COMMENTS ON “SERVICE TAX – RECENT AMENDMENTS MADE … · ON “SERVICE TAX – RECENT...

COMMENTS

ON

“SERVICE TAX – RECENT AMENDMENTS MADE VIDE FINANCE (NO.2) ACT, 2004”

Compiled and prepared by :

Shailesh P.ShethAdvocate

Mumbai Office: Rajkot Office:

Maskati Mahal, 3rd Floor, 201, Trade Centre, 2nd Floor,Kantilal Sharma Marg, Sardarnagar Main Road, (Lohar Chawl), Rajkot –360 002. Mumbai – 400 002.

Telephone:22005096 Tel: 2695280Telefax: 22005087 e.mail: [email protected]

The information contained in these documents is based on available published material and is indicative of the changes in respective laws only. Similarly, the comments offered on the various amendments are the personal views of the author and same should not be construed as legal or professional advice. Before acting on the issues involved in it, it is suggested to seek professional advice.

mailto:[email protected]

1I N D E X

CHAPTER 1 - INTRODUCTION

CHAPTER 2 - LEVY OF SERVICE TAX ON NEW SERVICES

CHAPTER 3 - AIRPORT SERVICES

CHAPTER 4 - BUSINESS EXHIBITION SERVICES

CHAPTER 5 - CONSTRUCTION SERVICES

CHAPTER 6 - FORWARD CONTRACT SERVICES

CHAPTER 7 - INTELLECTUAL PROPERTY SERVICES (OTHERTHAN COPYRIGHT)

CHAPTER 8 - OPINION POLL SERVICES

CHAPTER 9 - OUTDOOR CATERER’S SERVICE

CHAPTER 10 - PANDAL OR SHAMIANA SERVICES

CHAPTER 11 - SURVEY AND EXPLORATION OF MINERAL, OIL AND GAS SERVICES

CHAPTER 12 - TRAVEL AGENTS (OTHER THAN AIR/RAIL TRAVEL AGENTS)

CHAPTER 13 - TRANSPORT OF GOODS BY AIR

CHAPTER 14 - TV & RADIO PROGRAMME PRODUCTION SERVICE

CHAPTER 15 - TRANSPORT OF GOODS BY ROAD SERVICE

CHAPTER 16 - EXPANSION OF SCOPE OF EXISTING TAXABLESERVICES

CHAPTER 17 - BANKING AND FINANCIAL SERVICES

CHAPTER 18 - BUSINESS AUXILIARY SERVICES

CHAPTER 19 - CABLE SERVICES

CHAPTER 20 - COMMISSION OR INSTALLATION SERVICE

CHAPTER 21 - STOCK BROKERS

CHAPTER 22 - TOUR OPERATORS

CHAPTER 23 - SCHEME OF EXEMPTIONS & ABATEMENTS

CHAPTER 24 - CONCLUSION

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ABBREVIATIONS:

CEA - Central Excise Act, 1944CER - Central Excise Rules, 2002CCR - Cenvat Credit Rules, 2004CG - “Capital Goods” as defined under Rule 2(a) of CCRCETA - Central Excise Tariff Act, 1985Act - Finance Act, 1994 [as amended last by the Finance (No.2) Act,

2004]Input - “Input” as defined under Rule 2(k) of CCRCBEC - Central Board of Excise & Customs

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CHAPTER :1

INTRODUCTION

1.1 The levy of Service tax was introduced in the year 1994 vide Chapter V inserted in the Finance Act, 1994 (“the Act”). The levy was initially restricted to only three services viz. Telephone, General Insurance and Stock Broking. However, since then, the coverage of the levy has been expanded year after year netting in more and more services. Vide the Finance (No.2) Act, 2004 (“the Act of 2004”) the levy has been extended to 13 new services as well as bringing into the net some more services by amending the definition of certain existing taxable services w.e.f. 10.09.2004. With this, total 76 services have been effectively covered under the levy as on 10.09.2004.

1.2 The ever-widening scope of the levy has not remained confined only to the number of services. The Government has been steadily increasing the rate of Service tax also. The introductory rate of 5% in 1994 was raised to 8% effective from 14.05.2003 and has further been enhanced to 10% w.e.f. 10.09.2004. In addition to this, Education Cess @ 2% on the amount of Service tax has also become effective from 10.09.2004. Therefore, the total quantum of tax payable on the taxable services will be 10.2% on and from 10.09.2004.

1.3 Besides expanding the scope of the levy to certain new services the Finance Minister, vide his Budget Speech, had also announced the “Integration of Tax on Goods and Services” by proposing the extension of credit of service tax and excise duty across goods and services.

1.4 In pursuance of this announcement, Cenvat Credit Rules, 2004 (“the CCR”) have been introduced w.e.f. 10.09.2004 in supersession of Cenvat Credit Rules, 2002 and Service tax Credit Rules, 2002. CCR, in effect provides the facility, both to the manufacturer and Service Provider, to avail cenvat credit of the excise duty paid on inputs and capital goods and service tax paid on the specified Input Services. Simultaneously, the concept of “Input Service Distributor” – somewhat similar to “First Stage Dealer”/ “Second Stage Dealer” prevalent under the Cenvat Credit Scheme – has also been introduced vide the CCR enabling the distribution of Service tax credit amongst various locations where the payment against taxable services have been made by the Head Office.

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CHAPTER : 2

LEVY OF SERVICE TAX ON NEW SERVICES:

2.1 New Services:

Following new services have been brought under the levy vide Finance Act, 2004 w.e.f. 10.09.2004:

(i) Business Exhibition Services(ii) Airport Services(iii) Transport of goods by air(iv) Survey and exploration of minerals(v) Opinion poll services(vi) Intellectual property services (other than copyrights)(vii) Forward contract services(viii) Pandal or shamiana services(ix) Outdoor catering services(x) TV and radio programme production services(xi) Construction services (commercial and industrial building or civil

structures)(xii) Travel agents (other than air/rail travel agents)(xiii) Transport of goods by road by Good Transport Agency.

2.2 Expansion of scope of existing Taxable Services:

Besides the above, the definitions of certain existing Taxable Services have been amended as explained herein-below so as to expand the scope and coverage thereof vide the Act of 2004 w.e.f. 10.09.2004:

(i) Commission and installation service to include erection service

(ii) Stock brokers to include sub-brokers

(iii) Cable operators to include multi-system operators

(iv) Business auxiliary service to include activities relating to procurement of inputs, production of goods (not amounting to manufacture) or provision of services on behalf of a client.

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(v) Banking and Financial Services to include core banking activities like lending, issue of pay order, demand draft, Cheque etc. Commercial concerns providing such services have also been included within the scope of “Service providers” as defined vide Section 65 (12) of the Act.

(vi) Tour operators to include such package tour operators who organize tours involving different modes of transport.

2.3 Withdrawal of Exemptions:

The exemption hitherto available in respect of the following taxable services have been withdrawn w.e.f. 09.07.2004:

(i) Broadcasting services provided by Cable Television Operators (Notification No.8/2001-ST dated 09.07.2001 rescinded by Notification No.7/2004-ST dated 09.07.2004)

(ii) Business Auxiliary Services provided by a Commission Agent except in relation to sale or purchase of agricultural produce. [Notification No.13/2003-ST dated 20.06.2003 amended by Notification No.8/2004-ST dated 09.07.2004]

(iii) Maintenance or repair of Computers, Computer systems or Computer peripherals [Notification No.20/2003-ST dated 20.08.2003 rescinded by Notification No.7/2004-ST dated 09.07.2004]

(iv) Mandap Keeper Services (including catering services) provided by Hotels [Notification No.12/2001-ST dated 20.12.2001 as amended by Notification No.8/2004-ST dated 09.07.2004

(v) Services relating to safe deposit lockers or security or safe vaults provided by Security Agencies [Notification No.56/98-ST dated 07.10.1998 rescinded by Notification No.07/2004-ST dated 09.07.2004]

2.4 In the ensuing chapters, various aspects of the aforesaid changes have been discussed.

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CHAPTER : 3

AIRPORT SERVICES

3.1 Statutory Provisions :

(a) Section 65 (3a) to 65 (3d) of the Finance Act, 1994 (“the Act”) define the terms like “Aircraft”, “Aircraft Operator”, “Airport” and “Airports Authority”.

(b) Also, relevant are the provisions of the Airports Authority of India Act, 1994 and Aircraft Act, 1934 providing the definitions of certain relevant terms like Airport, Aerodrome, Civil Enclave and adopted for the purpose of levy of Service Tax on Airport Services.

(c) Section 65 (105)(zzm) defines the term “Taxable Service” to mean any service provided to any person by airports authority or any person authorized by it, in an airport or civil enclave.

(d) Section 67 of the Act defines the term “Value of Taxable Services” as the gross amount charged by the Service provider for the services rendered by him.

3.2 Scope of the Levy :

The various services provided in an airport or Civil Enclave are taxable under this category. The liability to pay the Service tax is on the service provider, namely, Airports Authority of India, or any person authorized by it providing such service to any person. The value, for the purpose of taxable service is the gross amount charged by the service provider for services rendered by him.

3.3 Inclusions :

Following services, amongst others, are covered under this category viz:

i) Security, transit facilities, landing charges, terminal route navigational facility charges in respect of services provided to the Airlines and cargo/passenger handling.

ii) As the tax would be on the gross amount charged, the charges like royalty, licence fees etc. collected by AAI from other service providers at the Airport like ground handling, security, common user terminal services etc would be chargeable.

