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Introduction
The services
on which service tax is payable is being increased in every Finance Act.
Presently the service tax is levied on approximately 61 services. This
article analyses the definition of some of the services mentioned in the
heading :-
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Architect’s
Services (Service Tax imposed from 16th October 1998)
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Definition
Section 65(6) of the Act defines an 'architect' means "any
person whose name is, for the time being entered in the register
of architects maintained under section 23 of the Architect Act,
1972 (20 of 1972), and also includes any commercial concern engaged
in any manner, whether directly or indirectly, in rendering services
in the field of architecture".
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Taxable
services
As per section 65(105) (p) defines the taxable services in
the case of architects, as follows:
'taxable service’ means any service provided, to a client, by
an architect in his professional capacity, in any manner."
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Discussion
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The
services of Architect start from providing appropriate advice
at the preliminary stage of initial sketches, specification
and drawing of plans consisting of providing detailed drawing,
approval of drawing, supervision at the each stage of construction
and obtaining completion certificate from the authorities.
It take fairly long period of time to complete. Before commencement
letter of contract is exchanged between the architect and
the client. Architect carry the activity in professional capacity.
It will be evident from the definition that the name of the
person must appear in the register maintained under the Architect
Act, 1972. The person after obtaining the recognized qualification
as stated in the schedule annexed to the Act has to make an
application for enrolment of his name in the register. The
schedule provides for obtaining of degree in the field of
architecture not only from the institutions in India but also
from other countries like
Australia, Germany, Switzerland, U. K. & USA.
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The
definition also covers the commercial concern who renders
the services in the field of architecture. The architect normally
renders the services of designing or planning of construction
of buildings, bridges, dams, flyovers and other constructions.
If any commercial concern renders the same services without
having any architect whose name appear in the register maintained
under section 23 of Architect Act, yet the commercial concern
be liable for service tax.
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The
Director General of Service Tax has published a book called
‘Service Tax Through Questions and Answers’. In respect of
private surveyors who are registered under municipality or
corporation, it is clarified as follows :-
| Q.15.4
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Whether
the registered private surveyors (who are registered
under municipality or corporation) come under the
Architect’s service. Are they liable to pay service
tax? |
| Ans.
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Architects
registered under section 23 of Architect Act, 1972
and providing services like surveyor would attract
service tax under section 65 (5) of Finance Act, 1994
as amended. |
- The Mumbai
Commissionerate has issued trade notice No. 7/98/ST before imposition
of service tax clarifying the various issues. These are :-
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Subcontracting:–
Sometimes the architect subcontracts part of his work
to any architect. It is clarified that no service tax
is required to be paid by the subcontractor provided the
principal contractor has paid the service tax on the services
rendered by him to the client. This clarification (even
after coming in to existence of the Service Tax Credit
Rules) has not been amended, modified or
withdrawn. Therefore the architect who takes the job on
a subcontract basis is not liable for payment of service
tax. However he is advised to maintain the records to
substantiate that the main architect has paid the service
tax.
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Valuation
: In computing the value of taxable services, the
supply of materials, items of furniture or decoration
is not liable to be included under the value of service
tax. However presently, the notification No. 12/03 also
provides exemption to so much of the value of taxable
services as is equal to the value of goods and materials
sold by the service provider to the recipient of services.
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Consulting
Engineer : The Board of Central Excise and Customs
has vide trade notice no. 1/98-ST clarified that architect
is a separate discipline and is not taxable under the
category of consulting engineer. This clarification is
only useful for non levy of service tax during the period
7th July 1997 till 16th October, 1998.
- Interior Decorator’s
Services (Service Tax imposed from 16th October 1998)
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Statutory
definition – Section 65(59) fo the Act defines an interior decorator
as follows:
"Interior Decorator’ means any person engaged, whether directly
or indirectly, in the business of providing by way of advice,
consultancy, technical assistance or any other manner, services
related to planning, design or beautification of spaces, whether
man-made or otherwise and includes a landscape designer."
