TMI BlogIssues pertaining to Service Tax - regarding the Finance Bill,2004X X X X Extracts X X X X X X X X Extracts X X X X ..... s relating to procurement of inputs, production of goods (not amounting to manufacture) or provision of services on behalf of a client. Financial services to include some more specified financial services. Such services provided by non-banking financial company, body corporate or any other commercial concern are also being subjected to service tax. Tour operators to include such package tour operators who organize tours involving different modes of transport. The risk cover in life insurance becomes subject to levy of service tax. The rate of service tax on all taxable services, including the new and expanded services becomes 10%. The education Cess of 2% of the service tax would be leviable on taxable services. The scope of these changes is explained in the following paragraphs. Education Cess on taxable services: Education cess on taxable services is imposed under section 91 read with section 95 of the Finance (No.2) Act, 2004. The cess would be 2% of the service tax levied and collected. Therefore, fully exempted taxable services would not be subjected to cess. In case of a partial exemption, say by way of abatement, the cess would be calculate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round handling, security, common user terminal services etc. are chargeable to service tax. However, in case a part of airport/ civil enclave premises is rented / leased out, the rental/lease charges would not be subjected to service tax, as the activity of letting out premises is not rendering a service. Transport of goods by air: Services provided by an aircraft operator (i.e. commercial concern like an airlines) in relation to transport of goods by an aircraft falls under this category. Thus, in addition to the actual air-freight charges, all charges collected towards storing, handling, loading/unloading (done in relation to air transportation of cargo) by an airlines are also chargeable to this levy. Survey and exploration of minerals: The service tax would be leviable when the service of survey and exploration of minerals is provided by any person to a customer. The survey and exploration may result in locating ores, crude etc. Subsequent to survey and exploration, the mineral is extracted and transported for refining, processing and production. The service tax under this category would be limited to the services rendered in relation to survey and exploration only an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by Indian law) would not be covered under taxable services. 9.2 A permanent transfer of intellectual property right does not amount to rendering of service. On such transfer, the person selling these rights no longer remains a holder of intellectual property right so as to come under the purview of taxable service. Thus, there would not be any service tax on permanent transfer of IPRs 9.3 In case a transfer or use of an IPR attracts cess under Section 3 of the Research and Development Cess Act, 1986, the cess amount so paid would be deductible from the total service tax payable. (refer notification No.17/2004-ST, dated 10.09.2004). Forward contract services: As per the provisions of Forward Contract (Regulation) Act, 1952, a forward contract is a contract for delivery of goods, which is not a ready delivery contract. For commodities notified under the Act, forward contracts can be entered into only through members of association recognized under that Act. For other commodities, future trading can be done through associations registered with Forward Market Commission. The levy of service tax under this category is on the services provided by members of such associati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided by a commercial concern in relation to construction, repairs, alteration or restoration of such buildings, civil structures or parts thereof which are used, occupied or engaged for the purposes of commerce and industry are covered under this new levy. In this case the service is essentially provided to a person who gets such constructions etc. done, by a building or civil contractor. Estate builders who construct buildings/ civil structures for themselves (for their own use, renting it out or for selling it subsequently) are not taxable service providers. However, if such real estate owners hire contractor/ contractors, the payment made to such contractor would be subjected to service tax under this head. The tax is limited only in case the service is provided by a commercial concern. Thus service provided by a laborer engaged directly by the property owner or a contractor who does not have a business establishment would not be subject to service tax. 13.2 The leviability of service tax would depend primarily upon whether the building or civil structure is used, or to be used for commerce or industry. The information about this has to be gathered from the approved plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 10.09.2004) This would, however, be optional subject to the condition that no credit of input goods, capital goods and no benefit (under notification no. 12/2003-ST) of exemption towards cost of goods are availed. Extension of service tax on installation and commissioning, to erection services: Service tax was levied on commissioning and installation of plant, machinery and equipment w.e.f. 1.7.2003. The general practice is that erection, commissioning and installation are contracted as a composite package. There have been a number of doubts and queries regarding the distinction between erection and commissioning/installation. Erection would refer to the civil works to installation/commissioning of a plant or machinery. In this year s budget, the scope of service tax under installation and commissioning is being extended to include erection also. Erection involves civil works, which would otherwise fall under the category of construction services. However, in case of a composite contract for erection, commissioning and installation, the erection charges would be taxed as part of this category of service. Extension of service tax on air travel agents and rail trav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision of services, the whole or part of which is being carried out by the service provider (i.e. the agent) on behalf of the client. Such activities include procurements, productions or service providing activities done for the client. 18.3 The service tax is, however, being restricted to only those cases where the service provider is a factory governed by the Factories Act, 1948, a company established by or under the Companies Act, 1956 or a corporation or a body corporate established by or under any law, partnership firms (whether or not registered), societies registered under Societies Registration Act, 1860 or under any law and any co-operative society established by or under any law. However, services in relation to agriculture, printing, textile processing and education would remain exempt even if provided by such service providers. (refer Notification no.14/04-ST, dated 10.09.2004) Expansion of banking and other financial services 19.1 The existing taxable service i.e., banking and other financial services , has been expanded both in terms of its coverage and the types of service providers. Financial services would now also include specified financial service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... policies (risk plus saving) life insurer can at his option pay 1% of the total premium towards discharge of service tax liability. This shall not be applicable in case an insurance policy is towards risk only or where the premium gives details of risk premium and other premium separately. (refer notification No. 11/04-ST, dated 10.09.2004). However, those insurance companies who want to pay tax on risk premium as certified by the Appointed Actuary on a company basis can do so. The insurance companies may be allowed to pay monthly service tax provisionally, based on estimates. The monthly estimated (i.e. provisional) duty payment for the entire company would be based on a provisional certificate issued by the Appointed Actuary, subject to final certification at the end of the year. At the end of the financial year, when the sum at risk is calculated and certified by the Actuary, the liabilities would be finalized and the companies would pay the balance tax or adjust the excess tax paid. Vocational and Recreational Coaching Institute: Vocational and recreational training institutes have been exempted from service tax. (refer notification No.24/04-ST, dated 10.09.04) Service ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eversed prior to the sale of such goods. (refer notification No. 12/04-ST, dated 10.09.2004) Withdrawal of exemption to engineering consultancy services in relation to computer software.: The exemption to services provided by a consulting engineer in relation to computer software (notification No. 4/99-ST) has been withdrawn (refer notification no. 23/04-ST, dated 10.09.2004). Transport of goods by road by a goods transport agency: In pursuance to an agreement between the Government and representatives of the transport industry, a Committee has been set up to look into appropriate mechanism/modalities for collection and payment of service tax by commercial concerns and the rules/notifications will be finalized in consultation with the Committee. The Committee would give its report within two months. In terms of the agreement, the tax would be levied and collected in a manner to be notified. No tax would, therefore, be payable by the goods transport agency till such time government comes out with the relevant rules/ notifications prescribing the modalities for levy and collection. Many of the services covered under fresh levies may include activities that were taxabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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