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3.4 Exclusions:

(a) The rental/lease charges would not be subjected to service tax.

(b) Services provided to Armed Forces of Union would not be taxable.

3.5 Exemption/Abatement :

Refer Chapter 23

8CHAPTER : 4

BUSINESS EXHIBITION SERVICES:


(a) Section 65 (19a) of the Act defines the term ‘Business Exhibitions’

(b) Section 65 (105)(zzo) defines the term Taxable Service to mean services provided to an exhibitors, by the Organiser of a business exhibition in relation to Business Exhibition.

(c) Section 67 of the Act defines the term the “Value of Taxable Services” as the gross amount charged by the Service provider for services rendered by him.

4.2 Scope of the levy:

The services provided in relation to “Business Exhibition” are covered under this category. “Business Exhibition” has been defined as an “Exhibition” to market, to promote or to advertise or to show cause any product or service intended for the growth in business of the producer or provider of such product or service [S.65 (19a)]

The liability to pay Service tax under this category is on the organizer of business exhibition [S.65 (105)(zzo)]. The Service tax will be payable on the gross amount charged by the organizer to the exhibitor (S.67).

4.3 Inclusions:

Following services, amongst others, would be covered under this category:

i) Events like Trade fairs, road shows, fashion shows etc. organized by the organizers;

ii) Display show-cases kept in Airports, Railway stations, Hotels, Theaters, etc.

4.4 Exclusions :

i) Display of goods in shopping malls or shopping centers to enable the customers to select and purchase if no separate charges are collected by the shop-keepers in respect thereof;

ii) Services rendered by an Event Manager to an Organizer in relation to planning, promoting, organizing etc. of the events like Trade fairs etc. Such Services would be taxable under “Event Management Services”.

iii) Services rendered in relation to a circular, label, documents, hoardings or any other audio-visual representation of a product or service such services would be covered under “Advertisement Services”.

iv) Art galleries renting out galleries for exhibition of art, paintings etc.

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4.5 Exemption/Abatement:

Refer Chapter 23.

4.6 COMMENTS:

4.6.1 The imposition of levy on “Business Exhibition Services” appears to be the fall-out of the judgement of the Appellate Tribunal in the case of Indian Trade Promotion Organization Vs C C E – 2004 (163) ELT 163. Drawing the distinction between “Business activities” and “Business Function”, the Tribunal, in this case, held that the renting out of premises by ITPO to participants of trade fairs as well as the Election Commission for counting of votes do not come in the category of service provided by “Mandap Keeper” and cannot be charged to Service tax thereunder. It was further held that trade fairs are temporary markets and the use of the stalls of ITPO for trade fairs was for business as such, and not for ceremony.

4.6.2 However, such activities as being undertaken by ITPO and other such persons would now be covered under the taxable category of “Business Exhibition Services”.

But, renting out premises to the Election Commission for the official purposes like voting, storing of ballot boxes, counting of ballots etc would still remain outside the scope of the levy.

4.6.3 As the levy is in relation business exhibition ultimately intended for the growth in business of the producer of the product or the provider of Services, the commercial nature of the activity is inherent. Therefore, if any exhibitions are organized to create social awareness, say, in respect of pollution, etc. and are not run on commercial lines, the services in relation to the same would not be taxable under this category.

10CHAPTER : 5

CONSTRUCTION SERVICES :

5.1 Statutory Provisions:

(a) Section 65 (30a) of the Act defines the term ‘Construction Service’.

(b) Section 65 (105)(zzq) defines term the “Taxable Service” to mean the services provided to any person by a commercial concern, in relation to construction service.

(c) Section 67 of the Act defines the term “Value of Taxable Services” as the gross amount charged by the Service provider for services rendered by him.

5.2 Scope of the levy:-

The services in relation to (i) the construction of a new building or civil structure or a part thereof or (ii) repair, alteration or restoration of, or similar services in relation to, building or civil structure are taxable under this category provided the same are primarily used or occupied or engaged or intended to be used or occupied or engaged in commerce or industry are covered under this levy. The liability to pay Service tax is cast upon the “Commercial Concern” providing “Construction Services” to any person [S.65 (105)(zzg)]. The Service tax will be payable on the gross amount charged to the service-recipient by such Commercial concern.

5.3 Inclusions:The following persons, amongst others, would be covered under this category:-

i) Persons engaged in constructing shopping centres, multi-complex theaters, commercial complexes etc.

ii) Persons engaged in the construction of office or industrial premises;

iii) Local Government bodies engaged in the construction for commercial purposes i.e. letting out shops constructed;

iv) Persons engaged in the repairs, restoration, renovation or alteration of any commercial / industrial building or civil structure;

v) Contractors engaged by the Estate builders for the purpose of construction of Building/civil structure for the purposes of commerce or industry;

vi) Persons engaged in the construction of multi-purpose buildings such as residential-cum-commercial purposes provided such immovable property is treated as “commercial property” under the local/Municipal law.

115.4 Exclusions :-

i) Construction of roads, airports, railways, transport terminals, bridges, tunnels, long-distance pipelines and dams. [S.65 (30a)] (However, pipelines running within an Industrial or Commercial establishment would not be excluded);

ii) Construction of buildings etc. purely for residential purposes;

iii) Constructions for the use of non-profit organizations or institutions established solely for educational, religious, charitable, health, sanitation or philanthropic purposes;

iv) Estate builders engaged in the construction of buildings/ Civil Structures for themselves;

v) Services provided by a laborer engaged directly by the property owner or contractor having no business establishment.

5.5 Exemption/Abatement:5.5.1 Vide Notification No.15/2004-ST dated 10.09.2004, the levy of Service-tax in respect

of construction services has been restricted only to 33% of the gross amount charged by the service provider. However, this exemption is subject to the following conditions viz.

(a) credit of duty paid on inputs or capital goods has not been taken under the provisions of the CCR, 2004; or

(b) benefit of exemption on cost of materials is not availed by the Commercial concern under Notification No.12/2003-ST dated 20.06.2003.

5.5.2 Also refer Chapter 23

5.6 COMMENTS:

5.6.1 Though the estate builders engaged in the construction of a building / civil structures for themselves are excluded from the scope of levy, it has been clarified by the Board that if such Estate Owners hire contractor. Then the payment made to them would be subjected to service-tax. This clarification issued by the Board, however, appears to be rather too generalized. It should be noted that the levy of Service tax under this category would depend upon whether the building/ civil structure is primarily used or intended to be used for commerce or industry. Therefore, if a contractor is hired by an Estate Owner for the construction of a building to be used for any non-commercial/ non-industrial purpose, (say, residential), the payment made to such contractor cannot be charged to service tax under this category.

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5.6.2 The abatement (exemption) of 67% provided vide Notification No.15/2004-ST is in respect of composite contract where the gross amount charged includes the value of

material also. However, the availment of benefit under this Notification is optional and subject to the fulfillment of the above conditions. It is worth noting here that the condition of non-availment of Cenvat credit relates to only inputs and capital goods but not “Input Services”. In other words, the person chargeable to Service tax under this category and claiming the benefit of the Notification No.15/2004-ST is entitled to avail credit of service tax paid on “Input Services” in terms of CCR.

5.6.3 Alternatively, the said person can apt for the total exemption available under Notification No.12/2003-ST dated 20.06.2003 as amended. Subject to the conditions prescribed thereunder.

5.6.4 The scope of the levy is wide enough to cover services like renovation, Re-plastering, Painting or any such job undertaken to increase the life of a building/ civil structure.

13CHAPTER 6:

FORWARD CONTRACT SERVICES:


(a) Section 65 (46a) of the Act defines the term ‘Forward Contract’. Section 2 (c) and Section 2 (i) of the Forward Contracts (Regulation) Act, 1952 defines the term ‘Forward Contract’ and ‘Ready Delivery Contract’ and the same are adopted for the purpose of levy of Service Tax.

(b) Section 65 (105)(zzy) defines the term ‘Taxable Service’ in respect of Forward Contract Services to mean any service provided to any person, by a member of a recognized association or a registered association, in relation to a Forward Contract.

(c) Section 67 of the Act defines the ‘Value of Taxable Services’ as the gross amount charged by the Service provider for services rendered by him.

6.2 Scope of the Levy:

Any services provided by a member of a recognized association or a registered association in relation to a Forward Contract are covered within the scope of the levy. The Service tax would be leviable on the gross amount charged by the service provider to his client.

6.3 Inclusions:

(a) Forward Contracts entered through members of association recognized under the Forward Contract (Regulation) Act, 1952 in respect of the commodities notified under the Act;

(b) Future Trading Contracts entered into through the associations registered with the Forward Market Commission in respect of the commodities not notified under the FCRA;

6.4 Exclusions:

Services provided in respect of Ready Delivery Contracts as defined vide Section 2(i) of FCRA;

6.5 Exemptions/Abatement:

Please refer Chapter 2314

CHAPTER 7:

INTELLECTUAL PROPERTY SERVICES (OTHERTHAN COPYRIGHT)


(a) Section 65 (55a) of the Act defines the term ‘Intellectual Property Services’.

(b) Other relevant terms like ‘Trade Mark’, ‘Design’, ‘Patent’ and ‘Copyright’ have been defined vide Section 2 (zb) of the Trade Marks Act, 1999, Section 2 (d) of the Designs Act, 2000, Section 2 (m) of the Patents Act, 1970 and Section 14 of Chapter III of the Copyright Act, 1957 respectively.

(c) Section 65 (105)(zzr) defines the term ‘Taxable Services’ to mean any services provided by the holder of the Intellectual Property Right to any person in relation to Intellectual Property Service.

