Scope-Enlargement of Service Tax by Finance Act 2004
By Sushil Kr Goyal, FCA

12 New services brought under tax net with effect from 10th September 2004

1. Business Exhibition Services

Business exhibition service is a service rendered to an exhibitor by an organizer of a business exhibition that intends to market, promote, advertise or show case products or services for growth in business of the producers or providers of such products or services. Thus, organizers of events such as trade fairs, road shows, fashion shows, display showcases kept in airports, railway stations, hotels etc. would be covered under this new levy.

A mere display of consumer goods in shops or shopping centers are not covered under this head if no separate charges are collected by the shop-keepers for displaying such goods. It has further clarified that while event management service also relates to organizing such events, but in that case, an event manager is hired to execute an event.

2. Airport Services

Any services provided to any person by Airports Authority of India (AAI), a person authorized by it, or any other person having charge of management of an airport are taxable under this category. This includes variety of services provided by airlines, as well as for cargo and passenger handling such as security, transit facilities, landing charges, terminal navigation charges, parking and housing charges and route navigation facility charges. Charges such as royalty, license fees etc. collected by AAI from other service providers at the airport such as ground handling, security, common user terminal services etc. are also covered under this category.

However, in case a part of airport/ civil enclave premises is rented / leased out, the rental/lease charges would not be subjected to service tax, as the activity of letting out premises is not a rendering of service.

Any services provided by an aircraft operator to any person in relation to transport of goods by an aircraft falls under this category. Thus, in addition to the actual air-freight charges, all charges collected towards storing, handling, loading/unloading by an airlines are also chargeable under this category.

However, the taxable service provided by an aircraft operator to any person in relation to transport of export cargo by aircraft has been exempted from the whole of service tax leviable thereon.

4. Survey and Exploration of Minerals

Any service in relation to survey and exploration of minerals, provided by any person to a customer is chargeable under this category of service. The service tax under this category would be limited to the services rendered in relation to survey and exploration only and not on the activity of actual extraction after the survey and exploration is completed. The transport, refining, processing or production of the extracted products would also be out of the ambit of service tax.

5. Opinion Poll Services

Services provided by an opinion poll agency (i.e. any person) in relation to opinion polls are taxable under this category. Opinion poll means securing information on public opinions regarding social, economic, political and other issues. Therefore, obtaining opinion of general public on economic issues like price rise, reaction of people to certain government or corporate policies etc., would fall under the category of opinion poll services.

Intellectual property service means any service provided by the holder of the Intellectual property right to any person in relation to intellectual property service. Intellectual property emerges from application of intellect, which may be in the form of an invention, design, product, process, technology, book, goodwill etc. In India, legislations are made in respect of certain Intellectual Property Rights (IPRs) such as patents, copyrights, trademarks and designs. The definition of taxable service includes only such IPRs (except copyright) that are prescribed under law for the time being in force. A permanent transfer of intellectual property right does not amount to rendering of service and will not be liable to service tax.

As per the provisions of Forward Contract (Regulation) Act, 1952, a forward contract is a contract for delivery of goods, which is not a ready delivery contract. For commodities notified under the Act, forward contracts can be entered into only through members of association recognized under that Act. For other commodities, future trading can be done through associations registered with Forward Market Commission. The levy of service tax under this category is on the services provided by members of such associations (commonly called as commodity exchanges) to any person in relation to forward contracts. .

A person providing services, directly or indirectly, in connection with preparation, arrangement, erection or decoration of a Pandal or Shamiana (a place specially prepared for organizing official, social or business functions) is a `Pandal or Shamiana contractor'. Service provided by him in any such manner, including that of a caterer is liable to service tax under this category. Charges for the supply of furniture, fixture, lights, and lighting fitting, floor coverings and other articles etc. will be included in taxable value.

