TMI BlogDeclared Services.X X X X Extracts X X X X X X X X Extracts X X X X ..... m an act, or to tolerate an act or a situation, or to do an act; 6. transfer of goods by way of hiring, leasing, licensing or any such manner without transfer of right to use such goods; 7. activities in relation to delivery of goods on hire purchase or any system of payment by instalments; 8. service portion in execution of a works contract; 9. service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as part of the activity. The above activities when carried out by a person for another for consideration would amount to provision of service. Most of these services are presently also being taxed except in so far as SI. No.5 is concerned. It is clarified that they are amply covered by the definition of service but have been declared with a view to remove any ambiguity for the purpose of uniform application of law all over the country. 6.1 Renting of Immovable Property Renting has been defined in section 65B as allowing, permitting or granting access, entry, occupation, usageor any such facility, wholly or partly, in an immovable property, wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Permitting use of immoveable property for placing vending/dispensing machines Chargeable to service tax as permitting usage of space is covered in the definition of renting 4. Allowing erection of a communication tower on a building for consideration. Chargeable to service tax as permitting usage of space is covered in the definition of renting 5. Renting of land or building for entertainment or sports Chargeable to service tax as there is no specific exemption. 6. Renting of theatres by owners to film distributors (including under a profitsharing arrangement) Chargeable to service tax as the arrangement amounts to renting of immovable property. 6.1.5 Whether hotels/restaurants/convention centres letting out their halls, rooms etc. for social, official or business functions or letting out of halls for cultural functions fall within the scope of this declared list service? Halls, rooms etc. let out by hotels/restaurants for a consideration for organizi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5, on similar construction services provided by a builder. A relevant portion of the judgement is reproduced below- 29. The charge of tax under Section 66 of the Finance Act is on the taxable services defined in clause (105) of Section 65 . The charge of tax is on the rendering of a taxable service. The taxable event is the rendering of a service which falls within the description set out in sub-clauses (zzq), (zzzh) and (zzzzu). The object of the tax is a levy on services which are made taxable. The fact that a taxable service is rendered in relation to an activity which occurs on land does not render the charging provision as imposing a tax on land and buildings. The charge continues to be a charge on taxable services. The charge is not a charge on land or buildings as a unit. The tax is not on the general ownership of land. The tax is not a tax which is directly imposed on land and buildings. The fact that land is subject to an activity involving construction of a building or a complex does not determine the legislative competence of Parliament. The fact that the activity in question is an activity which is rendered on land does not make the tax a taxon land. The charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w flats with same or different carpet area for original owners of flats and additionally may also be involved in one or more of the following: (i) construct some additional flats for sale to others; (ii) arrange for rental accommodation or rent payments for society members/original owners for stay during the period of reconstruction; (iii) pay an additional amount to the original owners of flats in the society. Under this model, the builder/developer receives consideration for the construction service provided by him, from two categories of service receivers. First category is the society/members of the society, who transfer development rights over the land (including the permission for additional number of flats), to the builder/developer. The second category of service receivers consist of buyers of flats other than the society/members. Generally, they pay by cash. Re-construction undertaken by a building society by directly engaging a builder/developer will be chargeable to service tax as works contract service for all the flats built now. 6.2.3 When a certain number of flats are given by the builder/developer to a land owner in a collaborative agreement to construct, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exception sub- clause (iv) to clause (a) of section 66D . 'Support services have been defined in clause (49) of section 65B as 'infrastructural, operational, administrative, logistic marketing or any other support of any kind comprising functions that entities carry out in the 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 movable or immovable property, security, testing and analysis'. If the nature of concession is such that it amounts to 'renting of immovable property service' then the same would be taxable. The tax is required to be paid by the government as there is no reverse charge for services relating to renting of immovable property. In this model, though the concessionaire is undertaking construction of a building to be used wholly or partly for furtherance of business or commerce, he will not be treated as a service provider since such construction has been undertaken by him on his own account and he remains the owner of the building during the concession period. However, if an independe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s completion certificate for the purposes of determining chargeability of service tax. 6.2.8 If the person who has entered into a contract with the builder for a flat for which payments are to be made in 12 installments depending on the stage of construction and the person transfers his interest in the flat to a buyer after paying 7 installments, would such transfer be an activity chargeable to service tax? Such transfer does not fall in this declared service entry as the said person is not providing any construction service. In any case transfer of such an interest would be transfer of a benefit to arise out of land which as per the definition of immoveable property given in the General Clauses Act, 1897 is part of immoveable property. Such transfer would therefore be outside the ambit of 'service' being a transfer of title in immoveable property. 6.3 Temporary transfer or permitting the use or enjoyment of any intellectual property right 6.3.1 What is the scope of the term 'intellectual property right'? 