(d) The term ‘Intellectual Property Service’ has been defined vide Section 65 (55b) of the Act to mean transfer, whether permanently or otherwise; or permitting the use or enjoyment of any Intellectual Property Right.

(e) Section 67 of the Act defines the term ‘Value of Taxable Services’ as the gross amount charged by the Service provider for services rendered by him.


The levy extends to the services provided by the holder of the Intellectual Property Right like transferring or permitting the use or enjoyment of such right to any other person. The Service tax would be payable on the gross amount received by the Right holder for such use or transfer.

7.3 Inclusions:

(a) Services provided in relation to Intellectual Property Right (whether registered or not) in intangible property like Trade Marks, Designs, Patents or any other similar intangible property prescribed under the law for the time being in force.

(b) Services provided in relation to various types of Intellectual Property like Technical know-how, product process, invention etc. will also be covered within the scope of the levy (whether registered or not).

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(d) Taxable services would include transfer or permitting the use or enjoyment of the Intellectual Property Right.

7.4 Exclusions:

(a) Copyright;

(b) Permanent transfer of Intellectual Property Right;

(c) Intellectual Property Rights like Integrated Circuits or undisclosed information (not covered by Indian Law).

7.5 Exemptions/Abatements:

7.5.1 Vide Notification No. 17/04-ST dated 10.9.2004, the exemption from the payment of Service Tax has been provided to the extent of amount of Cess paid towards the import of technology under the provisions of Section 3 of the Research & Development Cess Act,1986.


7.6 COMMENTS:

7.6.1 The statutory definition of “Intellectual Property Services” given vide Section 65 (55b) of the Act, inter-alia, includes transferring, whether permanently or otherwise, of any Intellectual Property Right.

7.6.2 However, the Board, vide its Circular dated 10.9.2004, has clarified that permanent transfer of Intellectual Property Right would not amount to rendering of service since on such transfer, the person selling the right would no longer remain a “holder of Intellectual Property Right” so as to come within the purview of taxable service and therefore, Service tax would not be payable on permanent transfer of IPRs.

7.6.3 It is evident that there is a clear conflict between the statutory definition and the clarification issued by the Board. Though the Board’s clarification appears to be quite logical and proper, the language of the statutory provision does not reflect this meaning. Consequently, there are bound to be disputes between the department and the concerned persons on this count in future. It will therefore be advisable if the Board issues a categorical explanation in the matter and if necessary, an exemption notification as well.

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CHAPTER 8:

OPINION POLL SERVICES:


(a) Section 65 (75a) & 65 (75b) of the Act define the terms ‘Opinion Poll’ and ‘Opinion Poll Agency’ respectively.

(b) Section 65 (105)(zzs) defines the term ‘Taxable Services’ in respect of Opinion Poll Services to mean any service to a person by an Opinion Poll Agency in relation to opinion poll.

(c) Section 67 of the Act defines the term ‘Value of Taxable Services’ as the gross amount charged by the Service provider for services rendered by him.


The Opinion Poll Services designed to secure information on public opinion regarding social, economic, political or other issues have been made taxable. The Service tax would be payable on the gross amount charged by the Agency without any deductions towards the cost of preparation and printing of questionnaire, salary to the people employed for securing the information etc.

8.3 Inclusions:

(a) Opinion Polls conducted to secure information on social, economic, political or other issues.

(b) All activities connected with conducting the Opinion Poll like preparation of questionnaire, selecting the target group, gathering information from the target group, collating their response, drawing conclusions, preparation of reports etc.

(c) Opinion Polls conducted on various issues like sports, fashion, cinema etc.

(d) Private “Opinion Polls”, the results of which are not made public.

(e) Opinion Polls conducted to ascertain the popularity of TV serials, Radio programmes, TV Channels etc. (known as TRP Ratings).

(f) Processing activity outsourced from a specialized data processing unit in relation to In-house opinion polls.

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8.4 Exclusions:

(a) In-house opinion polls conducted by an organization itself.

(b) Fixed (time bound) opinion polls conducted by any media like newspapers aimed at public at large.

(c) Conducting of market research i.e. securing information in relation to products, services or utilities would remain excluded from the levy under this category but would be covered under “Market Research Agency”.


Please refer Chapter 23

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CHAPTER 9:

OUTDOOR CATERER’S SERVICE:


(a) Section 65 (76a) defines the term ‘Outdoor Caterer’ and Section 65 (24) defines the term “Caterer”.

(b) Section 65 (105)(zzt) defines the taxable services in respect of Outdoor Caterer’s Services to mean a service provided to a client by an outdoor caterer.

(c) Section 67 of the Act defines the term “Value of Taxable Services” as the gross amount charged by the Service provider for services rendered by him.


Any catering services provided by a person i.e. caterer at a place other than his own place will be chargeable to Service tax under this category. The Service tax would be payable on the gross amount charged by the caterer including the food charges.

9.3 Inclusions:

(a) In-flight caterers

(b) Mobile caterers i.e. the caterers preparing the food at their own place and then supplying the same to the customer at his place say, for some domestic function or to the office-goers at their office as packed lunch etc.

(c) Restaurants, hotels etc. providing home delivery service if charge other than for the cost of the food is also recovered.

9.4 Exclusions:

(a) Canteen Contractors situated within the academic institution like schools, colleges etc. or medical establishments like hospitals and providing catering services within the premises.

(b) Mobile Food Vans preparing and supplying the food to the customers at particular location.

(c) Restaurants etc. providing free home delivery service. 19


9.5.1 Catering service provider by an outdoor caterer on a Railway Train has been wholly exempted from payment of Service tax vide Notification No. 19/04-ST dated 10.9.2004.

9.5.2 Catering services provided by an outside caterer is wholly exempt vide Notification No. 21/04-ST dated 10.9.2004 provided such caterer is located within the premises of any academic institution or medical establishment and such services provided only within the said premises.

9.5.3 Vide notification No. 20/04-ST dated 10.9.2004, an abatement of 50% from the gross amount charged by the outdoor caterer has been provided subject to the following conditions viz:

(i) The catering services provided also includes food and the invoice etc. indicates that it is inclusive of charge of supply of food;

(ii) No credit of duty paid on inputs/capital goods has been availed under CCR;

(iii) The outdoor caterer has also not availed the benefit of the exemption under Notification No. 12/2003-ST dated 20.6.2003 regarding exclusion of cost of materials from the value of taxable service.

9.5.4 Please also refer Chapter 23

9.6. COMMENTS:

9.6.1a. The benefit of abatement provided vide Notification No. 20/04-ST is subject to the fulfillment of the aforesaid three conditions which are required to be satisfied simultaneously in view of the use of the conjunction “and” in between them vide proviso to the Notification.

9.6.1b. However, it is pertinent to note that the outdoor caterer availing the benefit of the above Notification is not prohibited from availing the Cenvat Credit of Service tax paid by him on various input services in terms of CCR.

9.6.1c. The benefit of abatement under the Notification is also subject to the condition that the outdoor caterer provides “food”. The expression ‘food’ has been defined to mean “substantial and satisfying meal”. However, what is “substantial” and “satisfying” has not been explained anywhere and has been left to be decided presumably by the field officers. The expression “meal” used in the explanation to the notification would suggest that the food supplied should be more in the nature of lunch or dinner as against mere snacks.

209.6.2 The exemption in respect of catering provided within academic/medical

institution/establishment is also intended for those caterers who prepare the food at

their place and subsequently, provide the same through the canteen situated within such premises. Therefore, the canteens situated within such premises where food is prepared and supplied over the counter would not come within the purview of the definition of “Outside caterer” at all and the question of granting them exemption would not arise.

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CHAPTER 10

PANDAL OR SHAMIANA SERVICES:

10.1 Statutory provisions :

(a) Section 65 (77a) and 65 (77b) of the Act defines the term “Pandal or Shamiana’ and ‘Pandal or Shamiana Contactor’.

(b) Section 65 (105)(zzw) defines the ‘taxable services’ in respect of Pandal or Shamiana Services means any service provided to a client by a Pandal or Shamiana Contractor in relation to a Pandal or Shamiana in any manner and also includes services, if any rendered as caterer.

(c) Section 67 of the Act defines the ‘Value of Taxable Services’ as the gross

amount charged by the Service provider for services rendered by him.


Any person providing services, directly or indirectly, in connection with preparation, arrangement, erection or decoration of a pandal or shamiana i.e. a place specially prepared for organizing official, social or business functions will be covered under this taxable category as “Pandal or Shamiana Contractor.” The Service Tax will be payable on the gross amount charged by such person and will include the charges collected for supply of furniture, fixture, light fittings, floor coverings and any other articles for use as well as charges for catering if the same is provided.

10.3 Exclusions:

Pandal/Shamiana services provided for pure religious ceremonies or congregation like worship of Gods/Goddesses will not be liable for Service-Tax under this category.

10.4 Exemption/Abatement :-

10.4.1 An abatement of 30% of the gross amount has been provided vide Notification No.22/2004-ST dated 10.09.2004. In other words, the Service tax will be leviable on 70% of the value of the gross amount charged by the pandal or shamiana Contractor. This abatement (exemption) is subject to the following conditions viz.

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(a) such pandal or shamiana contractor also provides catering services, that is, supply of food and the invoice, bill or Challan issued for this purpose indicates that it is inclusive of charges for catering service; and

(c) no credit of duty paid on inputs or capital goods has been taken under the provisions of the Cenvat Credit Rules, 2004; and;

(c) such pandal or shamiana contractor has not availed the benefit of exemption on cost of materials under Notification No.12/2003-ST, dated 20.06.2003. For the purposes of this exemption, the expression “food” means a substantial and satisfying meal. [Notification No.22/2004-ST dated 10.09.2004].


