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TMI BlogBudget 2005 -2006, Issues pertaining to Service TaxX X X X Extracts X X X X X X X X Extracts X X X X ..... nts relating to service tax in the Finance Act, 1994 are effective from the date of enactment of the Finance Act. 3. The scope of these changes is explained in the following paragraphs. 4. New services 5. Transport of goods through pipeline or other conduit [see sub-clause (zzz) of section 65(105) of the Finance Act, 1994] 5.1 Transportation of goods, other than water, through pipeline or conduit is generally employed to transport petroleum and other petroleum products, natural gas, LPG, chemicals, coal slurry and other similar products. Such transport services are liable to service tax under sub-clause (zzz) of section 65(105) of the Finance Act, 1994. Consideration for the said transportation service provided may be payable periodically or from time to time. The service provider is required to pay service tax as and when payment is received for the services provided or to be provided. 6. Site formation and clearance, excavation, earth moving and demolition services 6.1 Any service provided or to be provided to any person, by any other person, in relation to site formation and clearance, excavation and earthmoving and demolition and such other similar activities is levia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly on dredging of river, port, harbour, backwater or estuary and dredging in any other cases does not attract service tax. The definition of dredging is an inclusive definition and the activities specified are only indicative and not exhaustive. 8. Survey and map making 8.1 Any service provided or to be provided to any person, by any other person, other than by an agency under the control of, or authorised by, the Government, in relation to survey and map-making is taxable under sub-clause (zzzc) of section 65(105) of the Finance Act, 1994. 'Survey and map-making' has been defined under clause (104b) of section 65 of the Finance Act, 1994. 8.2 This service covers geological, geophysical, geochemical and other prospecting services by studying the properties of the earth and rock formation and structures. It also includes services providing information on sub-surface earth formations by different methods such as seismographic, gravimetric, magnetometric methods or other sub-surface surveying methods. 8.3 Further, it covers surface surveying, services of gathering information on the shape, position or boundaries of a portion of earth's surface by methods such as transit, photo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and waxing, wall cleaning etc. performed on the premises of commercial or industrial buildings; (iv) Specialized cleaning services such as cleaning services for computer rooms, cleaning of machinery or plant, reservoirs and tanks of commercial or industrial buildings, furnace and chimney cleaning services and similar services. 9.3 However, such cleaning services in relation to agriculture, horticulture, animal husbandry or dairying would be excluded from the purview of service tax. Further, such cleaning services in respect of non-commercial buildings and premises thereof would not be covered within the purview of service tax under this category. 10. Membership of Clubs or Associations 10.1 Any service provided or to be provided to its members by any club or association in relation to provision of services, facilities, or advantages for a subscription or any other amount is taxable under sub-clause (zzze) of section 65(105) of the Finance Act, 1994. "Club or association" has been defined under clause (25a) of section 65 of the Finance Act, 1994. 10.2 Various clubs or associations provide services, facilities or advantages to their members for a subscription or a charge. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same way as subscription. In certain professions, persons cannot practice unless they are registered with a statutory body and have paid fees which are prescribed by law. In such cases, the organization is not providing any service in the course of its business and it is merely carrying statutory functions. Since no service is provided, the question of levy of service tax does not arise. However, if there is no statutory requirement, service tax is liable to be paid. 11. Packaging services 11.1 Any service provided or to be provided to any person, by any other person, in relation to packaging activity is taxable under sub-clause (zzzf) of section 65(105) of the Finance Act, 1994. "Packaging activity" has been defined under clause (76b) of section 65 of the Finance Act, 1994. 11.2 This taxable service would cover packaging activity undertaken by a person for any other person. These kinds of packaging services may be done for pharmaceuticals (aseptic packaging), fragile goods, heavy machinery and hardware, using variety of automated or manual packaging techniques, including blister forming, and packaging, shrink or skin wrapping, form filling and sealing, pouch filling, bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1994. It covers,- ·construction of a new residential complex ·completion and finishing services in relation to a residential complex, whether or not new ·repair, alteration, etc. in relation to residential complex, whether or not new. 13.3 This service would generally cover construction services in respect of residential complexes developed by builders, promoters or developers. Such residential complexes are normally constructed after obtaining approval of the statutory authority for their layout. For the purpose of this levy, residential complex means,- (i) a building or buildings located within a premises; (ii) total number of residential units within the said premises are more than twelve; (iii) having common area; (iv) having common facilities or services; and (v) layout of the premises has been approved by the appropriate authority. Common area would include roads, staircases and other similar areas where residents of the residential complex have easement rights. The list of facilities prescribed is merely illustrative and not exhaustive. Some residential complexes may also contain other facilities such as market or shopping complex, schools, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, especially if undertaken as an isolated or stand alone contract, are also specifically included. Thus post construction completion and finishing services are specifically included in the definition of commercial or industrial construction services. 