Services...............................

12141827

CHAPTER 4 Conclusion

Conclusion………………………………….. 29

Webiliography………………………………. 30

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CHAPTER 1: Introduction

Introduction to Subject

A fee charged ("levied") by a government on a product, income, or activity. If tax is levied directly on personal or corporate income, then it is a direct tax. If tax is levied on the price of a good or service, then it is called an indirect tax. The purpose of taxation is to finance government expenditure. One of the most important uses of taxes is to finance public goods and services, such as street lighting and street cleaning. Since public goods and services do not allow a non-payer to be excluded, or allow exclusion by a consumer, there cannot be a market in the good or service, and so they need to be provided by the government or a quasi-government agency, which tend to finance themselves largely through taxes.

DEFINITION of 'Taxes'

An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government activities

BREAKING DOWN 'Taxes'

In the investing world, this is one of the most important types of taxes and, therefore, one of the most highly debated types of tax is capital gains tax. Capital gains tax represents the tax paid on the increase in value made on an investment.

DEFINITION of 'Income Tax'

A tax that governments impose on financial income generated by all entities within their jurisdiction. By law, businesses and individuals must file an income tax return every year to determine whether they owe any taxes or are eligible for a tax refund. Income tax is a key source of funds that the government uses to fund its activities and serve the public.

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Objectives of the study:

1) To understand the concept of Tax.

2) To study about Service Tax.

3) To study the Negative list of Services.

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CHAPTER 2: Types of Taxes

Type of Taxes:

It mainly consist of two types

Direct Taxes

Indirect Taxes

Direct Taxes :

A Direct tax is a kind of charge, which is imposed directly on the taxpayer and paid directly to the government by the persons (juristic or natural) on whom it is imposed. A direct tax is one that cannot be shifted by the taxpayer to someone else. The some important direct taxes imposed in India are as under:

Income Tax: Income Tax Act, 1961 imposes tax on the income of the individuals or Hindu undivided families or firms or co-operative societies (other tan companies) and trusts (identified as bodies of individuals associations of persons) or every artificial juridical person. The inclusion of a particular income in the total incomes of a person for income-tax in India is based on his residential status. There are three residential status, viz.,

(i) Resident & Ordinarily Residents (Residents)(ii) Resident but not Ordinarily Residents and(iii) Non Residents.

There are several steps involved in determining the residential status of a person. All residents are taxable for all their income, including income outside India. Non residents are taxable only for the income received in India or Income accrued in India. Not ordinarily residents are taxable in relation to income received in India or income accrued in India and income from business or profession controlled from India.

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Corporation Tax: The companies and business organizations in India are taxed on the income from their worldwide transactions under the provision of Income Tax Act, 1961. A corporation is deemed to be resident in India if it is incorporated in India or if it’s control and management is situated entirely in India. In case of nonresident corporations, tax is levied on the income which is earned from their business transactions in India or any other Indian sources depending on bilateral agreement of that country.

Property Tax: Property tax or 'house tax' is a local tax on buildings, along with appurtenant land, and imposed on owners. The tax power is vested in the states and it is delegated by law to the local bodies, specifying the valuation method, rate band, and collection procedures. The tax base is the annual ratable value (ARV) or area-based rating. Owner-occupied and other properties not producing rent are assessed on cost and then converted into ARV by applying a percentage of cost, usually six percent. Vacant land is generally exempted from the assessment. The properties lying under control of Central are exempted from the taxation. Instead a 'service charge' is permissible under executive order. Properties of foreign missions also enjoy tax exemption without an insistence for reciprocity.

Inheritance (Estate) Tax: An inheritance tax (also known as an estate tax or death duty) is a tax which arises on the death of an individual. It is a tax on the estate, or total value of the money and property, of a person who has died. India enforced estate duty from 1953 to 1985. Estate Duty Act, 1953 came into existence w.e.f. 15th October, 1953. Estate Duty on agricultural land was discontinued under the Estate Duty (Amendment) Act, 1984. The levy of Estate Duty in respect of property (other than agricultural land) passing on death occurring on or after 16th March, 1985, has also been abolished under the Estate Duty (Amendment) Act, 1985.