10.5 COMMENTS :

10.5.1 Refer the “Comments” under Chapter 9.

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CHAPTER 11 :

SURVEY AND EXPLORATION OF MINERAL, OIL AND GAS SERVICES:


(a) Section 65 (104a) defines the term ‘Survey and Exploration of Mineral’.

(b) Section 65 (105)(zzv) defines the term ‘Taxable services’ to mean services provided to a customer by any person in relation to Survey and Exploration of Mineral.

(c) Section 67 of the Act defines the term ‘Value of Taxable Services’ at the gross amount charged by the Service provider for services rendered by him.


The services provided by any person in relation to Survey and Exploration of the Minerals will be covered under this category. The Service tax would be payable on the gross amount charged by the Service provider.

11.3 Inclusions:

(a) Survey and Exploration Services viz. Geological, Geophysical or other prospecting, surface or sub-surface surveying or map making service in relation to location or exploration of deposits of Mineral, Oil or Gas.

(b) Activities such as seismic survey, collection/processing/interpretation of data and drilling or testing in relation to survey or exploration.

11.4 Exclusions:

(a) Actual extractions of the Minerals etc. after completion of survey and exploration.

(b) Transport, refining, processing or production of the extracted products.


Refer Chapter 23

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CHAPTER : 12

TRAVEL AGENTS (OTHER THAN AIR/RAIL TRAVEL AGENTS):


(a) Section 65 (115a) defines the word ‘Travel Agents’ to mean any person engaged in providing any service connected with booking of passage for travel, but excluding Air Travel Agent and Rail Travel Agent.

(b) Section 65 (105)(zzx) defines the term ‘Taxable Service’ to mean any service provided to a customer by a Travel Agent, in relation to booking of passage for travel.

(c) Section 67 of the Act defines the term ‘Value of Taxable Services’ as the gross amount charged by the Service Provider for services rendered by him.

12.2 Scope of the levy :

Air travel agents and Rail travel agents are already covered under the levy at present. Now, the levy has been extended to include Travel Agents of other modes of transport i.e. road, water etc. The service of booking of passage for travel by modes other than road and air would be covered under this category. The service tax would be payable on the commission/fee charged by the travel agent from the customer.

12.3 Inclusion:

Travel Agents booking passage for their customers by water (Boat, Ship etc.) or road (car, Bus etc.)

12.4 Exclusions:

Air Travel Agents and Rail Travel Agents.


Refer Chapter 23

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CHAPTER : 13

TRANSPORT OF GOODS BY AIR


(a) Section 65 (3a) & 65 (3b) defines the term ‘Aircraft’ and ‘Aircraft Operator’ respectively.

(b) Section 65 (105)(zzm) defines the term ‘Taxable service’ to mean any service provided to any person, by an Aircraft Operator, in relation to transport of goods by Aircraft.

(c) Section 67 of the Act defines the term ‘Value of Taxable Services’ as the gross amount charged by the Service provider for services rendered by him.


Services provided by an aircraft operator (i.e. Commercial concern like airlines) in relation to transport of goods by air are subjected to Service Tax under this category. The Service Tax would be payable on the gross amount charged by the aircraft operator.

13.3 Inclusions:

a) Transport of goods from one place to another place through an aircraft by Airlines;

b) Transport of goods by Helicopters;

c) In addition to actual air-freight charges, other charges collected towards storing, handling, loading/unloading done in relation to air transportation of cargo and collected by the airline would be includible in the value of taxable services.

13.4 Exclusions:

a) Helicopter used for transportation of persons;

b) Transportation of goods through cable car run on Electricity;

c) Amount collected by the Airlines from the passangers towards excess personal baggage.

13.5 Exemptions/Abatement:Refer Chapter 23

26CHAPTER : 14

TV AND RADIO PROGRAMME PRODUCTION SERVICE :

14.1 Statutory Provisions:(a) Section 65 (86a) defines the term ‘Programme’.

(a) Section 65 (105)(zzu) defines the term ‘Taxable service’ to mean any service provided to any person, by a Programme Producer, in relation to a Programme.

(b) Section 67 of the Act defines the term ‘Value of Taxable Services’ as the gross amount charged by the Service provider for services rendered by him.

14.2 Scope of the levy:Services provided by a Commercial Programme Producer for production of a Programme (audio or video) on behalf of another person, for telecasting/ radio transmission by a broadcaster would be covered under this category. The Service Tax would be payable on the gross amount charged by the Programme producer.

14.3 Inclusion:a) Services in relation to Audio and Video Programme production;

b) Live or recorded audio visual matter;

c) Production of TV Serials, news programmes etc.;

d) Production of telefilms specifically to be aired on TV channels;

e) Live telecast of award functions etc.

14.4 Exclusions:

a) Employees of the service receiver i.e. Broadcasters;

b) Production of programme by the Broadcasters for their own use e.g. TV channels producing their own programmes;

c) Films

14.5 Exemptions/Abatement:Refer Chapter 23

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14.6 COMMENTS:

The Board, vide its Circular dated 10.09.2004, has, inter-alia, clarified that the sale of programme to the Broadcaster would also be subjected to levy of Service-Tax under this category.

However, this view of the Board is highly debatable. Section 65 (86b) of the Act defines the term “Programme Producer” means any commercial concern which produces a programme on behalf of another person.

Therefore, if a commercial concern produces a programme on its own and then sells it to any Broadcaster as it deems fit then it cannot be said that the programme was produced on behalf of another person. Such sale of programme, consequently, cannot be subjected to levy of Service Tax under this category.

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CHAPTER : 15

TRANSPORT OF GOODS BY ROAD SERVICE:


(a) Section 65 (50b) defines the term ‘Goods Transport Agency’ to mean any commercial concern which provides service in relation to transport of goods by Road and issues consignment note, by whatever name called.

Also relevant is the definition of the term “Goods Carriage” given vide Section 65 (50a) of the Act and of the same term as well as the term “Motor Vehicle” given vide Section 2 (14) and 2 (28) respectively of the Motor Vehicle Act, 1988.

(b) Section 65 (115)(zzp) defines the term ‘Taxable services’ to mean any service provided to a customer, by a Goods Transport Agency, in relation to transport of goods by Road in a Goods Carriage.

(c) Section 67 of the Act defines the term ‘Value of Taxable Services’ as the

gross amount charged by the Service provider for services rendered by him.

15.2 Scope of the Levy :

Any Commercial concern providing service in relation to transport of goods by road and issuing consignment note, by whatever name called, are covered under this category. The Service-tax would be payable on the gross amount charged by such goods transport agency.

15.3 Inclusions:

a) Transport companies carrying goods by road on behalf of another person and issuing a consignment note;

b) Road transport Corporations of the various States.

15.4 Exclusions:

a) Goods Transport agency / operators not issuing any consignment notes or such like document while undertaking the transportation of goods by road on behalf of the customer;

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b) Transportation of goods by road through the vehicles other than goods carriage;

c) Transportation of goods by the Factory Owner employing its own vehicle like truck, tempo etc.

15.5 Exemptions/Abatements:Refer Chapter 23

15.6 COMMENTS:

15.6.1 The Board, vide its Circular dated 10.09.2004, has clarified as under:

“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.”

15.6.2 Though, the announcement has been greeted with a sigh of relief by the trade and Industry, the legality of the same remains a question mark. The Board is not empowered under the Act to freeze the levy of Service-tax on any taxable service in such a manner and by issuing such executive instructions. As the levy has already become effective from 10.09.2004, it would have been advisable to issue an exemption Notification granting total exemption to the Goods Transport Agencies till the issue is finally resolved. Such notification can be rescinded at any time.

15.6.3 However, by suspending the levy in such a manner, the Board has, unfortunately, not only, acted in excess of powers vested in it under the law but has also set a bad precedent by acting in such a casual, arbitrary and ad hoc manner.

30CHAPTER : 16EXPANSION OF SCOPE OF EXISTING TAXABLE SERVICES:16.1 Besides extending the scope of the levy of Service Tax to various new services, the

scope of certain existing taxable services (mentioned herein-below) was also widened by amending the statutory definitions thereof vide the Finance (No.2) Act, 2004:

(i) Banking and Financial Service;

(ii) Business Auxiliary Services;

(iii) Cable Services;

(iv) Commission or Installation Services;

(v) Stock Brokers Services;

(vi) Tour Operators Services;

(vii) Life Insurance Services.

16.2 The amendments so made have become effective from 10.9.2004 and all the taxable services covered within the scope of the amended provisions would attract Service Tax @ 10% plus 2% Education Cess thereon w.e.f. 10.9.2004.

16.3 The scope and implications of the said amendments are discussed in the following Chapters.

31CHAPTER 17: BANKING AND FINANCIAL SERVICES:17.1. Statutory Provisions:

(a) Section 65 (12) of the Act, prior to its amendment w.e.f. 10.9.2004, included the following entities as “service providers” in relation to Banking and other Financial services viz.

(i) Banking Company;

(ii) Financial Institution including Non-banking Financial Company;

(iii) Any other Body Corporate;

(iv) Foreign Exchange Broker other than those covered under (i) to (iii) above;

(b) After its substitution vide Finance (No.2) Act, 2004 w.e.f. 10.9.2004, the “Commercial Concern” have also been included within the scope of the “Service providers” under Section 65 (12) of the Act.