It is clarified that Pandal / Shamiana services provided for pure religious ceremonies or congregation (e.g. for worship of Gods/ Goddesses) are not liable to service tax. An abatement of 30% of the gross amount charged from the client in relation to catering service provided that (a) supply of food and the invoice, bill or Challan issued for this purpose indicates that it is inclusive of charges for catering service (b) no credit of duty paid on input or capital goods has been taken under the provisions of the CENVAT Credit Rules, 2004, and (c) such commercial concern has not availed the benefit under the Notification No. 12/2003.

9. Outdoor Catering Services

Catering services provided by a caterer at a place other than his own place is taxable as `outdoor catering service'. 50% abatement has been allowed when bill includes charges for food also. Full exemptions have been allowed in respect of caterers providing service in railway trains/ academic institutions or medical establishments.

10. TV and Radio Programme Service

TV or Radio programme service means any service provided by a programme producer to any person in relation to a programme. Any programme produced (or any service rendered in connection with producing such programme) by a commercial programme producer, for telecasting/ radio transmission by a broadcaster would fall under this category of taxable service including cases where a programme is sold to the broadcaster.

11. Construction Services (Commercial and Industrial Buildings or Civil Structures)

Construction Services means, (a) construction of new building or civil structure or a part thereof, or (b) repair, alternation or restoration of, or similar services in relation to, building or civil structure, which is-(i) used, or to be used, primarily for, or (ii) occupied, or to be occupied, primarily with, or (iii) engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include road, airport, transport terminal, bridge, tunnel, long distance pipeline and dam. Any service provided by a commercial concern to any person in relation to construction service are taxable under this head.

Estate builders who construct buildings/ civil structures for themselves (for their own use, renting it out or for selling it) are not taxable service providers. Constructions, which are for the use of organizations or institutions being established solely for educational, religious, charitable, health, sanitation or philanthropic purposes are not taxable, being non-commercial in nature. In case of multi-purpose buildings such as residential cum commercial construction, tax would be leviable in case such immovable property is treated as a commercial property under the local/ municipal laws.

An abatement of 67% of the gross amount charged from any person by a commercial concern in relation to construction service provided that (a) no credit of duty paid on input or capital goods has been taken under the provisions of the Cenvat Credit Rules, 2004, and (b) such commercial concern has not availed the benefit under the Notification No. 12/2003.

The taxable service is the service provided by travel agent in relation to the booking of passage for travel by modes other than air and rail. The value of taxable service would be the commission or fee charged by the travel agent from the customer. No abatement shall be allowed for administration/office expenses incurred in respect of such service.

13. Transportation of Goods by Road bought under tax net with effect from 1st January 2005

Transportation of Goods by Road means any service provided by a goods transport agency to any person in relation to transport of goods by road in a goods carriage.

Service tax is payable usually by the service provider. However, in relation to taxable service provided by a goods transport agency, the consignor/consignee, who is making payment towards freight either himself or through his agent, would be liable to pay service tax if the consignor/consignee of goods is one of the
following -

(a) Factory registered under or governed by the Factories Act,

b) Company established by or under the Companies Act,

(c) Corporation established by or under any law,

(d) Society registered under the Societies Registration Act, 1860 or under any law corresponding to that Act in force in any part of India,

(e) Co-operative society established by or under any law,

(f) Dealer of excise goods, registered under the Central Excise Act, 1944 or the rules made there under, or

(g) Body corporate established, or a partnership firm registered, by or under any law.

In all other cases the liability for payment of service tax is on goods transport agency.

Following Exemptions have been provided

• An abatement of 75% of the gross amount charged from the customer by a goods transport agency in relation to transport of goods by road provided that (a) no credit of duty paid on input or capital goods has been taken under the provisions of the Cenvat Credit Rules, 2004, and (b) such commercial concern has not availed the benefit under the Notification No. 12/2003.
  

• Taxable service provided by a goods transport agency to a customer, in relation to transport of fruits, vegetables, eggs or milk by road in a goods carriage, from the whole of service tax leviable thereon.
  