Gift Tax:

Gift tax in India is regulated by the Gift Tax Act which was constituted on 1st April, 1958. It came into effect in all parts of the country except Jammu and Kashmir. As per the Gift Act 1958, all gifts in excess of Rs. 25,000, in the form of cash, draft, check or others, received from one who doesn't have blood relations with the recipient, were

taxable. However, with effect from 1st October, 1998, gift tax got demolished and all the gifts made on or after the date were free from tax. But in 2004, the act was again revived partially. A new provision was introduced in the Income Tax Act 1961 under section 56 (2). According to it, the gifts received by any individual or Hindu Undivided Family (HUF) in excess of Rs. 50,000 in a year would be taxable.

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Indirect Taxes :

An indirect tax is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the customer). An indirect tax is one that can be shifted by the taxpayer to someone else. An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products. The some important indirect taxes imposed in India are as under:

Service Tax:The service providers in India except those in the state of Jammu and Kashmir are required to pay a Service Tax under the provisions of the Finance Act of 1994. The provisions related to Service Tax came into effect on 1st July, 1994. Under Section 67 of this Act, the Service Tax is levied on the gross or aggregate amount charged by the service provider on the receiver. However, in terms of Rule 6 of Service Tax Rules, 1994, the tax is permitted to be paid on the value received. The interesting thing about Service Tax in India is that the Government depends heavily on the voluntary compliance of the service providers for collecting Service Tax in India.

Sales Tax:Sales Tax in India is a form of tax that is imposed by the Government on the sale or purchase of a particular commodity within the country. Sales Tax is imposed under both, Central Government (Central Sales Tax) and State Government (Sales Tax) Legislation. Generally, each State follows its own Sales Tax Act and levies tax at various rates. Apart from sales tax, certain States also imposes additional charges like works contracts tax, turnover tax and purchaser tax. Thus, Sales Tax Acts as a major revenue-generator for the various State Governments. From 10th April, 2005, most of the States in India have supplemented sales tax with a new Value Added Tax (VAT).

Value Added Tax (VAT):

The practice of VAT executed by State Governments is applied on each stage of sale, with a particular apparatus of credit for the input VAT paid. VAT in India classified under the tax slabs are 0% for essential commodities, 1% on gold ingots and expensive stones, 4% on industrial inputs, capital merchandise and commodities of mass consumption, and 12.5% on other items. Variable rates (State-dependent) are applicable for petroleum products, tobacco, liquor, etc. VAT levy will be administered by the Value Added Tax Act and the rules made there-under and similar to a sales tax. It is a tax on the estimated market value added to a product or material at each stage of its manufacture or distribution, ultimately passed on to the consumer. Under the current single-point system of tax levy, the manufacturer or importer of goods into a State is liable to sales tax. There is no sales tax on the further distribution channel. VAT, in simple terms, is a multi-point levy on each of the entities in the supply chain.

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Central Excise Duty:The Central Government levies excise duty under the Central Excise Act, 1944 and the Central Excise Tariff Act, 1985. Central excise duty is tax which is charged on such excisable goods that are manufactured in India and are meant for domestic consumption. The term "excisable goods" means the goods which are specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act 1985. It is mandatory to pay Central Excise duty payable on the goods manufactured, unless exempted e.g.; duty is not payable on the goods exported out of India.

Customs Duty:

The Customs Act was formulated in 1962 to prevent illegal imports and exports of goods. Besides, all imports are sought to be subject to a duty with a view to affording protection to indigenous industries as well as to keep the imports to the minimum in the interests of securing the exchange rate of Indian currency. Duties of customs are levied on goods imported or exported from India at the rate specified under the customs Tariff Act, 1975 as amended from time to time or any other law for the time being in force. Under the custom laws, the various types of duties are levy able. (1) Basic Duty: This duty is levied on imported goods under the Customs Act, 1962. (2) Additional Duty (Countervailing Duty) (CVD).

