NEGATIVE LIST OF SERVICES
Service tax will be leviable on all services provided in the taxable territory by a person to another for a consideration other than the services specified in the negative list. There are seventeen heads of services (A to Q) that have been specified in the negative list:-
A. Services by Government or a local authority excluding the following services to the extent they are not covered elsewhere:
(i) services by the Department of Posts 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 an aircraft or a vessel, inside or outside the precincts of a port or an airport;
(iii) transport of goods or passengers; or
(iv) support services, other than services covered under clauses (i) to (iii) above, provided to business entities.
1. Support Services :- any service that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of movable or immovable property, security, testing and analysis.
Thus services which are provided by government in terms of their sovereign right to business entities, and which are not substitutable in any manner by any private entity, are not support services.
– For the support services provided by the Government, other than where such support services are by way of renting of immovable property, to business entities government departments will not have to get registered because service tax will be payable on such services by the service receiver i.e. the business entities receiving the service under reverse charge mechanism. For services mentioned at (i) to (iii) of the list (A above refers) and renting of immovable properties the tax will be payable by the concerned department.
– Services provided by government security agencies are covered by the main portion of the definition of support service as similar services can be provided by private entities. However the tax will be actually payable on reverse charge by the recipient.
2. Services by the Department of Posts:- The following services provided by Department of Posts are not liable to service tax.:-
B. Services provided by Reserve Bank of India All services provided by the RBI are in the negative list. But Services provided to the RBI are not in the negative list and would be taxable unless otherwise covered in any other entry in the negative list. Even services provided by Banks to RBI would be taxable as these are neither in the negative list nor covered in any of the exemptions.
C. Services by a foreign diplomatic mission located in IndiaAny service that is provided by a diplomatic mission of any country located in India is in the negative list. This entry does not cover services, if any, provided by any office or establishment of an International Organization.
D. Services Relating to Agriculture or Agricultural Produce
‘Agriculture’ has been defined in the Act as cultivation of plants and rearing or breeding of animals and other species of life forms for foods, fibre, fuel, raw materials or other similar products but does not include rearing of horses.
Agricultural produce has also been defined in the Act which means any produce of agriculture on which either no processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market. It also includes specified processes in the definition like tending, pruning, grading, sorting etc. which may be carried out at the farm or elsewhere as long as they do not alter the essential characteristics.
The services relating to agriculture or agricultural produce that are specified in the negative list are services relating to –
E. Trading of Goods Services provided by commission agent or a clearing and forwarding agent are not in the nature of trading of goods. But Forward Contracts would be covered under trading of goods as these are contracts which involve transfer of title in goods on a future date at a pre-determined price.
F. Processes Amounting to Manufacture or Production of Goodsis a process on which duties of excise are leviable 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. (Basically a manufacturing on which excise duty has been paid will not attract the service tax) If the excise duty is exempt on any manufacturing even then there will be no service tax. And Service tax would be levied on processes, unless otherwise specified in the negative list, not amounting to manufacture or production of goods carried out by a person for another for consideration.
G. Selling of Space or Time Slots for Advertisements Other Than Advertisements Broadcast By Radio or TelevisionOnline GST Certification Course by TaxGuru & MSME- Click here to Join
Advertisement means“any form of presentation for promotion of, or bringing awareness about, any event, idea, immovable property, person, service, goods or actionable claim through newspaper, television, radio or any other means but does not include any presentation made in person.”
Services provided by advertisement agencies relating to making or preparation of advertisements would not be covered in this entry and would thus be taxable. If a person provides a composite service of providing space for advertisement that is covered in the negative list entry coupled with taxable service relating to design and preparation of the advertisement then that would be a case of bundled services and If such services are bundled in the ordinary course of business then the bundle of services will be treated as consisting entirely of such service which determines the dominant nature of such a bundle. If such services are not bundled in the ordinary course of business then the bundle of services will be treated as consisting entirely of such service which attracts the highest liability of service tax.
H. Access to a Road or a Bridge on Payment of Toll Charges National highways or state highways are also roads and hence covered in this entry. But Collection charges or service charges paid to any toll collecting agency would not covered so they will be taxable.
I. Betting, Gambling or Lottery Auxiliary services that are used for organizing or promoting betting or gambling events are not covered in this entry.
J. Entry to Entertainment Events and Access to Amusement Facilities Entertainment Event is an event or a performance which is intended to provide recreation, pastime, fun or enjoyment.
Amusement facility is 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. Even A standalone amusement ride in a mall is also a facility in which fun or recreation is provided by means of a ride. Access to such amusement ride on payment of charges would be covered in the negative list. But membership of a club would not qualify as access to an amusement facility.
Auxiliary services for organizing an entertainment event or by an entertainer for providing the entertainment to an entertainment event organizer would not cover under this entry.
K. Transmission or Distribution of Electricity But if charges are collected by a developer or a housing society for distribution of electricity within a residential complex then such services would not cover under this entry. The services provided by way installation of gensets or similar equipment by private contractors for distribution of electricity is also not covered by this entry.
L. Specified Services Relating to Education The following services relating to education are specified in the negative list –
Boarding schools provide education coupled with residence and food. This may be a case of bundled services if the charges for education and lodging and boarding are inseparable. Such services in the case of boarding schools are bundled in the ordinary course of business. Therefore the bundle of services will be treated as consisting entirely of such service which determines the dominant nature of such a bundle. In this case since dominant nature is determined by the service of education other dominant service of providing residential dwelling is also covered in a separate entry of the negative list, the entire bundle would be treated as a negative list service.