14.3 Construction of pipeline or conduit has been included within the purview of service tax. Thus, the construction of long distance pipeline which was earlier excluded from the coverage of construction services would now be liable to service tax. Repair, alteration, renovation or restoration of pipeline or conduit would now be liable to service tax. This levy would also be applicable for such activities performed on the old pipeline or conduits constructed before this levy has come into force. 14.4 At present, services rendered for construction of commercial or industrial buildings is taxable. However, construction of roads is not liable to service tax. A point has been raised that if a commercial complex is constructed which also contains roads whether the value of construction of roads would be liable to service tax. 14.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a maintenance contract or agreement was covered under service tax. Repair or servicing carried out under a contract other than a maintenance contract or agreement was not covered within the purview of service tax. Maintenance or repair, including reconditioning or restoration or servicing of any goods or equipment, except motor vehicle (which is taxable under the category of authorized service station), undertaken as part of any contract or agreement (not necessarily maintenance contract or agreement) is now liable to service tax under this category of taxable service. To attract service tax under this category, the contract or agreement need not necessarily be a maintenance contract / agreement. 17. Broadcasting services 17.1 In the case of radio or TV broadcasting services, the services are subject to tax where the services are effectively used and enjoyed. Multi System Operators (MSOs) are permitted to receive signals from the broadcasting agencies on payment of prescribed amount. Cable operators transmit programmes to customers through cable network after receiving signals from the multisystem operators (MSOs). Prior to 16/6/2005, service tax was leviable on services provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorized service stations or centers under this service tax. 20.2 Taxable services rendered by authorized service stations in relation to motor cars or two-wheeled motor vehicles was covered under clause (zo) of section 65 (105), while such taxable services performed in relation to light motor vehicles were covered under clause (zzj) of section 65 (105). Amendments have been made in clause (zo) so that taxable services rendered by authorized service stations in respect of motor cars, light motor vehicles or two-wheeled motor vehicles would now be taxable under this clause. Consequently, clause (zzj) has been omitted. 21. Beauty Parlour Service 21.1 Amendments have been made in the definition of 'beauty treatment' so as to cover comprehensively all services provided by beauty parlours including hair cutting, hair dressing and hair dyeing within the purview of service tax. 22. Manpower Recruitment Service 22.1 Prior to 16/6/ 2005, service tax was leviable on services provided by manpower recruitment agencies in relation to recruitment of manpower. Amendments have been made to levy service tax on temporary supply of manpower by manpower recruitment or supply agencies. 22.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpertise in business operation, know how, quality control etc. to the franchisee; (iii) Franchisee pays fees to the franchisor; (iv)The franchisee is under an obligation not to engage in selling goods or providing services identified with any other person. 23.2 To make the coverage of franchise service more comprehensive, effective from 16/6/2005, amendments have been made to define "franchise" as an agreement by which the franchisor grants representational rights to franchisee to sell or manufacture goods or provide service or undertake any process identified with the franchisor, by any symbol such as a trade mark, service mark, trade name or logo. No other condition is required to be fulfilled for levy of service tax. 23.3 In view of the amended definition, License Production Agreements where principal allows production of goods bearing his brand name by another person would be covered under the purview of service tax under this category. Similarly, if rights are granted for rendering services identified with the principal on his behalf, such services by the principal to the service recipient would be taxable. Details of franchisees may be obtained from Yellow Pages, websit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the caterer provides catering service from a premises provided by the recipient of the service, on rent. In such cases, whether the place is to be treated as the place owned by the caterer and therefore the services are not subject to service tax or the place is to be treated as not owned by the caterer and therefore subject the services to service tax. To remove the doubt, the present definition of "outdoor caterer" has been modified so as to provide that "outdoor caterer" includes caterer engaged in providing services in connection with catering at a place provided by way of tenancy or otherwise by the person receiving such services. Important Legislative Changes 26.1 An Explanation has been inserted in section 65(105) of Finance Act, 1994 as follows: "Explanation.