Securities Transaction Tax (STT):

STT is a tax being levied on all transactions done on the stock exchanges. STT is applicable on purchase or sale of equity shares, derivatives, equity oriented funds and equity oriented Mutual Funds. Current STT on purchase or sell of an equity share is 0.075%. A person becomes investor after payment of STT at the time of selling securities (shares). Selling the shares after 12 months comes under long term capital gains and one need not have to pay any tax on that gain. In the case of selling the shares before 12 months, one has to pay short term capital gains @10% flat on the gain. However, for a trader, all his gains will be treated as trading (Business) and he has to pay tax as per tax sables. In this case the transaction tax paid by him can be claimed back/adjusted in tax to be paid.

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Indirect Tax in India:

There are a number of indirect taxes applied by the government. Taxes are levied on import, manufacture, sale and even purchases of goods and services. These laws aren’t also well-defined in terms of Acts from the government; rather orders, circulars and notifications are given out by relevant government bodies to this end. As such, it can be cumbersome trying to understand every feature of indirect taxes in India.

Indirect taxes are touted to be streamlined following the introduction of the uniform Goods and Services Tax (GST). The GST is under deliberation in the parliament and may be approved by mid-2016. The points below will help you understand more about the types of indirect taxes and where they are applicable from a consumer’s perspective.

Features of Indirect Taxes:

Levied on goods and services sold by an intermediary to final consumers. Consumers than pay the tax in the form of higher price of items.

Broadly divided into categories such as sale of goods, imported/exported goods, offering of services and manufacture of goods.

Indirect taxes are levied on clearance of goods and services from the origin, instead of actual sale of the products to the customers. What this means is that the intermediary will pay excise duties irrespective of whether they could sell the good or service to consumers.

Indirect taxes fall under both the central and state governments according to specific type of indirect tax. For instance, VAT is levied by the state governments whereas CST is levied by the central government.

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CHAPTER 3: Service Tax

Definitions

Service tax is a tax levied by Central Government of India on services provided or to be provided excluding services covered under negative list and considering the Place of Provision of Services Rules, 2012 and collected as per Point of Taxation Rules, 2011 from the person liable to pay service tax.

Need for Service Tax

In any Welfare State, it is the prime responsibility of the Government to fulfill the increasing developmental needs of the country and its people by way of public expenditure. India being a developing economy is striving to fulfill the obligations of a Welfare State within its limited resources. The Government's primary sources of revenue are direct and indirect taxes.

Central Excise Duty on the goods manufactured / produced in India and Customs Duties on imported goods constitute the two major sources of indirect taxes in India. But revenue receipts from Customs & Excise are not keeping pace with the growth in economy to WTO commitments and rationalization of commodity duties.

It is also well known that services constitute a larger proportion of the consumption of the rich rather than of the poor as the demand for services is income-elastic. Depending on the socio-economic compulsions, each country evolved a taxation system on services adopting either a comprehensive approach or a selective approach.

While most of the developed countries tax all the services with very few and limited exemptions, some of the developing countries tax select services only. Hitherto, India has adopted a selective approach to taxation of services.

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Authority

Service tax was introduced in India for the first time in 1994. Chapter V of the Finance Act, 1994 (32 of 1994) as amended, (Sections 64 to 96) and Chapter VA of the Finance Act, 2003 deals with imposition of Service Tax. The Authority of levy of Service Tax on specified services is contained in Section 66 of the Finance Act, 1994 as amended. At present this, section stipulates a rate of tax of 12% of the taxable value of these services and Education Cess @2% and Secondary/Higher Education Cess @1% in liable on the Service Tax levied and collected under Section 66 of the Finance Act, 1994.

Administration of Act

Constitutional Validity

Article 265 of the Constitution lays down that no tax shall be levied or collected except by the authority of law. Schedule VII divides this subject into three categories-

a) Union list (only Central Government has power of legislation)

b) State list (only State Government has power of legislation)

c) Concurrent list (both Central and State Government can pass legislation).

To enable parliament to formulate by law principles for determining the modalities of levying the Service Tax by the Central Govt. & collection of the proceeds there of by the Central Govt. & the State, the amendment vide constitution (95th amendment) Act, 2003 has been made.

Consequently, new article 268 A has been inserted for Service Tax levy by Union Govt., collected and appropriated by the Union Govt., and amendment of seventh schedule to the constitution, in list I-Union list after entry 92B, entry 92C has been inserted for taxes on services as well as in article 270 of the constitution the clause (1) article 268A has been included.