(c) The scope of taxable services mentioned in Section 65 (12) has also been further expanded w.e.f. 10.9.2004 by including therein the services viz. Other Financial Services viz. Lending; Issue of Pay Order, Demand Draft, Cheque, Letter of Credit and Bill of Exchange; providing Bank Guarantee, Overdraft facility, Bill discounting facility, Safe Deposit Locker, Safe Vaults; Operation of Bank Accounts.

(d) Section 65 (105) (zm) of the Act defines the term “taxable services” to mean any service provided to a customer, by a Banking Company or a Financial Institution including a Non-banking Financial Company, or any other Body Corporate or Commercial Concern in relation to Banking and other Financial services.

(e) Section 67 of the Act defines the term “value of taxable service” as gross amount charged by the service provider for the services rendered by him. However, vide Explanation 2 to Section 67, the “interest on loans” have been excluded from the value of taxable service.

(f) Sub-sections (10), (11), (45), (74), (14) and (46) of Section 65 of the Act defines the terms ‘Banking’, ‘Banking Company’, ‘Financial Institution’, ‘Non-banking Financial Company’ & ‘Foreign Exchange Broker’ respectively.


A major consequence of the expansion of category of “service providers” by inclusion of the term “commercial concern” in the substituted Section 65 (12) is that the Co-operative Banks hitherto not covered under the levy have also become liable to pay Service Tax w.e.f. 10.9.2004.

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Similarly, the scope of taxable service has also been significantly widened by tapping the core banking activities like lending, issue of cheque/demand drafts etc, providing bank guarantee/overdraft facility/safe deposit lockers etc. and even operation of Bank accounts.

17.3 Inclusions:

(a) All nationalized banks, private banks, co-operative banks and scheduled banks

(b) All types of non-banking financial companies providing the specified services;

(c) Financial institutions providing the specified services;

(d) Other body corporates like private limited, public limited company or a Government company provided the same are either a Banking Company or Non-banking Financial Company or a Financial Institution.

(e) Commercial concerns;

(f) Foreign Exchange Broker.


17.4.1 In terms of Explanation 2 to Section 67, the amount of interest on loans will not be includible for the purpose of determination of value of taxable services provided under this category, amongst others.

17.4.2 Vide Notification No. 29/2004-ST dated 22.9.2004, the amount of interest charged in respect of overdraft facility, cash credit facility or discounting of bills, bills of exchange or cheques have been exempted from the payment of Service Tax subject to the condition that the said interest amount is shown separately in an invoice, bill or challan issued for this purpose.

However, a question may arise here as to whether the Notification will be effective from 10.9.2004 or from 22.9.2004 in the absence of any retrospective effect given thereto ?

17.4.3 Vide Notification No. 13/2004-ST dated 10.9.2004, the services provided to Central/State Government in relation to collection of any duties/taxes levied by the Central/State Government have been wholly exempted from payment of Service Tax.

17.4.4 Also refer Chapter 23.

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CHAPTER : 18

BUSINESS AUXILIARY SERVICES18.1 Statutory Provisions:

(a) Section 65 (19) of the Act as substituted by the Finance (No.2) Act, 2004 w.e.f. 10.9.2004 defines the term “Business Auxiliary Service” so as to mean any service in relation to, -

(i) Promotion or marketing or sale of goods produced or provided by or belonging to the client; or

(ii) Promotion or marketing of services provided by the client; or

(iii) Any customer care service provided on behalf of the client; or

(iv) Procurement of goods or services, which are inputs for the client; or

(v) Production of goods on behalf of the client; or

(vi) Provision of service on behalf of the client; or

(vii) A service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision

- and includes services as a commission agent but does not include any information technology service and any activity that amounts to ‘manufacture’ within the meaning of clause (f) of Section 2 of the CEA.

(b) Section 65 (105) (zzb) defines the term “taxable service” as “any service provided to a client, by a commercial concern in relation to business auxiliary service’.

(c) Section 67 of the Act defines the term ‘value of taxable service’ so as to mean the gross amount charged by the service provider for the services rendered by him.


18.2.1 The scope of the levy of Service Tax under this category has been significantly widened by budgetary amendments made through Budget, 2004. This has been done either by withdrawing the exemption hitherto available to the persons providing specified taxable services under this category or by amending the statutory definition of the term ‘Business auxiliary service’.

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18.2.2 The exemption available to commission agents vide Notification No. 13/2003-ST dated 20.6.2003 has been restricted to the commission agents providing services in relation to sale or purchase of agricultural produce w.e.f. 9.7.2004 consequent to amendment made to the said Notification vide Notification No. 8/2004-ST dated 9.7.2004.

18.2.3 The following three services have been included under this category w.e.f. 10.9.2004 vide The Finance (No.2) Act, 2004 viz.

(i) Procurement of goods or services, which are inputs for the client;

(ii) Production of goods on behalf of the client (unless the activity amounts to ‘manufacture’ within the meaning of Section 2 (f) of the Act).

(iii) Provision of service on behalf of the client.

18.3 Inclusions:

In addition to services covered under this category till the announcement of Budget, 2004, the following new services and/or service providers have also been subjected to levy of Service-tax on or after 9.7.2004 or 10.9.2004, as the case may be:

(a) Persons providing services in relation to procurements of goods or services, which are inputs for the client. Thus, the indenting agents and the persons providing such services would be liable to pay Service Tax after 10.9.2004.

(b) Persons who are engaged in production of goods on behalf of the client not amounting to ‘manufacture’ within the meaning of Section 2 (f) of the Central Excise Act, 1944.

(c) Persons engaged in making provision of service on behalf of the client.

(d) Other Auxiliary services relating to procurement, inventory, production of goods or provision of service rendered on behalf of the client.

(e) Commission agent providing services in relation to sale or purchase of services.

18.4 Exclusions:

(a) Production of goods on behalf of the client if the process involved amounts to ‘manufacture’ within the meaning of Section 2 (f) of CEA.

(b) Information technology service i.e. service in relation to designing, developing, or maintaining of computer software, or computerized data processing or system networking or any other service primarily in relation to operation of computer systems (Explanation to Section 65 (19) of the Act refers).

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18.5.1 Vide Notification No. 13/2003-ST as amended by Notification No. 8/2004 ST, services provided by a commission agent in relation to sale or purchase of agricultural produce have been wholly exempted from the payment of Service Tax.

18.5.2 Vide Notification No. 8/2003-ST dated 20.6.2003 as amended by Notification No.12/2004-ST dated 10.9.2004, taxable services provided by a call center or a medical transcription center to a client have been wholly exempt from the payment of Service Tax.

18.5.3 Vide Notification No. 14/2004-ST dated 10.9.2004, specific exemptions have been provided as under:

(a) Taxable services viz.

(i) Procurement of goods or services which are inputs for the client; or

(ii) Production of goods on behalf of the client or

(iii) Provision of services on behalf of the client; or

(iv) A service incidental or auxiliary to any activity in (i) to (iii) above.

provided by a commercial concern other than – (1) A factory registered under or governed by the Factories Act, 1948;

(2) A Company established by or under the Companies Act, 1956;

(3) A Partnership firm (registered or unregistered)

(4) A Society registered under the Societies’ Registration Act, 1860 or any other law;

(5) A co-operative Society established under any law;

(6) A corporation established under any law; or

(7) A body corporate established under any law

have been wholly exempt from payment of Service Tax.

In other words, individuals, sole proprietory concern or HUF providing the aforesaid four services have been wholly exempt vide this Notification.

(b) Any commercial concern, irrespective of the status thereof i.e. whether individuals, sole proprietory concern, partnership firm, company, registered factory etc. providing any or all of the above four types of services are wholly exempt under this Notification provided the Services relate to agriculture, printing, textile processing or education.


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18.6 Comments:

18.6.1 The services under the category of ‘Business Auxiliary Service’ are taxable only if the same are provided by a ‘commercial concern’ in view of the provisions of Section 65(105)(zzb) of the Act.

The question that arises here is as to whether the term ‘commercial concern’ takes within its ambit individual or sole proprietory concern ? The term ‘commercial concern’ has not been defined anywhere in the Act. However, the term can be explained so as to mean a concern engaged in or connected with commerce.

Here, it will be advantageous to refer to a following paragraph in the judgement in the case of Gannon Dunkerley & Co. (Madras) Ltd. V/s. State of Madras – 1954 (15) STC 216 – Mad:

“ ‘Trade’ has been explained, to quote the passage where it was considered in the Concise Oxford Dictionary as ‘business, especially mechanical or mercantile employment as opposed to profession carried on as means of livelihood or profit’. The meaning of commerce as given by the Concise Oxford Dictionary is “exchange of merchandise, especially on large scale”. In ordinary parlance, trade and commerce carry with them the idea of purchase and sale with a view to make profit. If a person buys goods with a view to sell them for profit, it is an ordinary case of trade. If the transactions are on a large scale it is called commerce. Nobody can define the volume of business, which would convert a trade into commerce. But everybody understands the distinction between the two with sufficient vagueness”.

18.6.2 At this stage, it is worth its while to mention that under the Finance Act, 1994 as amended, the taxable service providers have been described as person, commercial concern, concern, agency, institute, establishment etc. at different places.

18.6.3 Nevertheless, it appears that the intention of the Government is not to subject the individuals providing taxable services to levy of Service Tax. For instance, in the context of “installation and commissioning agency’s service”, the taxable service provided by any such agency other than a commercial concern has been exempted from payment of Service Tax vide Notification No. 18/2003-ST dated 21.8.2003.