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Taxable
services
As per section 65(105)(q) of the Act defines the taxable services
as follows:
"Taxable service’ means any service provided to a client, by interior
decorator in relation to planning, design or beautification of
spaces, whether manmade or otherwise, in any manner."
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It
will be evident from the definition itself that no prescribed
qualification is required by the person to be taxed under the
category of interior decorator. It is seen from the definition
of architect that the name of the person must appear in the register
maintained under the Architect Act but no such qualification has
been prescribed under this category. Further the services in the
form of advice, consultancy, technical assistance or in other
manner in relation to planning, designing or beautification of
space is only taxable under this category. In case of architect
all the services rendered in professional capacity is taxable
and the scope is not restricted to advice, consultancy or technical
assistance.
The Mumbai Commissionerate I vide trade notice No. 7/98-ST dated
13-10-1998 has also in respect of interior decorator clarified
as follows:–
- Sub
contractor :– The interior decorator who has obtained
the work on subcontract is not liable for payment of service
tax provided the main contractor has paid the service tax
on the full value of the contract. Please refer to para 1.3(d)(i)
- Value
of taxable services :– Same as mentioned above name in
para of Architect’s services. Para 1.3(d)(ii)
- Art
directors :– The art directors of the films and others
who render services of designs and for setting up of temporary
structure /setting for shootings do not attract the service
ta x
as such interior decoration has no permanency and is only
of temporary nature.
- Chartered Accountant,
Cost Accountant and Company Secretary
- Chartered
Accountant
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Definition
The statutory definition – section 65(83) of the Act
defines a practising Chartered Accountants as follows:
"Practising Chartered Accountant means a person who is a member
of the Institute of Chartered Accountants of India and is
holding a certificate of practice granted under the provision
of the Chartered Account ants
Act, 1949 and includes any concern engaged in rendering services
in the field of chartered accountancy".
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Taxable
services
As per section 65(105)(s) of the Act defines the 'taxable
service’ in the case of a practising Chartered Accountants
as follows:
"taxable service’ means any service provided to a client,
by a practising Chartered Accountant in his professional capacity,
in any manner."
- Cost
Accountant
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Definition
The statutory definition – Section 65 (84) of the
Act defines ‘practising cost accountant’ as follows :–
"’Practising Cost Accountant’ means a person who is a member
of the Institute of Costs & Works Accountants of India
and is holding a certification of practice granted under the
provisions of the Cost and Works Accountants Act, 1959 and
includes any concern engaged in rendering services in the
field of cost accountancy".
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Taxable
service
Section 65(105) (t) of the Act defines the taxable
service in this case as follows:–
"’taxable service’ means any service provided to a client,
by practising cost accountant in his professional capacity,
in any manner."
- Company
Secretary
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Definition
Section 65(85) of the Act defines ‘company secretary’
as follows :–
‘a person who is a member of the Institute of Company Secretaries
of India and is holding a certificate of practice granted
under the provisions of the Company Secretaries Act, 1980
and includes any concern engaged in rendering services in
the field of company secretaryship.’
- Taxable
Services
Section 65(105)(u) of the Act defines the ‘taxable service’
as follows :
taxable service means any service provided to a client, by a
practising company secretary in his professional capacity, in
any manner."
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Discussion
The service tax on services rendered by Chartered Accountant,
Cost Accountant and Company Secretary is imposed with effect from
16th October, 1998. All these professional courses are very versatile
courses and the person gains knowledge in various fields. There
are number of professionals who do not practice in traditional
areas of income tax and auditing, cost accountancy or company
law.
Prior to imposition of service tax on 16th October, 1998, it was
represented that many services like representing before appellate
authorities, drafting of appeals, agreements, power of attorney
etc are performed by professionals which are also performed by
solicitors/lawyers. The service tax is imposed only on all the
services rendered by professionals, but the same or similar services
rendered by other persons namely lawyers and solicitors will not
be leviable to service tax. This will promote unfair competition
among the two fellow professionals. Therefore it is essential
that the services, which are exclusively rendered by professionals
should only be taxed
After various discussions, the notification No. 59/98/ST dated
16th October, 1998 was issued whereby the professionals rendering
services other than services, which are listed in the notification
were exempt from payment of service tax. The services, which are
listed are accounting, auditing etc. and certifications, which
are required to be carried out under provisions contained in specified
statute. As per the notification 59/98/ST services of certification
certifying the following are liable for tax.