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Chargeability of Service Tax

The taxability of services or the charge of service tax has been specified in section 66B of the

Act. To be a taxable a service should be –

• provided or agreed to be provided by a person to another

• In the taxable territory

• And should not be specified in the negative list.

Provided or agreed to be provided

The phrase “agreed to be provided” has been retained from the definition of taxable service as contained in the erstwhile clause (105) of section 65 of the Act. The implications of this phrase are –

• Services which have only been agreed to be provided but are yet to be provided are taxable

• Receipt of advances for services agreed to be provided become taxable before the actual provision of service

• Advances 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.

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.

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Therefore agreements to provide taxable services will become liable to pay tax 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.

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.

• “India” includes not only the land mass but its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976(- of 1976); the sea-bed and the subsoil underlying the territorial waters; the air space above its territory and territorial waters; and the installations structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof.

• Detailed rules called the Place of Provision of Services Rules, 2012 have been made which determine the place of provision of service depending on the nature and description of service.

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 specified in section 66D of the Act.

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Determination of taxable service in the absence of a positive list

Earlier, there was a list of services to determine if the service provided is taxable or not.

Now it is not so because of the negative listing. Hence the following questions need to

be posed by the service provider to determine whether it is a service.

Doing an activity for another person? Doing such activity for consideration? The activity does not consist of transfer of title in goods or immovable property;

deemed sales; transaction only in money or actionable claims; activity in the nature of court fees for a court or tribunal; service provided by an employee to an employer or any other exempted activity.

If the above questions are answered in the affirmative, then it is considered as a service.

Once it is confirmed that the activity of the person is considered as service, then it needs to be determined whether the service is taxable by posing the following questions.

Provided or agreed to provide the service. Provided or agreed to provide the service in the taxable territory. Activity is not entirely covered in the services provided in the negative list of

services.

If the above questions are answered in the affirmative, then it is considered as a taxable service.

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Payment of service tax is explained in below table.

Service Tax for quarter/month ended 31st March: Payable by 31st March itself.

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Negative List

1) Services by Government or a local authority excluding the following services to the extent they are not covered elsewhere:

i. services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Government;

ii. Services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;

iii. Transport of goods or passengers; or

iv. Support services, other than services covered under clauses (i) to (iii) above, provided to business entities.

2) Services by the Reserve bank of India.

3) Services by a foreign diplomatic mission located in India.

4) Services relating to agriculture or agricultural produce by way of –

i. agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing;

ii. Supply of farm labour;

iii. Processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter essential characteristics of agricultural produce but make it only marketable for the primary market;

iv. Renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;

v. loading, unloading, packing, storage or warehousing of agricultural produce;

vi. Agricultural extension services;

vii. Services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce.

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5) Trading of goods.

6) Any process amounting to manufacture or production of goods.

7) Selling of space or time slots for advertisements other than advertisements broadcast by radio or television.

8) Service by way of access to a road or a bridge on payment of toll charges.

9) Betting, gambling or lottery.

10) Admission to entertainment events or access to amusement facilities.

11) Transmission or distribution of electricity by an electricity transmission or distribution utility.

12) 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.

13) Services by way of renting of residential dwelling for use as residence;

14) 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;

15) 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;

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iv. Inland waterways;

v. public transport, other than predominantly for tourism purpose, in a vessel between places located in India; and

vi. metered cabs, radio taxis or auto rickshaws;

16) 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 up to the customs station of clearance in India; or

iii. by inland waterways;

17) Funeral, burial, crematorium or mortuary services including transportation of the deceased.

Services provided by Government

Most of the services provided by government are provided without a specific charge to the recipient and thus shall not be liable to tax. 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.

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Services provided by the Reserve Bank of India

All services provided by the Reserve Bank of India are covered in the negative list but 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. Services provided by banks to RBI would be taxable as these are neither in the negative list nor covered in any of the exemptions.

Services provided by a foreign diplomatic mission located in India

Any service that is provided by a diplomatic mission of any country located in India is in the negative list. This entry does not cover services, if any, provided by any office or establishment of an international organization.