- For the removal of doubts, it is hereby declared that where any service provided or to be provided by a person, who has established a business or has a fixed establishment from which the service is provided or to be provided, or has his permanent address or usual place of residence, in a country other than India and such service is received or to be received by a person who has his place of business, fixed establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me with their family and are in full time employment. If either the provider of services or recipient of services have establishments in more than one country, the establishment most directly connected with the particular service would be the deciding factor. These provisions are intended to take care of taxable services where the service provider is located outside India and the recipient of service is located in India. 26.6 Rule 2(1)(d)(iv) of Service Tax Rules, 1994 has been amended in view of the above Explanation vide notification No. 23/2005-Service Tax, dated 7th June, 2005. 26.7 Charging service tax from the recipient when the service is provided by a non-resident is a well accepted international practice. This was enunciated in Rule 2(1)(d)(iv). In this year's budget, for removal of doubts, suitable explanation has been made in section 65(105) of the Finance Act in this regard (as reproduced in para 26.1). 26.8 In cases where services are provided by a service provider who is situated outside India to the recipient of such service who is based in India, such services would be taxable at the hands of the recipient. In such cases, the service is deemed to be provided by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 70 to incorporate the enabling provisions for registration and filing of return by Input Service Distributors and small service providers whose aggregate value of taxable service exceeds Rs. 3 lakhs per annum. Rule making power in this regard has also been taken under section 94 of the Finance Act. Amendments in Service Tax Rules 29. An assessee has to register all locations from where taxable services are provided, or opt for one single registration. Amendments have been made to Rules 4(2) and 4(3) of the Service Tax Rules, 1994 to facilitate more than one centralized registration, i.e. more than one office of an assessee such as his zonal or regional office depending upon their centralized billing or accounting systems. 29.1 In view of the amendment, if a bank has its head office at Mumbai and regional offices at Bhopal, Jaipur and Bangalore and the bank has centralized billing or centralized accounting facilities available at each of these regional offices, then the bank, at its option, can get each of these regional offices registered (and not only the Mumbai office) for the purpose of discharging the service tax liability. 29.2 The centralized registration granted to suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective of the actual date of provision of services. Thus, the payments received after 1.4.2005 even if they relate to taxable services provided prior to 1.4.2005, will be taken into account for the purpose of computation of the threshold limit. 30.2 At present exemption from the gross amount charged (abatement) has been prescribed for certain taxable services such as construction and transport of goods by road. However, abatement scheme is not applicable to other than specified taxable services. 30.2.1 A point has been raised about application of abatement scheme in case of single provision of service which consists both category of taxable services, in such cases, what portion of the gross contract would get the benefit of abatement. 30.2.2 In all such cases, it is required to take a view as to whether the taxable service provided is a single service or multiple supply of services and thereafter classify the service provided as per the provisions of section 65A of the Finance Act, 1994 which lays down principles for classification of services. The benefit for abatement would be extended only if the taxable service is classifiable under the category for which abatement scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable services is deemed to be the service provider. 34. Exemption to shipping industry 34.1 Indian Ship Owners Association sought exemption from the levy of service tax on all taxable services received and consumed outside India by the shipping sector. Notification No.22/2005-ST, dated 7.6.2005 exempts only certain specified taxable services provided by a non-resident person, outside India and consumed outside India in the course of sailing of a ship. For this purpose, the ship should have been registered as an Indian ship under the Merchant Shipping Act, 1958 or registered under the Coasting Vessels Act, 1838 or Inland Vessels Act, 1917. In the case of chartered ship, it should have been licensed under the Merchant Shipping Act, 1958. The ships so registered or licensed should be owned or chartered by a citizen of India or a company or a body established by or under any Central or State Act, which has its principal place of business in India or a cooperative society which is registered under the Cooperative Societies Act or any other law relating to cooperative societies. 34.2 The exemption is applicable only to those specified taxable services provided in relation to han ..... X X X X Extracts X X X X X X X X Extracts X X X X
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