Service Tax in India

 Charge of Service tax

Section 66B provides for charge of service tax - “There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve percent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.”

Important requirements for charge of Service tax:

• Charge on all services [defined u/s 6B(44)], other than Negative list,
• Service provided or agreed to be provided,
• Service should be in the taxable territory (as determined under The Place of Provision of Service Rules, 2012)
• Service by one person to another (subject to exceptions mentioned above)

Negative List:

The Negative list provided in section 66D, comprises of following 17 services:

1) Services by government or a local authority excluding certain services to the extent not covered elsewhere. These are as follows :

(i) Services by the department of post, by way of speed post, express parcel post, life insurance and agency services carried out on payment of commission on non-government business,

(ii) Services in relation to a vessel or an aircraft inside or outside the precincts of a port or an airport,

(iii) Transportation of goods and/or passengers,

(iv) Support services other than those covered above to the business entities. Important support services provided by the Government to the business entities are as under:

• Infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions;
• Such functions are carried out in ordinary course of operations by the entities themselves;
• Such services, however, may be outsourced from others for any reason whatsoever;
• and includes advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis.

2) Services by Reserve Bank of India;

3) Services by foreign diplomatic mission located in India;

4) Certain services in relation to agriculture or agriculture produce by way of,

• agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing;
• supply of farm labour;
• processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market;
• renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;
• loading, unloading, packing, storage or warehousing of agricultural produce;
• agricultural extension services;
• services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce;

The terms, “agriculture”, “agricultural produce”, “agricultural extension service” and “Agriculture Produce Marketing Committee or Board” are defined in the Act:

5. Trading of goods;

A transfer of title in goods is excluded from the definition of “service”. Trading in goods involves a transfer of title in goods. Despite that, trading of goods is also included in the Negative list. This inclusion in Negative list effectively means that Cenvat credit in relation to trading of goods will be denied/restricted.

6. Any process amounting to manufacture or production of goods;

Generally speaking, process amounting to manufacture or production of goods cannot be said to be a “service”, however, the same is not specifically excluded from the definition of service as we have seen above. Process amounting to manufacture or production of goods is defined as “a process on which duties of excise are leviable u/s 3 of the Central Excise Act, 1944 or any process amounting to manufacture of alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act for the time being in force”. Further, the Education Guide clarifies that this entry covers manufacturing activity carried out on contract or job work basis, which does not involve transfer of title in goods, provided duties of excise are leviable on such processes under the Central Excise Act, 1944 or any of the State Acts.

The inclusion of such activity in Negative list effectively means that Cenvat credit in relation to such process amounting to manufacture or production of goods may be denied to a job worker though the principal manufacturer has paid excise duty.

7) Selling of space or time slots for advertisements other than advertisement broadcast by radio or television;

Selling of space or time slots in cinema theatres, hoardings in public places etc. are covered in the State List and therefore they are placed in the Negative list.

8) Services by way of access to a road or a bridge on payment of toll charges;

Allowing access to road or a bridge on payment of toll is in Negative list. However, services rendered by any toll collecting agency are leviable to tax.

9) Betting, gambling or lottery;

Betting or gambling is defined in the Act to mean, “putting on stake something of value, particularly money, with consciousness of risk and hope of gain on the outcome of a game or a contest, whose result may be determined by chance or accident, or on the likelihood of anything occurring or not occurring”. Lottery is covered under “actionable claim” which is excluded from the definition of “service”. Further, the betting or gambling activities are included in the State List. However, any ancillary service for organising or promoting betting or gambling events is not covered under the Negative list.

10) Admission to entertainment event or access to amusement facilities;

Entertainment event is defined under the Act to mean, “an event or a performance which is intended to provide; recreation, pastime, fun or enjoyment, by way of exhibition of cinematographic film, circus, concerts, sporting event, pageants, award functions, dance, musical or theatrical performances including drama, ballets or any such event or programme”.

Amusement facility is defined under the Act to mean, “a facility where fun or recreation is provided by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks, theme parks or such other places, but does not include a place within such facility where other services are provided”.