Services relating to agriculture or agricultural produce

The following services relating to agriculture or agricultural produce are covered in the negative list –

• agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing;

• supply of farm labour;

• processes carried out at the agricultural farm including tending, pruning, cutting, harvesting, drying cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter essential characteristics of agricultural produce but makes it only marketable for the primary market;

• renting of agro machinery or vacant land with or without a structure incidental to its use;

• loading, unloading, packing, storage and warehousing of agricultural produce;

• agricultural extension services;

• services provided by any Agricultural Produce Marketing Committee or Board or services provided by commission agent for sale or purchase of agricultural produce;

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Trading of goods

Forward contracts will be covered under trading of goods as these are contracts which involve transfer of title in goods on a future date at a pre-determined price. The services provided by commission agent or a clearing and forwarding agent are not in the nature of trading of goods. These are auxiliary for trading of goods. In terms of the provision of clause (1) of section 66F reference to a service does not include reference to a service used for providing such service. Moreover the title in the goods never passes on to such agents to come within the ambit of trading of goods. Services provided by commodity exchanges or clearing houses or agents will not be covered in the negative list entry relating to trading of goods.

Processes amounting to manufacture or production of goods

Process amounting to manufacture or production of goods means a process on which duties of excise are leviable under Section 3 of the Central Excise act, 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 for the time being in force. (Sec.65B(4) of Finance Act) It therefore covers manufacturing activity carried out on contract or job work basis, which does not involve transfer of title in goods, provided duties of excise are leviable on such processes under the Central Excise Act, 1944 or any of the State Acts.

Selling of space or time slots for advertisements other than advertisements broadcast by radio or television

Advertisement means any form of presentation for promotion of, or bringing awareness about, any event, idea, immovable property, person, service, goods or actionable claim through newspaper, television, radio or any other means but does not include any presentation made in person. (Sec.65B (2) of Finance Act).

What kind of sale of space is not taxable?

• Sale of space for advertisement in print media is not taxable.

• Sale of space for advertisement in bill boards, organization. public places (including stadia), buildings, conveyances, cell phones, automated teller machines, internet are not taxable.

• Aerial advertising is also not taxable.

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What kind of sale of space is taxable?

• Sale of space or time for advertisement to be broadcast on radio or television.

• Sale of time slot by a broadcasting organization.

• Services provided by advertisement agencies relating to making or preparation of advertisements.

• 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.

• Canvassing advertisement for publishing on a commission basis by persons/agencies.

Access to a road or a bridge on payment of toll charges

Access to a road or a bridge on payment of toll charges will also cover National Highways and State Highways.

Betting, gambling or lottery

Betting or gambling means putting on stake something of value, particularly money, with consciousness of risk and hope of gain on the outcome of a game or a contest, whose result may be determined by chance or accident, or on the likelihood of anything occurring or not occurring. (Sec.65B(15) of Finance Act) Auxiliary services that are used for organizing or promoting betting or gambling events are not covered in the negative list.

Entry to Entertainment Events and Access to Amusement Facilities

Entertainment event means an event or a performance which is intended to provide recreation, pastime, fun or enjoyment, by way of exhibition of cinematographic film, circus, concerts, sporting events, pageants, award functions, dance, musical or theatrical performances including drama, ballets or any such event or programme. (Sec.65B(24) of Finance Act).

Amusement facility means 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 places but does not include a place within such facility where other services are provided.

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Transmission or distribution of electricity

Electricity transmission or distribution utility means the Central Electricity Authority; a State Electricity Board; the Central Transmission Utility or a State Transmission Utility notified under the Electricity Act, 2003; or a distribution or transmission licensee under the said Act, or any other entity entrusted with such function by the Central or State Government or as the case may be, the State Government. (Sec.65B(23) of Finance Act).

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.

Renting of residential dwelling for use as residence

Renting means allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property. (Sec.65B(41) of the Finance Act)

Residential dwelling has not been defined in the Act, but it is usually considered as any residential accommodation, but does not include hotel, guest house, lodge, house boat, inn, motel or any other similar place for temporary stay.