In the context of this Notification, the Board, vide its Circular No. 62/11/2003-ST dated 21.8.2003 has clarified that commission or installation services provided by an individual will be exempt from the Service Tax.

3718.6.4 Similar exemptions have been provided in respect of the following taxable services

if rendered by individuals:

(i) Photography – still photography service provided by a service provider other than a commercial concern i.e. individual professional photographer (Notification No. 6/2001-ST dated 9.7.2001 as amended by 13/2001-ST dated 27.12.2001).

(ii) Videotape production - service in relation to videotape production provided by individual professional videographers (Notification No. 7/2001-ST dated 9.7.2001).

(iii) Individuals providing services relating to commercial coaching and training at the premises of the service receiver (vide CBEC Circular No 59/8/2003 dated 20.6.2003).

18.6.5 It can therefore be concluded that if an individual is providing any taxable service, say as ‘commission agent’ without any establishment and/or employing labour and such service can be construed as means of earning livelihood for him, he may not be included in the term ‘commercial concern’ and hence not subject to levy of Service Tax under this category i.e. ‘Business Auxiliary Service’.

18.6.6 However, it is pertinent to note here that there has been no categorical clarification by the Board stating that the term ‘commercial concern’ used in relation to any taxable service would not include “individuals” and therefore, such individuals would be out of the purview of the levy per se and it is not even necessary to exempt them. Therefore, the above inference can be contested by the department.

18.7.1 Yet another litigation-prone amendment made in respect of ‘Business auxiliary Service’ relates to inclusion of “service in relation to production of goods on behalf of the client (except where the activity amounts to ‘manufacture’ within the meaning of Section 2 (f) of CEA)”.

As is evident, the amendment has far reaching consequences and the net cast by it may take within its ambit a large number of activities carried on by the job workers – small or big – situated in every nook and corner of the country.

18.7.2 Prima-facie, it appears that any person undertakes any work/processing on job work basis on any material supplied by the customer and if such work/processing does not amount to ‘manufacture’ within the meaning of Section 2 (f) of the CEA, the charges collected in respect of such job work will attract the levy of Service Tax w.e.f. 10.9.2004.

18.7.3 Since the exception provided in relation to this clause is only in respect of that activity which amounts to ‘manufacture’ under Section 2 (f) of CEA, it will be necessary to understand the meaning of this term in light of the statutory provisions and judicial pronouncements.

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18.7.4 The term “manufacture” has been defined in an inclusive manner vide Section 2 (f) of CEA. The relevant portion of the statutory definition given under Section 2 (f) reads as under:

“Manufacture” includes any process –

(i) incidental or ancillary to the completion of a manufactured product; and

(ii) which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture or;

(iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labeling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer,

and the word “manufacturer” shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account”.

18.7.5 In view of the inclusive definition of the term “manufacture”, which process would amount to ‘manufacture’ so as to attract the levy of Excise duty has always been a subject matter of dispute between the manufacturer of goods and the Central Excise department. It is therefore necessary to refer to a few historic judgements of the Hon’ble Supreme Court interpreting and explaining the term “manufacture” as used under Section 2 (f) of CEA.

1. Union of India V/s. DCM Ltd. – 1977 (1) ELT J 199 (SC):

“The word ‘manufacture’ used as a verb is generally understood to mean as “bringing into existence a new substance” and does not mean merely “to produce some change in a substance”, however minor in consequence the change may be. This distinction is well brought about in a passage thus quoted in Permanent Edition of Words and Phrases, Vol.26, from an American Judgement. The passage runs thus :-

“Manufacture implies a change, but every change is not manufacture and yet e very change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use”.

3915. It is helpful to consider also in this connection the ordinary meaning of the word “goods”. For, by the very words of the Central excise and Salt Act, 1944, excise duty is leviable on “goods”. The Act itself does not define “goods” but define “excisable goods as meaning” “goods specified in the First Schedule as being subject to a duty of excise and includes salt”. On the meaning of the word ‘goods’ an interesting passage is quoted in the Words and Phrases, Permanent Edition, Vol.18 from a judgment of a New York Court thus :-

“The first exposition I have found of the word “goods” is in Bailey’s Large dictionary of 1732, which defines it simply “merchandise”’ and by

Johnson, who followed as the next lexicographer it is defined to be movable in a house; personal or immovable estates; wares; freight; merchandise.”

16. Webster defines the word “goods” thus :-

“Goods, noun, plural; (1) movables; household furniture; (2) Personal or movable estate, as horses, cattle, utensils, etc., (3) Wares; merchandise; commodities bought and sold by merchants and traders.”.

17. These definitions make it clear that to become “goods” an article must be something which can ordinarily come to the market to be bought and sold.

18. These considerations of the meaning of the word “goods” provides strong support for the view that “manufacture” which is liable to excise duty under the Central Excises and Salt Act, 1944 must be the “bringing into existence of a new substance known to the market”.

2. Union of India V/s.Parle Products Pvt. Ltd., - 1994 (74) ELT 492 (SC) “The question whether the process involved in converting the “aluminium-foil” into “paper-backed aluminium-foil” amounts to manufacture within the meaning of S. 2 (f) of the Central Excise and Salt Act, 1944, or not, turns upon whether as a result of the application of the process a new and commercially distinct article, known to the market as such, emerges at the end. This, in turn, depends upon the evidence as to the requisite transformation of the goods into a new and different article having distinct identity and character or use. Unless this occurs, the process, however, elaborate it might otherwise be, would not graduate itself into ‘manufacture’. The article that results from applying the process must be commercial known as another and different article.

40Such a question can be decided on evidence as to how the article is known and recognized by those in the trade, industry or commerce dealing with the article. The finding of the court must be based on such evidence and not on its own perceptions of the matter”.

3. Ujagar Prints & Ors. V/s. Union of India –1988 (38) ELT 535(SC);

“The prevalent and generally accepted test to ascertain that there is ‘manufacture’ is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognized as a distinct and new article that has emerged because of the result of the processes. There might be border-line cases where either conclusion with equal justification be reached. Insistence on any sharp or intrinsic distinction between ‘processing’ and ‘manufacture’, results in an over simplification of both and tends to blur their interdependence in cases.”

4. Empire Industries Ltd. V/s. UOI – 1985 (20) ELT 179 (SC);

“To constitute manufacture it is not necessary that one should absolutely make out a new thing because it is well-settled that one cannot absolutely make a thing by hand in the sense that nobody can create matter by hand, it is the transformation of a matter into something else and that something else is question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such. In other words, if by application of labour and skill an object is transformed to the extent that it is commercially known differently, it will suffice to say that manufacture has taken place for the purpose of Central Excise. The degrees of transformation and labour and skill spent are irrelevant. Therefore, the question of whether a particular process is a process of manufacture or not, has to be determined naturally having regard to the well known test laid down by the Supreme Court in various decisions.

The word “produce” appearing in Entry 84 of List I of Seventh Schedule to the constitution is used in juxtaposition with the word “manufacture” and used in connection with the duties of Excise which contemplates some expenditure of human skill and labour in bringing the goods concerned into condition which would attract the duty. It is not required that the goods would be manufactured in the sense that raw material should be used to turn out something all to different. It would still require that these should be produced in the sense that some human activity and energy should be subjected to some processes in order that these might be brought to the state in which they might become fit for consumption. Therefore the transformation of a product to the extent that it becomes commercially different commodity is sufficient to attract levy of Excise duty.

41The taxable event for Central Excise is the manufacture of excisable goods and the moment there is a transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes “manufacture” takes place and liability to duty is attracted. The sale or the ownership of the end-product is absolutely irrelevant for the purpose of taxable event under the Central Excise”.

18.7.6 On the other hand, the word “production” is much wider in scope than the word “manufacture”. In CIT V/s. N. C .Budharaja & Co. AIR 1993 SC 2529, the Hon’ble Supreme Court held that the word ‘production’ has a wider connotation than the word ‘manufacture’. Every ‘manufacture’ can be characterized as ‘production’, but every ‘production’ need not amount to manufacture. When the word ‘producer’ or ‘production’ is used in juxtaposition with the word ‘manufacture’, it takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all by products, intermediate products and residual products, which emerge in the course of manufacture of goods. Thus, waste, scrap and by-products are dutiable even if they are not manufactured, as they are ‘produced’.

Thus, the word ‘produced’ covers (a) Items like coffee, tea, tobacco, coal, dairy products, ores etc. which are ‘produced’ (b) The word “Produced’ can also cover live products like horse, fish, flowers etc. which are ‘produced’ (c) By-products, scrap etc. which are not really ‘manufactured’ but they do get ‘produced’”.

18.7.7 Therefore, the question whether a particular process amounts to ‘manufacture’ or not within the meaning of Section 2 (f) of CEA shall be considered and resolved in light of the tests laid down by the aforesaid judicial pronouncements, amongst others and then only, it shall be ascertained as to whether the activity will attract the levy of Service Tax or Excise duty.

18.7.8 It is further clarified here that if any process/activity amounts to ‘manufacture’ within the meaning of Section 2 (f) of CEA, then no Service tax will be attracted in respect thereof notwithstanding the fact that the person undertaking such process/activity is not required to pay Excise duty either on account of exemption granted under the Notification issued under the law or the tariff rate being prescribed as ‘Nil’ in respect of the product emerging as a result of such process/activity. In other words, the actual payment of Excise duty is not required to escape the levy of Service Tax in respect of a process/activity undertaken on job work basis and it is sufficient if such process/activity amounts to ‘manufacture’ under Section 2 (f) of the CEA.

