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Power to levy Service Tax
Entry no. 97 of the union list or the List-I of the Constitution of India gives power to the parliament to make an act to levy Service tax in India. The relevant entry of the constitution is as follows:
“97. Any other matter not enumerated in List II or List III including any tax
not mentioned in either of those Lists.”
In conformity with the powers given by entry no. 97 of the constitution of India, Chapter V of the Finance Act, 1994 gives the power to central government to levy Service Tax.
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Further, Section 66B of the Finance Act, 1994 is the charging section i.e. the section which is the base to charge Service tax and which gives the answer to the question “Whether my services are liable to Service Tax?”. The relevant provision of Section 66B is as follows:
“66B. There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen per cent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.”
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Power to levy Service Tax
The term “Service” has been defined in sub-section 44 of section 65B of the Finance Act, 1994. The relevant provision is as follows:
“(44) "service" means any activity carried out by a person for another for consideration, and. ………includes a declared service, but shall not include—
(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 a 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.
The term “Service”
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Explanation 1.— For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply to,—
(A) the functions performed by the Members of Parliament, Members of State Legislative, Members of Panchayats, Members of Municipalities and Members of other local authorities who receive any consideration in performing the functions of that office as such member; or
(B) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or
(C) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Governments or local authority and who is not deemed as an employee before the commencement of this section.
The term “Service”
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Explanation 2.— For the purposes of this clause, the expression "transaction in money or actionable claim" shall not include—
(i) any activity relating to use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;
(ii) any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out—
(a) by a lottery distributor or selling agent in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner;
(b) by a foreman of chit fund for conducting or organising a chit in any manner.
6The term “Service”
The term “Service” 7
Explanation 3.— For the purposes of this Chapter,—
(a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons;
(b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons.
Explanation 4.— A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory;”
The term “Service”
According to the definition of the term “Service” given in section 65B(44), it has four basic elements i.e.
A. Any Activity
B. Carried out by a person for another
C. For consideration
D. Includes a declared service
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The term “Service”
Any Activity
The term “activity” has not been defined in the Finance act, 1994. In such case we will have to go by the common trace parlance i.e. the term activity would include any act done but the meaning cannot cross the constitutional limits.
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The term “Service”
Carried out by a person for another
The phrase is self explanatory that any activity carried out for self will not be covered under the ambit of service tax i.e. the transaction should be between two separate persons. For example: In a company, there may be separate divisions and if one division renders a service to another then such transaction shall not be covered within the ambit of service tax as the transaction is between the same entity and would amount to self service.
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The term “Service”
Carried out by a person for another – Cont.
Further, there are various decisions of high courts which establish that transaction between two divisions of same entity are not liable to service tax even when separate registration has been taken by the two different divisions of the entity, in order to substantiate the same we can refer to the decision of the Hon’ble Tribunal in the matter of Mahindra Logistics Ltd. V. CC,CE & ST.
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The term “Service”
Carried out by a person for another – Cont.
The Tribunal in para 6 observed as follows:
“6. Considering the submissions made by the learned Chartered Accountant we find that Mahindra & Mahindra Limited is a legal entity which is having two separate divisions. Merely by taking two separate service tax registrations it cannot be said that both are separate legal entities. Therefore, demand for the period 15/12/2007 to 10/9/2008 is not sustainable”.
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The term “Service”
For consideration
The term consideration has not been defined for the purpose of this section. Therefore, we can refer to Indian Contract Act, 1872, which will mean anything which the receiver of service or any other person has done or abstained from doing or promised to do or abstained from doing. That is any service provided free of cost will not be liable to service tax as there is no consideration in return.
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The term “Service”
Includes declared service
After introduction of service tax, there have been lot of controversies and litigation with regard to certain activities that whether they are a service or not. Therefore, with a view to remove any ambiguity for the purpose of uniform application of law all over the country, few services were declared. There services are declared under section 66E and currently there are 9 services, like renting of immovable property, development of software, temporary transfer of intellectual property, etc. [refer section 66E of Finance Act, 1994].
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The term “Service”
Specific exclusions
There are a few specific exclusions to the definition of “Service”. The exclusions are as follows:(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 a sale within the meaning of clause (29A) of article 366 of the Constitution; or
(iii) a transaction in money or actionable claim ( Refer explanation 2 to this section given in slide 6).
(iv) a provision of service by an employee to the employer in the course of or in relation to his employment. i.e. the services given by an employee to his employer in due course of his employment are not liable to service tax.
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The term “Service”
Specific exclusions – Contd.
(v) fees taken in any Court or tribunal established under any law for the time being in force. A court or tribunal provides judicial services to the person(appellant) who files appeal and at the time of filing the appeal a filing fee is charged. Clause (c) specifically excludes fee charged by a court or tribunal from levy of service tax.
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The term “Service”
Non applicability of this sub-section
Anything contained in this sub-section i.e. the definition of “service” shall not applicable to a few functions and duties that the mentioned in explanation 1 to this clause. [refer slide 5]
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The term “Service”
Explanation 3 – Clause (a)
Clause (a) of this explanation brings into the net of service tax any service provided or to be provided by an unincorporated association or body of persons to their members. But even after the insertion of this explanation, Hon’ble Jharkhand High Court decided that services provided by a club to its members could not be charged to service tax as club and its members were governed by the principle of mutuality. [Refer to the decision of Ranchi Club Ltd. V. CCCE & ST]
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The term “Service”
Explanation 3 – Clause (b)
Clause (b) of this explanation brings into the net of service tax any service transactions between an entity in taxable territory and its another establishment in non-taxable territory by treating them as different persons.
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The term “Service”
Explanation 4
This explanation clarifies that branch, agency or representational office shall be treated as separate establishment. This will not have any effect if both the head office and branch, agency or representational office are in the taxable territory but this will bring the transaction into the net of service tax if either the head office or branch, agency or representational office are in non taxable territory.
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Thank You
Abhinav ChhabraStudent at Institute of Chartered Accountants of India
Queries/Suggestions?Mail id: [email protected] No.: +91-7838884545
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