(vi) certification that requirements of Schedule XIII to the Companies
Act, 1956 (1 of 1956) have been complied with as regards statutory
guidelines for appointment of managerial personnel and payment
of managerial remuneration to them without the approval of the
Central Government under section 269 and Schedule XIII of the
Companies Act, 1956 (1 of 1956)
(vii) certification of documents to be filed by companies with
the Registrar of Companies under the Companies Act, 1956 (1 of
1956) or
(viii) certification in Form I that the whole of the amount remaining
unpaid or unclaimed for a period of three years from the date
of transfer to the special account under sub-section (1) and sub-section
(2) of section 205A of the Companies Act, 1956 (1 of 1956) has
been transferred to the General Revenue Account of Central Government
under the Companies Unpaid Dividend (Transfer to General Reserve
Account of the Central Government) Rules, 1978; or
(ix) certification of documents under the Exports and Imports
Policy (1997-2000) of the Government of India; or
(x) certification for exchange control purposes which a practising
Chartered Accountant can issue as documentary evidence in support
of certain applications under the Foreign Exchange Regulation
Act, 1973 ( 46 of 1973) or
(xi) certification in respect of valuation of instruments or assets
as per rule 8A(7) of the Wealth-tax Rules, 1957.
These certificates are required to be statutorily issued by professionals.
The service tax is not payable on any other certificate issued
by a professional. There is feeling on the part of various persons
that any type of certification attracts service tax. It is only
the value of taxable services received on the above referred certificates
issued are liable for service tax.
Subsequently the said notification was amended by addition of
following explanation:–
Explanation
:- Nothing contained in this notification shall apply to the services
provided by a practising Chartered Accountant, a practising company
secretary or a practising cost accountant which may fall in any other
taxable services as defined in clause (105) of section 65 of the said
Act.
Illustration
:– The service provided by a practicing Chartered Accountant, a practicing
company secretary or a practising cost accountant in connection with
the management of any organization in any manner or recruitment of
manpower in any manner shall be deemed to be the taxable service provided
under the category of management consultant or manpower recruitment
agency, as the case may be. Therefore no exemption under this notification
shall be applicable to such practising Chartered Accountant, a practising
company secretary or a practising cost accountant.
The
explanation in the notification restricts the scope of exemption granted
under the notification. In case the services rendered by professionals
are taxable under any other category, the benefit of the notification
will not be available for such services. As an illustration, the services
rendered by professionals, which are taxable under manpower recruitment
agency has been given.
The
controversy whether the said explanation is clarificatory in nature
or substantive in nature is still not resolved. In case it is held
by any authority that the explanation is clarificatory in nature,
the benefit of the notification will not be available for such services
effective 16th October, 1998. If it is held that the same is substantive
in nature, the benefit of exemption from service tax on such services
will be denied only after 16th August 2002. In view of the fact that
the said notification restricts the scope of the benefit of the exemption,
it is felt that the explanation is substantive in nature and not clarificatory
and the benefit of such services can be denied only with effect from
16th August, 2002.
However
it is advisable that The Institute of Chartered Accountants or Bombay
Chartered Accountants Society or similar institutes take up the issue
and gives the list of services provided by professionals with a request
to the Board to clarify the levy of service tax on each of the services.
This will immensely help the members and the professionals.
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Management
Consultant Service
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Definition
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The statutory definition
Section 65(65) of the Act gives a specific definition
of the term ‘management consultant’, as follows:
‘Management consultant, means any person who is engaged in
providing any service, either directly or indirectly, in connection
with the management of any organization in any manner and
includes any person who renders any advice, consultancy or
technical assistance, relating to conceptualizing, devising,
development, modification, rectification or upgradation of
any working system of any organization.
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Taxable services
As per section 65(105)(r) of the Act defines the taxable
services as follows:
"taxable service’ means any service provided to a client,
by management consultant in connection with the management
of any organization, in any manner."