42CHAPTER : 19CABLE SERVICES:19.1 Statutory Provisions:

a) Section 65(2) of the Act adopts the definition of the term “Cable Operator” given vide Section 2(aa) of Cable Television Networks (Regulation) Act, 1995;

b) Section 65(22) of the Act defines the term “Cable Services” to mean the transmission by cables of a programme including retransmission by cable of any broadcast television signals”.

c) Section 65(105)(zs) of the Act defines the term “Taxable Services” to mean any service provided to any person, by a cable operator, including multi system operator, in relation to cable services;

d) Section 67 of the Act defines the term “Value of Taxable Services” as gross amount charged by the service provider i.e. the Cable Operator including multi system operator.


In Cable TV Services, the Broadcasting channels transmit television signals to Multi-system Operators (MSO) who further send them to the Cable Operators. Now, the services provided by the MSOs to the Cable Operators have also been made taxable.

19.3 Inclusions:

a) MSOs transmitting signals directly to the customers;

b) MSOs transmitting signals to sub-cable operators who retransmits the same to various subscribers. In this case, both, MSO and Sub-Cable Operators will be liable to pay service-tax. However, the credit of service tax paid by Cable Operators to MSO will be available.

19.4 Exclusions:

a) Installation charges recovered from the Customers towards the cost of cables.

b) Entertainment tax leviable under any local law provided the same is separately indicated to in the bill raised on the customer.

c) Advertisement charges collected by the MSOs or Cable Operators for exhibiting advertisements.


Refer Chapter 23.

43CHAPTER: 20

COMMISSION OR INSTALLATION SERVICE:

20.1 The statutory definition of “Commission or Installation Service” has been amended to specifically include “Erection” therein w.e.f. 10.09.2004.


a) Section 65 (39a) defines the term “Erection, Commissioning or Installation” to mean any service provided by a Commissioning and Installation agency in relation to erection, commissioning or installation of plant, machinery or equipment.

b) Section 65(29) defines the term “Commissioning and Installation Agency” to mean any agency providing any service in relation to erection, commissioning or installation.

c) Section 65(105)(zzd) of the Act defines the term “Taxable Service” to mean any service provided to a customer by a commissioning and installation agency in relation to erection, commissioning or installation.

d) Section 67 defines the term “Value of Taxable Service” as gross amount charged by the Service Provider. Vide clause (vii) of Explanation 1 to Section 67, the cost of parts or other material, if any sold to the customer during the course of providing this service is required to be excluded.


Service-tax was levied on commissioning or installation of plant, machinery or equipment w.e.f. 01.07.2003. The scope of this taxable service has now been expanded to include “Erection” also. The Service-tax will be payable on the gross amount charged by the Commissioning and Installation Agency to its client. However, the cost of parts or other material, if any, sold to the customer during the course of providing the service would be excluded.

20.4 Inclusions:

a) Drawing and designing work in relation to erection and installation carried out by on Commissioning and Installation Agency.

b) Erection, installation or commissioning of plant, machinery or equipment.

4420.5 Exclusions:

a) Drawing and Designing work carried out by any person other than Commission & Installation agency. [However, such services may attract the levy of service tax under the category of “Consulting Engineers”].

b) Erection, Commission or Installation of items other than Plant, Machinery or Equipment.

c) Composite Contracts involving Erection, Commissioning and Installation

d) Erection, Commission or Installation services provided by an individual.


Refer Chapter 23

20.7 COMMENTS:

20.7.1 Vide Circular dated 20.06.2003 as modified vide subsequent Circular dated 21.08.2003, the Board had clarified that the charges for erection activities other than Commissioning and Installation per se, will not be chargeable to service tax on only “C & I” are made taxable.

20.7.2 However, w.e.f. 10.09.2004, “Erection” has specifically been included under this taxable category.

20.7.3 Vide the above Circular, the Board has further clarified that in case of turnkey project, if no separate value is assigned to Commissioning or Installation of goods, the service tax would be leviable on the consolidated amount.

20.7.4 However, this clarification by the Board may not stand the scrutiny of law. While dealing with almost an identical issue in the context of levy of service tax on “Consulting Engineers”, the Appellate Tribunal, in the case of Dailion Industrial Co. Vs. C.C.E. – 2003 (155) ELT 457, observed as under:-

“A perusal of the clauses of the contract leaves no doubt that the appellant contract with IOC was a work contract on turnkey basis and not a consultancy contract. It is well settled that a work contract cannot be vivisected and part of it subjected to tax. The impugned orders have proceeded to do precisely that. Therefore, they are required to be set aside.”The ratio laid down in this judgement squarely applies in the case of Turnkey project involving Erection, Commissioning & Installation. It is also significant to note here that the judgement of the Tribunal in Dailion Industrial Co.’s case stands upheld by the Supreme Court vide 2004 (17) ELT A181 as the SLP filed by the Department has been dismissed.


45CHAPTER : 21

STOCK BROKERS:


a) Section 65 (101) defines the term “Stock-broker” to mean a person, who has either made an application for registration or is registered as a stock-broker or sub-broker, as the case may be, in accordance with the rules and regulations made under the Securities and Exchange Board of India Act, 1992;

b) Section 65(105)(a) defines the term “Taxable Service” to mean any service provided to any person, by a stock-broker in connection with the sale or purchase of securities listed on a recognized stock exchange;

c) Section 67 defines the term “Value of Taxable Service” to mean the gross amount charged by the service provider i.e. stock broker for services provided by him. Explanation 1(a) to Section 67 provides that the “Value of Taxable Service” shall include the aggregate of commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock-broker to any Sub-broker.


“Stock-broking services” was one of the three services subjected to levy of Service-tax when it was first introduced in 1994. However, for almost a decade, the levy was confined to only “Stock-brokers” and the “Sub-brokers” remained outside the scope of the levy. In fact, the Board, vide its Circular dated 19.10.2004, had clarified that “Sub-brokers” were not covered by the levy of Service-tax. However, the definition of “Stock-broker” has now been amended to include “sub-brokers” also w.e.f. 10.09.2004. The Service-tax will be payable on the aggregate of commission or brokerage charged by the Stock-broker including that paid to any Sub-broker.

21.3 Inclusions:

a) Stock-brokers (including Sub-brokers) registered as such or who have applied for registration under SEBI Act, 1992;

b) Services provided to any person by the Stock-broker or Sub-broker in connection with the sale or purchase of securities listed on a recognized stock-exchange.(words in bold letters substituted for “an Investor” w.e.f. 10.09.2004)

4621.4 Exclusions:

a) Private placement charges;

b) Services on underwriters (This is separately taxable under the category of “Underwriters” w.e.f. 16.10.1998);

c) Public Issue Consultation fee;

d) Brokerage for primary market operations;

e) Jobbing;

f) Arbitrage;

g) Own trading transactions;

h) Cases where no brokerage is charged by the stock brokers


See Chapter 23

21.6 COMMENTS:

21.6.1 W.e.f. 10.09.2004, the “Sub-brokers” have also been subjected to levy of service-tax on the commission/brokerage earned by them. However, Sub-Brokers can avail the credit of service tax charged to him by the main broker and utilize the same for payment of Service-tax on commission/brokerage charged by him to client.

21.6.2 It has been held by the Appellate Tribunal in the case of Chandravadan Desai Vs. C.C.E. – 1998 (98) ELT 515 that in cases where the Stock-brokers do not charge any brokerage, no service-tax will be payable as there can be no levy of service-tax on notional amount.

47CHAPTER : 22TOUR OPERATORS:22.1 Statutory Provisions:

a) Section 65(115) defines the term “Tour Operator” to mean any person engaged in the business of planning, scheduling, organizing or arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport, and includes any person engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act, 1988 (59 of 1988) or the rules made thereunder.

b) Section 65(105) defines the terms “Taxable Services” to mean any service provided to any person, by a tour operator in relation to a tour.

c) Section 67 defines the term “Value of Taxable Service” as the gross amount charged by the service provider i.e. tour operator.

d) Also, relevant are the definitions of the following terms given vide the relevant statute, viz.:

i) Tour (vide Section 65(113) of the Act);

ii) Tourist Vehicle (vide Section 2(43) of the Motor Vehicles Act, 1988);

iii) Contract carriage (vide Section 2(7) of the Motor Vehicles Act, 1988);

iv) Stage carriage (vide Section 2(40) of the Motor Vehicles Act, 1988);

v) Permit (Section 2(31) of the Motor Vehicles Act, 1988).

22.2 Scope of the levy:Prior to 10.09.2004, the levy of Service-tax under this category was restricted only to those persons who were operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act.

However, w.e.f. 10.09.2004, the scope of the levy has been significantly expanded to include all the persons who are engaged in planning, scheduling, organizing or arranging tours (including accommodation, sightseeing or other similar Services) by any mode of transport i.e. rail, air, waterways etc. The Service-tax will be payable on the gross amount charged by the tour operator.

22.3 Inclusions:a) Contract Carriage Operators;

b) Reserve vehicles used as “Contract Carriage” under special permits;

c) Services like boarding / lodging, local sight-seeing, providing tourist guides, arrangement for accommodation, reservation for amusement park/Theaters/Museums etc.

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22.4 Exclusions:a) Stage Carriage;

b) Rent received by an owner of the tourist vehicle from tour operator for providing the vehicle on hire;

c) Packaged tours offered by the Airlines to their customers;

d) Services rendered in respect of out-bound tours i.e. tours abroad;

e) State Roadways Corporations.

