SUPPORT SERVICES

[Mr. M. GOVINDARAJAN]

Support services for business or commerce was introduced in the service tax net with effect from 01.05.2016. The erstwhile Section 65 (105) (zzzq) defines the taxable services as any service provided or to be provided to any person, by any other person, in relation to support services of business or commerce, in any manner.

The erstwhile Section 65(104c) defines the support services for business or commerce. This means-

(a)  Services provided in relation to business or commerce and

(b) Includes-

• Evaluation of prospective customers;
• Telemarketing;
• Processing of purchase order and fulfillment services;
• Information and tracking of delivery schedules;
• Managing distribution and logistics;
• Customer relationship management services;
• Accounting and processing of transactions;
• Operational assistance for marketing;
• Formulation for customer service and pricing policies;
• Infrastructural support services; and
• Other transaction process.

The outsourcing services amount to support services.

With effect from 01.07.2012 negative list was introduced. The services included in that list and the services come under the mega exemption list are exempted from service tax and other services are covered under the service tax net.   By this policy all the services discussed above are automatically come under the service tax net.

But for the interpretation purposes Section 65B (49) defines the term ‘support services’. Section 65B (49) provides that "support services" means infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis.

The new definition is entirely different from the erstwhile definition. Therefore no comparison can be made between the two definitions.

The definition under Section 65B (49) may be divided into two parts i.e., one is the main part and the other is the inclusive part. The first part of the definition is –

“infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever”

and the second part is-

“shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis”.

ANALYSIS OF FIRST PART

Section 65 B(17) defines the term ‘business entity’ as any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession. The word ‘person’ is defined by Section 65B (37) as the term ‘person’ includes-

             (i) an individual,

             (ii) a Hindu undivided family,

             (iii) a company,

             (iv) a society,

             (v) a limited liability partnership,

             (vi) a firm,

             (vii) an association of persons or body of individuals, whether incorporated or not,

             (viii) Government,

             (ix) a local authority, or

             (x) every artificial juridical person, not falling within any of the above categories.

The ingredients for the first part are as follows:

• There shall be infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions;
• Such activities are carried out by the entity by themselves;
• Such activities are carried out in the ordinary course of business;
• Such activities may be obtained by outsourcing from others for any reason whatsoever.

The terms ‘any other support of any kind’ will attract the problem of interpretation. It is required that the services outsourced can be done by themselves in ordinary course of business. Otherwise the services obtained by a person will not amount to support service. The ‘Education Guide’ issued by the Department clarifies that services which are provided by Government in terms of their sovereign right to business entities and which are not sustainable in any manner by any private entity are not support services. For e.g., grant of mining or licensing rights or audit of government entities established by a Special law, which are required to be audited by CAG under Section 18 of the Comptroller and Auditor General’s (Duties, powers and conditions of services) Act, 1971 (such services are performed by CAG under the statute and cannot be performed by the business entity themselves and this do not constitute support services).

Reverse Charge mechanism

Notification No. 30/2012-Service Tax, dated 20.06.2012 deals with the reverse charge mechanism in which system the service receiver is liable to pay service tax at the rates specified in the Notification.   According to this Notification in respect of  services  provided or agreed to be provided  by Government or local authority by way of support services excluding,-

• renting of immovable property; and
• services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act, 1994 as detailed below:

(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

are liable to be paid by the service receiver fully.

ANALYSIS OF SECOND PART

The second part is the inclusive clause. The activities contained in the inclusive clauses are ‘support services’. These services are exhaustive because the words ‘such as’ are not there.   The advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis activities are included in the inclusive clause.

The term ‘advertisement’ is defined under Section 65B(2) as 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.

The terms ‘work contract’ is defined under Section 65B(54) as a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any moveable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property.

The term ‘renting’ is defined under Section 65B(41) as 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.

The term ‘security’ is defined under Section 65B(43) which adopts the meaning of ‘security’ under Section 2(h) of Securities Contracts (Regulation) Act, 1956 according to that Section, securities include-

• shares, scrips, stocks, bonds, debentures, debenture stocks or other marketable securities of a like nature in or of any incorporated company or other body corporate;
• derivative;
• units or any other instrument issued by any collective investment scheme to the investors in such schemes;
• security receipt as defined in clause (zg) of Section 2 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
• units or any other such instrument issued to the investors under any mutual fund scheme.