Analysis of Service Tax Notifications effective from 1 July 2010

This article summarizes the service tax notifications issued in context of the effective date of implementation of the Finance Act, 2010. Finance Act, 2010 received Presidential assent on 8 May 2010 and eight new services have been brought within the ambit of service tax. Notification no. 24/2010 dated 22 June 2010 has specified the effective date of operation of the Finance Act 2010, as 1 July 2010.

A) New services liable to tax from 1 July 2010

• Health, nursing home and multi-specialty clinic services, under specified circumstances
• Storing, keeping and maintaining medical records
• Promotion or marketing of a brand of goods, service, event or endorsement
• Permitting commercial or exploitation of events Services of electricity exchange
• Licensing of specified copyrights
• Preferred location services
• Promotion, marketing or organizing games of chance

Health Check-up services

• Tax on hospitals, nursing homes or multispecialty clinics when health check up or preventive care is provided to an employee of a business entity
• Tax on services to a person covered by a health insurance scheme for any health check-up or treatment where the payment is made by the insurance company directly

Games of Chance

• Promotion, marketing or organizing games of chance, including lottery, is being introduced as a separate service
• Explanation inserted in the definition of Business Auxiliary Service (BAS) by the Finance Act, 2008 is deleted.

Medical Records

• Services provided to any business entity by any other person in relation to maintenance of medical records of employees of a business entity.

Brand Promotion

• Services of promoting a ‘brand’ of goods, services, events, business entity, etc.

Permitting commercial use or exploitation of any event

• Service of permitting commercial use or exploitation of any event organized by a person or organization, has been added as a separate taxable category

Electricity exchanges

• Services provided by Electricity Exchanges

Copyrights

• Copyright of cinematographic films and sound recordings to get taxed.
• Copyright on original literary, dramatic, musical and artistic work would continue to remain outside the scope of service tax

Preferred location services

• Tax on certain additional services provided by a builder to the prospective buyers such as providing preferential location or external or internal development of complexes on extra charges
• Service of providing vehicle-parking space would not be applicable to tax

B) Amendment to existing services

 Airport Services & Port Services

• Definitions of Airport Services, Port Services and other Port Services amended to provide that all services provided entirely within the airport/port premises would be taxable. Further, the pre-condition of obtaining an authorization from the airport/port authority is removed.
• Specified services if rendered within a port or airport exempted from service tax

Air Travel

• Provisions amended to bring into service tax net, all types of air travel using scheduled or non-scheduled air transport
• Exemption with respect to passengers transiting through India provided they do not pass through immigration and do not leave the customs area
• Exemption to a person employed or engaged by the aircraft operator in any capacity on board the aircraft
• Exemption from service tax as in excess of:

(a) 10% of the gross value of the ticket or Rs.100/- per journey whichever is less -Domestic.

(b) 10% of the gross value of the ticket or Rs.500/- per journey whichever is less -International.

This exemption is subject to the condition that credit of duty paid on inputs is not availed under the Credit Rules

• Air travel services in specified states have been exempted from service tax

Construction Services

• The word ‘service’ stands omitted in commercial or industrial construction.
• Construction /construction of a complex intended for sale by the builder before or during or after construction be deemed to be a service provided by the builder to the buyer
• No service tax if entire payment for the property is paid by the buyer after completion of the construction including certification by the local authorities.

Construction Services – Certificate

• Amendment in the form of an insertion of explanation to the definition of taxable service pertaining to construction of complex/commercial construction.
• A specific abatement of 75% provided on the value of taxable services with respect to Commercial or Industrial Construction and Construction of Complex. It has been specifically provided that the abatement will not apply if the cost of land has been separately recovered.
• Exemption provided to construction of residential complex services for the Jawaharlal Nehru National Urban Renewal Mission and Rajiv Awaas Yojana.

Transportation of goods by rail

• Levy and specific exemptions were to come into force from 1st July 2010. However, the same have now been extended to January 2011.

Renting of immovable property

• Finance Act 2010 provides that renting of immovable property per se, or any other incidental services in relation to renting, are taxable.
• Amendment is with retrospective effect from 1 June 2007. Constitutional validity issue is still pending.

Commercial Training

• Retrospective amendment to the definition of the Commercial Training or Coaching Service w.e.f.1 July 2003 to clarify that commercial means what is provided for a consideration, whether or not for profit.

C) Other Changes

• Specific exemptions from tax under sponsorship services, in respect of tournaments or championship organized by certain bodies and associations.
• CENVAT Credit Rules amended w.e.f. 22 June 2010 to include dumpers or tippers as capital goods when used by service providers falling under ‘site formation services’; mining services.
• Taxable services provided by authorized distributors for distribution of electricity exempted from service tax
• Definition of Information Technology Software Service expanded to include levy of service tax on right to use software for all purposes
• Explanation added in Auctioneer services to clarify that the term ‘auction by government’ means an auction involving sale of government property and not when government acts as an auctioneer for sale of private property
• Amendment in the definition of Management of Investment under ULIP service