22.5 Exemptions/Abatements:22.5.1 Vide Notification No.2/2004-ST dated 05.02.2004 as amended, an exemption of 60%

of the gross amount charged by the tour operator for the services rendered in relation to a tour (other than package tour) has been provided subject to the conditions prescribed therein.

22.5.2 In case of package tour, the exemption (abatement) of 60% of the gross amount charged has been provided vide Notification No.39/97-ST dated 22.08.1997 as amended subject to the condition laid down therein.

22.5.3 In case where the services provided relate only to accommodation, exemption of 90% of the gross amount charged has been provided vide Notification No.40/97-ST dated 22.08.1997 as amended subject to the condition prescribed therein. In other words, the Service-tax will be payable only on 10% of the gross amount charged in such cases.


49CHAPTER : 23:SCHEME OF EXEMPTIONS & ABATEMENTS:

23.1 GENERAL EXEMPTIONS:

There are four general exemption notifications applicable to all taxable services and exempting the same from the payment of whole amount of service tax payable thereon.

The said four notifications are discussed hereinbelow:

23.2 Exemption to Services provided to U.N. and specified International Organisations – Notification No.16/2002-ST dated 02.08.2002 : Vide Notification No.16/2002-ST ibid, total exemption from the payment of Service tax leviable on all the taxable Services have been provided if such services are provided to –

a) the United Nations; or

b) an International Organisation declared by the Central Government in pursuance of Section 3 of the United Nations (Privileges and Humanities) Act, 1947 to which the provisions of the Schedule to the said Act apply.

23.3. Exemption to Services provided to a Developer of Special Economic Zone or a Unit of a Special Economic Zone – Notification No.4/2004-ST dated 31.03.2004:Vide Notification No.4/04-ST ibid, the whole of the Service tax leviable on all the taxable Services have been exempted if such services are provided to a developer of Special Economic Zone (SEZ) or a unit (including a unit under Construction) of SEZ subject to the conditions specified therein.

COMMENTS:23.3.1 The exemption is available only to the Developer of SEZ or a unit (including a unit

under construction) of SEZ. Therefore, in case of taxable services provided to 100% EOU, no exemption will be available.

23.3.2 From the language of the Notification, it is evident that the exemption thereunder will be available only if the taxable Service is consumed within the SEZ only. Therefore, if a unit of SEZ avails the taxable services outside the Zone, exemption will not be available.

23.4 Exemption to receipt in Foreign Exchange – Notification No.21/2003-ST dated 20.11.2003 : Notification No.21/03-ST ibid wholly exempts all taxable services provided to any person from the payment of Service-tax if the payment in respect thereof is received in Convertible Foreign Exchange provided the same is not repatriated from, or sent outside India.

50COMMENTS:

23.4.1 Though there have been repeated announcements by the Government regarding the proposed issue of a comprehensive set of Notifications / Rules governing various aspects of “Export of Services”, no such Notification/Rules have been issued till date.

The above Notification No.21/2003-ST therefore, still holds the field as on date.

23.4.2 Rule 5 of CCR, inter-alia, provides that if Cenvat Credit availed on any input or input services and used in the final product/Intermediate product exported under Bond/Letter of Undertaking or used for providing output Services which is exported, then the manufacturer/output service provider will be entitled to utilize the unutilized Cenvat Credit for the payment of Excise Duty on final products cleared for home consumption/ export on payment of duty or service tax on output services, as the case may be.

However, in case, such adjustment is not possible for any reason, the manufacturer will be entitled for the refund of unutilized Cenvat Credit subject to the prescribed conditions.

It is significant to note here that the facility of refund of unutilized Cenvat Credit has been extended to the manufacturers of the excisable goods and not to the output service providers. Though, this may appear to be an inadvertent omission, it is worth noting that under the Service Tax Credit Rules, 2002, refund of Service Tax Credit availed on input services was totally disallowed vide Rule 4 (2) thereof.

Again, the proviso to Rule 5, inter-alia, provides that no refund of credit shall be allowed if the drawback/rebate facility has been availed by the manufacturer or provider of output service. The mention of “provider of output service” in the proviso is baffling, to say the least, in as much as they have been per se made ineligible for claiming any refund under the main provisions. So much for the drafting !

The ‘Output Service Exporters’ has been defined to mean those Services in respect of which the payment is received in Convertible Foreign Exchange subject to non-repatriation from or non-sending outside India.

23.5 Exemption to value of Goods & Materials sold by Service Provider – Notification No.12/2003-ST dated 20.06.2003 as amended:

Vide Notification No.12/2003-ST ibid, the exemption to so much of the value of all taxable Services has been provided as is equal to the value of goods and materials sold by the service provider to the recipient of services subject to the following conditions viz.:

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i) that there is documentary proof specifically indicating the value of said goods and materials;

ii) No credit of duty paid on such goods and materials sold has been taken under the CCR; or

iii) where such credit has been taken, an amount equal to the credit availed on goods and materials sold has been paid before the sale of such goods and materials.

COMMENTS

23.5.1 This Notification is one of the most loosely and carelessly drafted one and may lead to a spate of litigation in future.

23.5.2 Shockingly, the Notification exempts the ‘Value of Taxable Service’!

23.5.3 The word ‘sold’ used in the notification is also a misnomer. If the goods or materials on which Cenvat Credit (of the duty paid) has been availed and later on, if the same are ‘sold’, the question of levy of Service tax thereon does not arise at all. The Service Provider will be required only to pay an amount equal to the credit availed on such goods or materials sold in term of the CCR.

However, if the goods and materials are provided/ consumed during the course of providing any taxable service, then it cannot be said that the same have been ‘sold’ just because the value thereof has been separately indicated in the Bill.

23.5.4 Again, the condition regarding the payment reversal of Cenvat Credit prior to sale of goods and materials will also create a lot of practical hardship. If an output Service Provider has availed the Cenvat credit of the duty paid on any goods purchased by him and if he claims the benefit of this Notification, then he will have to pay an amount equal to the credit availed on goods/ materials prior to its’ sale i.e. before he raises the Sale Bill on the customer for the services provided.

23.5.5 The provisions of this notification are also worth comparing to the provisions of Section 67 of the Act, inter-alia, providing for similar benefit in respect of a few specified services.

Section 67 deals with the valuation of taxable services for charging Service Tax and provides that for the purposes of the Chapter, the value of any taxable service shall be the gross amount charged by the service provider for such service rendered by him.

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However, vide Explanation I thereto, it has been provided that in case of certain specified services, the cost of materials etc. shall not be included in the value of taxable service. The exclusions provided include the following :

(i) The cost of unexposed photography film, unrecorded magnetic tape or such other storage device, if any sold to the client during the course of providing the service;

(ii) The cost of parts or accessories or consumables such as lubricants and coolants, if any sold to the customer during the course of service or repair of motor cars, light motor vehicle or two wheeled motor vehicle;

(iii) The cost of parts or other materials, if any, sold to the customers during the course of providing maintenance or repair service;

(iv) The cost of parts or other material, if any sold to the customer during the course of providing erection, commissioning or installation service.

23.5.6 On careful reading of Notification No. 12/2003-ST and the aforesaid provisions of Section 67, it will be observed that though both seek to exempt the value of parts or materials etc. sold during the course of providing the specified taxable service, the condition relating to non-availment of Cenvat Credit on such goods and materials and/or the reversal of credit if so availed prescribed under the Notification is conspicuous by its absence in Section 67. In other words, in respect of the above specified services where the benefit of exemption in respect of cost of materials etc. sold has been provided vide Section 67, the concerned service provider will be entitled to avail the Cenvat Credit of the duty paid by him on such materials and utilize the same for the purpose of payment of Service Tax even though the cost of such materials etc. is excluded for the purpose of determination of value of taxable service.

23.5.7 Yet another glaring difference between the provisions of Notification No.12/2003-ST and Section 67 relates to the use of the term “value” in the former whereas the use of the term “cost” in the later i.e. Section 67. The term “value” would refer to the total amount charged by the service provider in respect of the goods and materials sold, the term “cost” may refer to the actual cost of purchase of such materials or the department may so interpret. Therefore, the department may dispute the claim of the service provider for exclusion of value of the materials etc. sold from the value of taxable service in terms of Section 67 insisting that only “cost” thereof would be deductible. Obviously, such apparent looseness in drafting will lead to unavoidable litigation.

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23.6 Vide Budgetary Notification No. 18/2004-ST dated 10.9.2004 and 25/2004-ST dated 10.9.2004, the total exemption has been granted to that part of the value of the taxable service received by the service provider prior to 10.9.2004 in respect of new services which have been brought under the levy from 10.9.2004 and also the services in respect of which exemption have been withdrawn after 10.9.2004.

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CHAPTER : 24:CONCLUSION:

24.1 The revenue from the service tax has seen the quantum leaps over the years since its introduction in 1994. From the initial collection of Rs.410.61 Crores in 1994-95 only from three services, the same touched to Rs.8350 Crores in 2003-04 and is projected at Rs.14,150 Crores (including Education Cess) in 2004-05.

24.2 Needless to say, Service tax would emerge as a significant contributor to the Exchequer in the coming years and exciting times are ahead in so far as the enforcement of this levy is concerned.

24.3 Besides this, bold initiative taken by the Central Government to provide inter-sectoral credits heralds a new chapter in the field of Indirect Taxation and is, by far, the most decisive step, in recent times, towards the proposed introduction of VAT system in the country.

Happy Hunting !!

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