TAXABILITY OF CONVENTION SERVICES

[Dr. Sanjiv Agarwal]

Service tax has been imposed on convention services with effect from 16th July, 2001 vide Notification No. 4/2001-ST, dated 9th July, 2001. The gross amount charged or total consideration received by the service provider for service rendered for holding conference, conventions etc. chargeable to service tax.

Meaning of Convention

Section 65(32) defines 'convention' as under -

"convention" means a formal meeting or assembly which is not open to the general public, but does not include a meeting or assembly, the principal purpose of which is to provide any type of amusement, entertainment or recreation.

To satisfy the definition of convention following conditions must be fulfilled —

(i)         convention is a formal meeting or assembly

(ii)        convention is not open to the general public

(iii)       convention does not include any meeting/assembly meant for amusement, entertainment or recreation.

This would cover convention centres, convention halls, business centres, banquet halls of hotels etc. used for such purposes and services. If the halls or auditoriums of schools or colleges are also lent out for convention purposes on a commercial basis, they would be covered. The purpose should be formal assembly or meeting and not meant for the general public. It should be for specific group of people and must be a formal meeting. If the purpose is recreation, entertainment or amusement, it is not covered under the definition.

Taxable Service

Section 65(105)(zc) defines 'taxable service' as under -

"taxable service" means any service provided for to be provided to any person, by any person in relation to holding of convention in any manner.

Taxable services would cover -

            (i)         hiring of hall or theater or room or space,

            (ii)        facility of video or other conferencing,

            (iii)       providing equipments for convention (projector, camera, LCD projector, screen, furniture, speaker, microphones, sound system, secretarial assistance etc.),

            (iv)       technical support services,

            (v)        stationery etc.

            (vi)       catering services subject to abatement

Following basic tests should be satisfied in order to qualify as a taxable service:

            (i)         The services must be provided in regard to conventions;

            (ii)        Such convention should be either a formal meeting or assembly which is not open to general public;

            (iii)       Such meeting or assembly should not be one which provide any amusement, entertainment or recreations;

            (iv)       There must be charge by the service provider on the service provider for such services rendered.

            (v)        W.e.f. 1-5-2006, service can be provided by any person.

Replacement of 'client with any person' (w.e.f. 16.5.2008)

Finance Act 2008 has substituted the words 'any person' for the word 'client' (w.e.f. 16.5.2008) as the service tax is levied on service and status of recipient of taxable service should not determine the tax treatment of a given service.

Any service provider for holding a conference, seminar, meetings etc by a commercial concern will come under the tax net. The service could be in the nature of providing other facilities such as video conferencing, equipment such as over head projectors, video-roma (LCD projector), speakers, microphones, technical staff for operating these equipments and stationery, etc apart from providing space for holding a convention. The charges for such facilities shall also be included in the value of taxable service. In some cases it may appear that it is same as the service rendered by a "mandap keeper". Apart from the fact that there is a subtle distinction between the type of events (official, social or business function in the case of mandap keeper as opposed to formal meeting in the case of convention services) it is clarified that the intention is not to charge the service tax twice on the same service. If a service provider is already registered as a mandap keeper and paying service tax, he is not liable to pay service tax again under the category of convention services. Similarly, a convention services is not liable to tax as mandap keeper service also. A service shall be either taxed under the category of mandap keeper or convention depending upon the nature of service.

Hotels renting out conference rooms for an official conference along with lunch shall fall under the category of convention services as per Circular No. 51/13/2002, dated 7-1-2003 (F. No. 178/1/2002-cx-4) and all be liable for service tax. In case an organisation arranges sales conferences for its own personnel, no service is provided to a client and hence no service tax is payable.

Value of Taxable Service

On convention services provided by various Chambers of Commerce and Industries, following clarification has been by the Ministry of Finance:

"A doubt has been raised whether holding of conventions by Chambers of Commerce and Industry for their members would be liable to service tax. In this regard, it is clarified that service tax, in the case of convention services, is applicable only when the service is provided by a commercial concern. If the Chamber of Commerce and Industry is not a commercial concern, then the tax does not apply. The memorandum and articles of association of a Chamber of Commerce and Industry would indicate whether it is a commercial concern or not. It is informed by the Chambers that generally they are not commercial concerns".

Generally conventions are organized by event management firms. In such cases, event manager only provides support services and, therefore, tax would be paid by convention service provider and not the event manager. The tax would be paid by the person who is billing to the client. The intention is that tax should be paid but not twice on the same service.

It has been clarified that since government agencies are not commercial concern, if service is provided by them, no tax would be attracted. Services rendered to Government departments do not enjoy any exemption.

Out of pocket expenses incurred on behalf of the client by the service provider shall not form part of value of taxable service provided such amounts are reimbursed by the client as a pure agent.

Notification No. 10/2004-ST dated 9-7-2004 provides abatement in respect of taxable services in relation to holding of a convention where services provided include catering services. The abatement from service tax is allowed as is in excess of 60 per cent of the taxable value, i.e., an abatement of 40 percent. This exemption would be available only when convention services are provided including catering services (supply of substantial and satisfying meals) and gross amount includes catering charges

This has since been rescinded w.e.f. 1-3-2006 by Notification No. 2/2006-ST dated 1-3-2006 and a new Notification No. 1/2006-ST dated 1-3-2006 issued to the same effect.

Specific Exemption

40 percent abatement is provided to convention services where services include catering services and gross amount includes catering charges (vide Notification No. 10/2004-ST dated 9-7-2004). This notification stands rescinded w.e.f. 1-3-2006 vide Notification No. 2/2006-ST dated 1-3-2006; Restored back by Notification No. 1/2006-ST dated 1-3-2006.

Person Liable

Any person including commercial concerns rendering such service to any person is liable to pay service tax and shall be treated as an assessee for service tax purposes.

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