- Scope
The definition of these services is very wide and if interpreted
in a wide manner may encompass all the services rendered to any
organization.
However the scope of the said definition can be judged from some
of the clarifications issued by the Board in this connection. These
are
- Ministry’s letter
F. No. 341/21/99-TRU dated 20-8-1999 :– It is clarified in the
said letter that the services rendered by ESI, PF and other
industrial law practitioners are in the nature of providing
secretarial assistance in filling up returns and forms, maintenance
of records which do not involve in change or improvement in
the existing system of management of organization. Therefore
it is clarified that such persons will not be liable for service
tax under the term ‘management consultant’. The emphasis here
in this is that the advice, consultancy shall result in improvement
in the existing system.
- The letter No. 177/2/2001-CX4
dated 27th June, 2001 (section 37B order No. 1/12001-ST). The
clarification pertains to leviability of service tax on the
services rendered in the field of mergers and acquisitions.
The multifarious activities are required to be performed for
restructuring of business organizations. It inter alia
includes services rendered by persons, as a merchant banks who
are required to play a statutory role. Their role is specified
in certain regulations such as takeover regulation of SEBI.
They do not provide any advice or consultancy but merely verify
and submit report to the concerned authorities in connection
with merger and acquisition. Thus the emphasis here in this
clarification is that the person performing the compliance with
the statutory provisions do not render any advice or consultancy
and therefore is not liable for payment of service tax under
Management Consultant.
It may be
noted that the Board had consulted the Indian Institute of Management,
Ahmedabad for obtaining opinion on the meaning of the term ‘management’.
It is clarified by them
"Management"
is generally understood to mean running the affair of an organization
in an organised and systematic manner. To be able to do this efficiently
and effectively, management typically involves carrying out a host
of activities, functions and tasks and at different levels. Thus management
encompasses both strategic and operational level functioning and would
include tasks such as planning, organizing, staffing, directing, controlling
and co-ordinating. Management also invariably involves designing organizational
structure around functions such as marketing, manufacturing, research
and development and finance and /or business area such as product
groups or geographical markets. Thus management of any organization
involves carrying out a wide variety of clearly defined activities
across a number of organizational sub-units in a coherent and coordinated
manner. Since the expression "Management" is an inclusive term, "management
consultant" would also be equally encompassing expression and would
include any adviser who renders services on any aspect of management.
They have further opined that financial advisory services rendered
in merger and acquisition transactions are clearly in the nature of
services in connection with the management of an organization as merger
and acquisition themselves are important dimension of modern management.
If the scope
of the word ‘management consultant’ is understood in the above manner,
it is felt that all the persons rendering services to any organization
will be liable for service tax under this category. Recently in the
Finance Act, 2003, the service tax has been imposed on "Business Auxiliary
Services". The Finance Minister in his speech has also stated that
he proposes to introduce service tax on 10 new services. The word
‘new services’ clearly means that the services covered under business
auxiliary services are not liable for service tax under the category
of management consultant.
Hence it
is felt that the scope of the definition needs to be restricted and
the definition should be interpreted considering the meaning of the
word ‘management consultant’ in trade parlance. The persons who normally
advice the top management on the policy, strategy, decisions, structuring
of the staff etc. can only be termed as management consultant. However
the judicial interpretation can resolve such issues.
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Technical
Inspection And Certification Service (Service Tax imposed from 1st
July, 2003)
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Definition
The Statutory Definition : Section 65(108) of the Finance
Act, 1994 defines the term "Technical Inspection And Certification
Service" as under :
"Technical Inspection and Certification" means inspection or examination
of goods or process or material or any immovable property to certify
that such goods or process or material or immovable property qualifies
or maintains the specified standards, including functionality
or utility or quality or safety or any other characteristic or
parameters, but does not include any service in relation to inspection
and certification of pollution levels.
The Statutory Definition : Section 65(109)
of the Finance Act, 1994 defines the term "Technical Inspection
and Certification Agency" as under :
"Technical Inspection and Certification Agency" means any agency
or person engaged in providing service in relation to technical
inspection and certification.