• Taxable service provided by a goods transport agency to a customer in relation to transport of goods by road in a goods carriage, from the whole of service tax leviable thereon, where, (a) the gross amount charged on consignments transported in a goods carriage does not exceed rupees one thousand five hundred, or (b) the gross amount charged on individual consignments transported in a goods carriage does not exceed rupees seven hundred fifty.
  

Changes in existing taxable services

1. Installation and commissioning services- The scope of service tax under installation and commissioning service is being extended to include erection also w.e.f. 10-9-2004. Erection would refer to the civil works to installation/commissioning of a plant or machinery. Erection involves civil works, which would otherwise fall under the category of construction services. However, in case of a composite contract for erection, commissioning and installation, the erection charges would be taxed as part of this category of service.

2. Stock brokers service - Stock broker service include the services provided by sub-brokers to investors in connection with sale and purchase of securities listed on recognized stock exchanges.

3. Cable Operators service - The services provided by the MSOs to the cable operators in relation to cable service was earlier exempted now have been made taxable.

4. Business auxiliary service - The scope of existing Business Auxiliary Service has been expanded to include activities relating to (i) procurement of goods or services, which are inputs for the client, (ii) Production of goods (not amounting to manufacture) on behalf of the client, (iii) provision of services on behalf of the client, (iv) a service incidental or auxiliary to any activity specified in (i) to (iii) above. The service tax is, however, being restricted to only those cases where the service provider is a factory governed by the Factories Act, 1948, a company established by or under the Companies Act, 1956 or a corporation or a body corporate established by or under any law, partnership firms (whether or not registered), societies registered under Societies Registration Act, 1860 or under any law and any co-operative society established by or under any law. However, services in relation to agriculture, printing, textile processing and education would remain exempt even if provided by such service providers.

5. Banking and other financial services - The existing `banking and other financial services' has been expanded both in terms of its coverage and the types of service providers. Financial services would now also include specified financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit, bill of exchange, providing a bank guarantee, overdraft facility, bill discounting, safe deposit lockers, or safe vaults and operation of bank accounts. The interest amount and all such interests that are in the nature of interests on loans would, however, remain excluded from the perview of service tax. In addition to banking company, financial institution including a non-banking financing company, body corporate and any other commercial concern providing financial services will also be covered. Collection and other Bank charges in relation to taxes/duties collected on behalf of the Union/State Governments and Union Territories have been exempted from service tax.

6. Tour operator service- At present, tour operator service covers package tour operators also. However, under the present definition, such package tours attract service tax only if, such tours involve modes of transport other than road (say a combination of air-rail-cab travel). Now removing the limitation regarding transportation by tourist vehicles only is extending the scope of the levy. Such tourist operators would be subjected to service tax irrespective of the mode of transport used during such tours. The abatements in case of package tour operators (providing transportation and accommodation) would remain at 60%.

7. Life Insurance services- It has been decided to levy service tax on that portion of the service, which pertains to risk element. The levy would not be applicable to such premium of the existing policies, which were paid before the new levy comes into force. It has been provided that in the case of composite policies (risk plus saving), life insurers have the option to pay 1% of the total premium towards discharge of service tax liability.

Other Important Changes

• Payments received before 10th September 2004.Payments received by the service provider before 10th September 2004, in respect of new services and expanded services, would be exempt from service tax.
  

• Interest on late payment of Service tax is changed. Simple interest at the rate of thirteen percent per annum (13% p.a.) is payable for the period by which the payment is delayed w.e.f. 10.09.2004. Earlier it was 15% p.a.
  

• Every person providing taxable service shall issue an invoice, a bill or, as the case may be, a challan signed by such person or a person authorized by him in respect of taxable service provided or to be provided.
  

• Compulsory verification of assessment by departmental officers is being done away with.
  

• Provisions relating to best judgment assessment are omitted.
  

• Credit across the goods and services are now available as per CENVAT credit rules, 2004 with effect from 10th September 2004.