'Intellectual property right' has not been defined in the Act. The phrase has to be understood as in normal trade parlance as per whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a license to use pre-packaged software be a taxable service? The following position of law needs to be appreciated to determine whether a license to use pre packaged software would be goods- As held by the Hon'ble Supreme Court in the case of Tata Consultancy Services v. State of Andhra Pradesh [2004 (11) TMI 11 (SC)] ] pre-packaged software or canned software or shrink wrapped software put on a media like is goods. Relevant portion of para 24 of the judgment is reproduced below- A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (in case of painting) or computer discs or cassettes, and marketed would become goods . We see no difference between a sale of a software programme on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intellectual property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to use software which does not involve the transfer of 'right to use' would neither be a transfer of title in goods nor a deemed sale of goods. Such an activity would fall in the ambit of definition of 'service' and also in the declared service category specified in clause (f) of section 66E. Therefore, if a pre-packaged or canned software is not sold but is transferred under a license to use such software, the terms and conditions of the license to use such software would have to be seen to come to the conclusion as to whether the license to use packaged software involves transfer of 'right to use' such software in the sense the phrase has been used in sub-clause (d) of article 366(29A) of the Constitution. (See point no 5.6.1). In case a license to use pre-packaged software imposes restrictions on the usage of such licenses, which interfere with the free enjoyment of the software, then such license would not result in transfer of right to use the software within the meaning of Clause 29(A) of Article 366 of the Constitution. Every condition imposed in this regard will not make it liable to service tax. The condition should be such as rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stem of payment by instalments 6.5.1 Is the delivery of goods on hire purchase of any system of payment by instalments taxable? No. The delivery of goods on hire purchase or any system of payment on instalment is not chargeable to service tax because as per Article 366(29A) of the Constitution of India such delivery of goods is deemed to be a sale of goods.(For guidance on this aspect please refer to point no. 2.7 of this Guidance Paper) However activities or services provided in relation to such delivery of goods are covered in this declared list entry. 6.5.2 What is the scope of the phrase 'delivery of goods on hire-purchase or any system of payment by instalments'? Section 2 of the Hire Purchase Act, 1972 defines a hire purchase agreement' as 'an agreement under which goods are let out on hire and under which the hirer has the option to purchase them in accordance with the terms of the agreement and includes an agreement under which- ( i ) possession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical instalments, and ( ii ) the property in the goods is to pass to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for taxes and other expenses on the property. The lessee does not have an option to purchase the property at the end of the period of lease. Such arrangements do not qualify as 'delivery of goods on hire purchase or any system of payment of instalments'. On the other hand 'financial leases' or 'capital leases' strongly resemble security arrangements and are entered into for financing the asset. The lessee pays maintenance costs and taxes and has the option of purchasing the lease end. Such arrangements resemble a hire-purchase agreement and would fall under the said 'deemed sale' category. The essence of this deemed sale category is that the arrangement under which the goods are 'delivered' should be in the nature of a financing arrangement wherein the lessee pays maintenance costs and taxes and has the option of purchasing the asset so delivered at lease end. It may, however, be pointed out that in case an 'operating lease' has elements of transfer of 'right to use' then the same would be covered in the other 'deemed sale' category pertaining to 'transfer of right to use any goods' 6.5.5 If deliver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable for delivery; There must be a consensus ad idem as to the identity of the goods; The transferee should have legal right to use the goods - consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee; For the period during which the transferee has such legal right, it has to be the exclusion to the transferor - this is the necessary concomitant of the plain language of the statute, viz., a 'transfer of the right to use' and not merely a license to use the goods; Having transferred, the owner cannot again transfer the same right to others. Whether a transaction amounts to transfer of right or not cannot be determined with reference to a particular word or clause in the agreement. The agreement has to be read as a whole, to determine the nature of the transaction. 6.6.2 Whether the transactions listed in column 1 of the table below involve transfer of right to use goods? S.No. Nature of transaction Whether transaction involves transfer of right to use 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... courts have interpreted terms and conditions of various types of contracts to see if a transaction involve transfer of right to use goods. The nature of each transaction has to be examined in totality keeping in view all the terms and conditions of an agreement relating to such transaction. 6.7 Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act In terms of this entry the following activities if carried out by a person for another for consideration would be treated as provision of service. Agreeing to the obligation to refrain from an act. Agreeing to the obligation to tolerate an act or a situation. Agreeing to the obligation to do an act. 6.7.1 Would non-compete agreements be considered a provision of service? Yes. By virtue of a non-compete agreement one party agrees, for consideration, not to compete with the other in any specified products, services, geographical location or in any other manner. Such action on the part of one person is also an activity for consideration and will be covered by the declared services. 6.8 Service portion in execution of a works contract Works cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value. 6.8.2 Would contracts for repair or maintenance of motor vehicles be treated as 'works contracts'? If so, how would the value be determined for ascertaining the value portion of service involved in execution of such a works contract? Yes. Contracts for repair or maintenance of moveable properties are also works contracts if property in goods is transferred in the course of execution of such a contract. Service Tax has to be paid in the service portion of such a contract. 6.8.3 Would contracts for construction of a pipe line or conduit be covered under works contract? Yes. As pipeline or conduits are structures on land contracts for construction of such structure would be covered under works contract. 6.8.4 Would contracts for erection commissioning or installation of plant, machinery, equipment or structures, whether prefabricated or otherwise be treated as a works contract? Such contracts would be treated as works contracts if transfer of property in goods is involved in such a contract. 6.8.5. Would contracts for painting of a building, repair of a building, renovation of a building, wall tiling, flooring be covered under 'works cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods and contract of provision of service. This declared list entry is has been incorporated to capture this position of law in simple terms. 6.9.2 Are services provided by any kind of restaurant, big or small, covered in this entry? Yes. Although services provided by any kind of restaurant are covered in this entry, the emphasis is to levy tax on services provided by only such restaurants where the service portion in the total supply is substantial and discernible. Thus the following category of restaurants are exempted - Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, and which has a license to serve alcoholic beverage. Below the threshold exemption. 6.9.3. How is the value of service portion to be determined? For detailed discussion on this topic please refer to Guidance Paper 8 and in particular point no 8.4. - Manuals - Ready reckoner - Law and practice - Reference Guide - Quick Commentary Tax Management India - taxmanagementindia - taxmanagement ..... X X X X Extracts X X X X X X X X Extracts X X X X
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