Services provided to educational institutions are not covered in this entry. However certain services provided to or by educational institutions are separately exempted under the mega–notification. These are services provided to or by an educational institution in respect of education exempted from service tax, by way of auxiliary educational services or renting of immovable property. Exemption is available only for services to or by educational institutions in respect of education exempted from service tax. Private tuitions are not covered in the entry relating to education however they can avail the benefit of threshold exemption. Campus services provided by the institutions to the prospective employers are not covered under this entry.
M. Services by way of renting of residential dwelling for use as residence Residential dwelling has not been defined in the Act. It has therefore to be interpreted in terms of the normal trade parlance as per which it is any residential accommodation, but does not include hotel, motel, inn, guest house, camp–site, lodge, house boat, or like places meant for temporary stay.
Renting of a residential dwelling partly as a residence and partly for non residential purpose would also be a case of bundled services and Taxability of such bundled services has to be determined in terms of the principles laid down in section 66F of the Act.(will discuss later)
|If……||Then it is ……|
|a residential house taken on rent is used only or predominantly for commercial or non-residential use||not covered in this entry.|
|if a house is given on rent and the same is used as a hotel or a lodge||not covered in this entry because using it for a commercial purpose|
|rooms in a hotel or a lodge are let out whether or not for temporary stay||not covered in this entry because it is not a residential dwelling|
|government department allots houses to its employees and charges a license fee||covered in the negative list entry relating to services provided by government and hence non- taxable|
|furnished flats given on rent for temporary stay||bonafide use of a person or his family for a reasonable period shall be residential use but if the same is given for a short stay for different persons over a period of time the same would be liable to tax.|
N. Financial Sector Banks and financial institutions provide a lot of financial services relating to lending or borrowing of money or investments in money. For such services invariably a variety of instruments are used in the financial markets. Transactions in such instruments have to be examined on the touchstone of definition of ‘service’ and the list of services specified in the negative list to see whether such transactions would be chargeable to service tax.
The definition of ‘service’ excludes activities that constitute only transactions in money or actionable claims and money includes instruments like cheques, drafts, pay orders, promissory notes, letters of credit etc. Therefore activities that are only transactions in such instruments would be outside the definition of service.
Activities that constitute only transactions in ‘goods’ are also excluded from the definition of service. Goods includes securities and securities includes derivatives. Transactions in instruments like interest rate swaps and foreign exchange swaps would be excluded from the definition of ‘service’ as such instruments are derivatives, being securities, based on contracts of difference. Since only transfer of title in securities is excluded from the definition of ‘service’ any attendant service charges or fees would be chargeable to service tax.
Further services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount. These words would cover any facility by which an amount of money is lent or allowed to be used or retained on payment of what is commonly called the time value of money which could be in the form of an interest or a discount like fixed deposits, OD facility etc.. This entry would not cover investments by way of equity or any other manner where the investor is entitled to a share of profit. And the services of loans, advances or deposits are exempt in so far as the consideration is represented by way of interest or discount. Any charges or amounts collected over and above the interest or discount amounts would represent taxable consideration.
Services provided by banks or authorized dealers of foreign exchange by way of sale of foreign exchange to general public would not be covered in this entry. This entry only covers sale and purchase of foreign exchange between banks or authorized dealers of foreign exchange or between banks and such dealers. Repos and reverse repos are financial instruments of short term call money market that are normally used by banks to borrow from or lend money to RBI. The margins, called the repo rate or reverse repo rate in such transactions are nothing but interest charged for lending or borrowing of money. Thus they have the characteristics of loans and deposits for interest. However they are more appropriately excluded from the definition of service itself being the sale and purchase of securities, which are goods.
Forward contracts in commodities or currencies would not fall in the ambit of definition of ‘service’ because these contracts would be in the nature of transfer in title in goods (in case the forward contract relates to a commodity) or transaction only money (in case the forward contract relates to transaction and money). And Futures are too outside the definition of Service. However if some service charges or service fees or documentation fees or broking charges or such like fees or charges are charged, the same would be considerations for provision of service and chargeable to service tax.
O. Services Relating to Transportation of Passengers
The following services relating to transportation of passengers, with or without accompanied belongings, have been specified in the negative list.
Services by way of giving on hire of motor vehicles to state transport undertakings are not covered in this negative list entry. However such services provided by way of hire of a motor vehicle meant to carry more than 12 passengers to a State transport undertaking is exempt. And Specific exemption is available to services of transport passengers by a contract carriage for transportation of passengers, excluding tourism, conducted tours, charter or hire.
P. Service Relating to Transportation of Goods
The following services provided in relation to transportation of goods are specified in the negative list of services:-
-by road except the services of a goods transportation agency or a courier agency; or.
-by aircraft or vessel from a place outside India up to the customs station of clearance in India; or
– by inland waterways
All the services provided by good transport industry are excluded from negative list however some of the exemptions like transportation of fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage, goods where gross amount charged on a consignment transported in a single goods carriage does not exceed one thousand five hundred rupees, or goods where gross amount charged for transportation of all such goods for a single consignee in the goods carriage does not exceed rupees seven hundred fifty. And Reverse charge mechanism will also carry on.
Express Cargo Service falls within the scope and definition of the courier agency as per courier service defined in the Act.
Q. Funeral, burial, crematorium or mortuary services including transportation of the deceased This service does not need any explanation because its name is self explanatory.