Tax on admission or entry to such events is covered in the State List which is subjected to Entertainment tax and therefore the same is included in the Negative list. It has been clarified that membership of a club providing such amusement facility would not be covered in the Negative list. Further, any ancillary service in relation to such entertainment event like an event manager for organising such event or an entertainer for providing the entertainment is also not covered under the Negative list.

11) Transmission or distribution of electricity by an electricity transmission or distribution utility;

Electricity transmission or Distribution utility is defined under the Act to mean, “the Central Electricity Authority; a State Electricity Board; the Central Transmission Utility or a State Transmission Utility notified under the Electricity Act, 2003; or a distribution or transmission licensee under the said Act, or any other entity entrusted with such function by the Central Government or, as the case may be, the State Government”. It has been clarified that a developer or housing society collecting charges for distribution of electricity within a residential complex would not be covered under the Negative list. Further, any service provided by way of installation of gensets etc. by private contractors for distribution of electricity would not be covered under this entry.

12) Certain educational services;

• Any pre-school education and education up to higher secondary school or equivalent;
• Education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;
• Education as a part of an approved vocational education course.

Education services relating to delivery of education as a part of the curriculum that has been prescribed for obtaining a qualification under Indian law is covered in this entry. Conduct of degree courses by colleges, universities or institutions which lead grant of qualifications recognised by the law, is covered. It has been clarified that services of international schools by way of education upto higher secondary school or equivalent giving IB certifications are covered in this entry. Coaching or training given by private coaching institutes or tutors is not covered in this entry.

Approved Vocational Education Course as defined under the Act, is also covered in the Negative list.

13) Services by way of renting of residential dwelling unit for use as residence;

Renting is defined under the Act as “allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property”. Renting of a residential accommodation for use as residence is covered under the Negative list. However, a hotel accommodation, motel, inn, guest house, camp-site, lodge are not covered in this entry.

14) (i) Services by way of extending deposits, loans or advances for interest or discount;

This entry covers such services wherein money is allowed to be used or retained on payment of interest or discount. The deposits, loans or advances, corporate deposits, overdraft facility, mortgage or loans with a collateral security, corporate deposits lent for interest or discount would also be covered in this entry. However, any charges like administrative charges, fees, entry charges recovered in addition to interest, would not form part of this entry. It has been clarified that, late payment charges signifies extra charges over and above the normal interest in relation to credit cards and therefore would not be covered under this entry.

(ii) Inter se, sale or purchase of foreign currency amongst banks or authorised dealers;

This entry covers sale and purchase of foreign exchange between banks, or banks and authorised dealers of foreign exchange. Any commission or discount in relation to such forex transactions would not be covered in this entry.

15) Services of transportation of passengers with or without accompanying belongings by,

• a stage carriage;
• railways in a class other than first class; or an air-conditioned coach;
• metro, monorail or tramway;
• inland waterways;
• public transport, other than predominantly for tourism purpose, in a vessel between places located in India; and
• metered cabs, radio taxis or auto rickshaws;

The term, “stage carriage”, “inland waterways” and “metered cabs” are defined under the Act. However the term, “radio taxis”, is not defined.

In relation to services by public transport other than for tourism purpose, it has been clarified that normal public ships or other vessels that sail between places located in India would be covered in the negative list entry, even if some of the passengers on board are using the service for tourism as predominantly such service is not for tourism purpose. However, services provided by leisure or charter vessels or a cruise ship, predominant purpose of which is tourism, would not be covered in the negative list even if some of the passengers in such vessels are not tourists.

16) Services by way of transportation of goods by road except the services of a goods transportation agency or a courier agency or by an aircraft or a vessel from a place outside India to the customs station of clearance in India or by inland waterways;

The term, “goods transport agency” is defined under the Act as “any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called”.

The term, "courier agency" is defined under the act as “any person engaged in the door-to-door transportation of time-sensitive documents, goods or articles utilising the services of a person, either directly or indirectly, to carry or accompany such documents, goods or articles”.

It has been clarified that service provided by ‘angadia’ is covered within the definition of courier and liable to Service tax. Services provided by an agent for transportation of goods by inland waterways would not be covered in the Negative list.

17) Funeral, burial, crematorium or mortuary.