The following will not be covered under the negative list -

• A residential house taken on rent used only or predominantly for commercial or non-residential use

• if a house is given on rent and the same is used as a hotel or a lodge

• rooms in a hotel or a lodge are let out whether or not for temporary stay

• furnished flats given on rent for temporary stay for different persons over a period of time

• government department allots houses to its employees and charges a license fee (covered under the negative list of service relating to services provided by government).

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Financial services

There are several services provided by banks and financial institutions relating to lending or borrowing of money or investments in money. In fact a variety of instruments are used for these services. Transactions in such instruments have to be examined with reference to the definition of service given in Section 65B(44) of the Finance Act and the negative list of services, to determine whether such transactions would be chargeable to service tax.

Services of extending deposits, loans or advances as far as the consideration is represented by way of interest or discount

It will cover any facility by which an amount of money is lent or allowed to be used or retained on payment of what is commonly called the time value of money which could be in the form of an interest or a discount. This entry would not cover investments by way of equity or any other manner where the investor is entitled to a share of profit.

Services of extending deposits, loans or advances where the consideration is represented by interest or discount will include the following services –

Fixed deposits or saving deposits or any other such deposits in a bank or a financial institution for which return is received by way of interest.

Providing a loan or overdraft facility or a credit limit facility 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.

Any charges or amounts collected over and above the interest or discount amounts would represent taxable consideration.

Sale of foreign exchange to general public

Sale and purchase of foreign exchange between banks or authorized dealers of foreign exchange or between banks and such dealers are only covered in the negative list and hence sale of foreign exchange to general public will be taxable.

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Services relating to transportation of passengers

The following services relating to transportation of passengers, with or without accompanied belongings, have been specified in the negative list –

a stage carriage; railways in a class other than (i) first class; or (ii) an AC coach; metro, monorail or tramway; inland waterways; public transport, other than predominantly for tourism purpose, in a vessel,

between places located in India; and metered cabs, radio taxis or auto rickshaws.

Services relating to transportation of goods

The following services provided in relation to transportation of goods are specified in the negative list of services:-

• by road

• by aircraft or vessel from a place outside India up to the customs station of clearance in India; or

• by inland waterways.

The services of a goods transportation agency and courier agency are excluded from the purview of the negative list. But some services provided by the goods transport agency are exempted under the mega notification –

• fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage;

• goods where gross amount charged for the transportation of goods 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

Services provided as agents for inland waterways are in the nature of services used for providing the negative list entry service of transport of goods on inland waterways and would not be covered by the entry in the negative list.

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Excluded Services

Specific exclusions from the definition of service

The definition of ‘service’ as provided in Section 65B (44) specifically excludes certain activities which would not be considered as service. That is to say that these activities when performed/executed shall be out of scope of the service tax levy.

(a) an activity which constitutes merely,––

(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or

(ii) such transfer, delivery or supply of any goods which is deemed to be sale within the meaning of clause (29A) of article 366 of the Constitution; or

(iii) a transaction in money or actionable claim;

(b) a provision of service by an employee to the employer in the course of or in relation to his employment;

(c) fees taken in any Court or tribunal established under any law for the time being in force.

A transfer of title in goods or immovable property

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 movable 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.

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A transaction in money or actionable claim

Transactions only in money do not constitute services: for example –

The principal amount of deposit in or withdrawals from a bank account. Advancing or repayment of principal sum on loan to someone. Conversion of currency note into coins.

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CHAPTER 4: Conclusion

Service tax is rightly referred to as Tax of the future. Well synchronized taxation on manufacturing, trade and service without giving rise to cascading effect of taxation would be an ideal worth pursuing in the immediate future. This would bring in VAT in its truest sense. Continued growth in GDP accompanied by higher rate of growth in service sector promises new and wider avenues of taxation to the Government. If the tax on services reduces the degree of intensity of taxation on manufacturing and trade without forcing the Government to compromise on the revenue needs, then one of the basic objectives of taxing the service sector would be achieved.

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Webilography

http://www.slideshare.net http://www.investmentyogi.com/ https://en.wikipedia.org http://www.business-standard.com/

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