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Taxable
Services
Taxable Services is defined as under in Clause (zzi) of section
65(105):
"Services provided to any person by a technical inspection and
certification agency, in relation to technical inspection and
certification."
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Discussion
The definition is very wide in scope as inspection of all
items like goods, process material or immovable property is liable
for service tax. The inspection must be carried out to ensure
that the items inspected meets specified standard including functionality,
utility etc. These standards may be indicated in any book, statute,
code, agreement etc or may not be indicated in any of these. The
purpose of such inspection shall be to issue the certificate certifying
the fact about maintaining the specified standards, qualities
etc. Similarly merely because these standards are not indicated
in any statute or in code, the services will not be out of the
purview of service tax.
It was clarified in the circular issued from F. No. 177/5/01/-CX-4
(order no. 37B/1/1/2002-ST dated 26th February 2002 clarified
in para 9 &11 as follows :-
9.
"Certificates given under authority of any statute/international protocol/code/
convention, cannot be considered to be a consultancy job. It is then
to be examined whether this activity can come under the purview of
advice or technical assistance. An advice is generally understood
to be optional in nature and has no statutory force. It is up to the
client to accept the advice or not. The activity of certification
will therefore not fall under the category of advice. As regards ‘technical
assistance’ it is observed that an assistance is normally for the
purpose of achieving a particular aim or result. A certificate given
by say, the Boiler Inspector under the Factory’s Act, 1948, about
the safety of a boiler, cannot be considered to be an ‘assistance’
to the person using the said boiler in his factory."
11.
"It will, therefore, be essential to examine each activity of a service
provider on the basis of facts, the terms of agreement between the
assessee and the clients and the corresponding provisions of Indian
or International Statute/Convention /Protocol or Code, to determine
whether the certificate being given is under the authority of any
statute, convention, protocol or code. If it is so, the payment received
for that service will not be taxable under the head ‘consulting engineer’."
However these
services will be taxable under this category even if the inspection
and certification has been carried out under any statute convention/protocol/code.
The Government
has purposely kept the services in relation to inspection and certification
of pollution levels out of the service tax net. In the present day,
the awareness with respect to the pollution is increasing and various
agencies are involved in inspecting the water, air discharged by industry
or any other agency to determine the pollution level. Such agencies
will not be liable for service tax for the services of testing the
pollution control levels.
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Technical
Testing and Analysis Service (Service Tax Imposed from 1st July, 2003)
- Definition
The Statutory Definition : Section 65(106) of the Finance Act,
1994 defines the term "Technical Testing and Analysis Service" as
under :
"Technical Testing and Analysis" means any service in relation to
physical, chemical, biological or any other scientific testing or
analysis of goods or material or any immovable property, but does
not include any testing or analysis service provided in relation
to human beings or animals.
- Taxable Services
Taxable Services is defined as under in Clause (zzh) of section
65(105):
"Services provided to any person, by a technical testing and analysis
agency, in relation to technical testing and analysis."
- Discussion
The scope of the said services is again very wide as it covers
the goods, materials and even immovable property. Thus even testing
strength of the building or strength of a bridge is also liable
for service tax. It is essential that the services must be issued
after testing. The testing can be to test the physical, chemical,
biological or any other property.
However the
testing in relation to human being or animal is specially excluded
from the definition. Thus the pathological laboratories carrying out
the testing of a blood urine etc, the doctors taking sonography are
excluded from the purview of the tax.
Our country
has been globally recognized in the field of health sector. More and
more global players in health sector are taking assistance from Indian
scientists in research work. The results of the research carried out
in the various countries are being tested in India by various laboratories.
Number of testing laboratories recognized under Drugs and Cosmetics
Act have come up to take advantage of the new line of business. Similarly
many associations of a particular industry also undertake the function
of testing of the product. The service tax is sought to be imposed
on such activity.
The
distinguishing factor between "Technical Testing and Analysis Service"
and "Technical Inspection and Certification Service" is that in case
of the former only testing is done for determination of fact without
comparison with any standards but in case of later testing is done
specifically to certify the adherence with certain norms.
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