Service Tax- Concept of Service

The meaning of the term ‘service’ is very important from the point of view of both assessee as well as department. This is the first place of reference in case any dispute comes up; this is the basis of taxability of any activity.

CA Surbhi Nahata

The meaning of the term ‘service’ is very important from the point of view of both assessee as well as department. This is the first place of reference in case any dispute comes up; this is the basis of taxability of any activity. If the activity carried out by assessee does not get covered in the definition of service then question of service tax liability does not arise at all, and if the revenue wish to collect tax from the assesse, then the onus is on the department to prove that the activity carried out by the assessee shall fall within the definition of service. So, one of the most important question which arises is, which activity should be classified as service??

As per Section-65B, “Service” means any activity carried out by a person for another for consideration and includes certain declared services (Declared services are provided in other notes). However, there are certain activities that are not covered under this definition. They are:

1. An activity which constitutes merely:

a) A transfer of title in goods or immovable property by way of sale, gift or in any other manner; or

b) Such transfer, delivery or supply of any goods which is deemed to be a sale.

c) A transaction in money or actionable claim.

2. Any service done by an employee to the employer in the course of or in relation to his employment.

3. Fees taken in any Court or Tribunal established under any law for the time being in force.

Note 1: The term ‘activity’ means to do something or not to do something that means activity could be active or passive and would also include forbearance to act i.e. not to do something. For example: “I will pay you Rs.50000 if you don’t use my house’s design for some other house”.

Note 2: The term ‘from one person to another’ signifies that services provided by a person to self are outside the scope of taxable service. For example: services provided by one branch of a company to another branch would not amount to service. However, there are certain exceptions in this rule:

a) An unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons;

b) An establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. So any associated activities will be considered a service.

Therefore, in the above example both the branches should be located in the taxable territory of India.

Note 3: The term ‘consideration’ means receiving something in return; it can be in the form of monetary or non-monetary consideration i.e. money, goods (in kind) or some other service in return. However, kindly note that consideration should exists at the time of provision of service. For example: A beggar singing in bus , here no consideration exists at the time of service, hence it is not a service; however, if the same beggar performs at the concert, then consideration exists and hence it is a service and service tax liability arises. Therefore, activity without consideration is not a service. Similarly, any consideration received without activity is also not a service for example: gift, pocket money.

Note 4: Transfer of title in goods of immovable property is not a service because goods transferred by way of sale or deemed sale is liable to VAT and not service tax, similarly transfer of immovable property by way of sale attracts stamp duty and hence no service tax. For transactions involving money or actionable claim only the margin or commission part will be liable to service tax. For example: conversion of Rs.1000 currency note into one rupee coins is not a service, as it is just a normal transaction. However, if any margin is charged for converting foreign currency in Indian Rupees then only that margin is subjected to service tax. The transactions not in money includes: Issue of pay-orders/bank drafts, debt collection services/credit control services etc., therefore they will be regarded as a service.

Note 5: Services provided by employee to employer in the course of employment is not a service, however if an employee provides any service outside the ambit of employment, then it will be a service. For example: if an employee provides his services on contract basis to an associate company of the employer, then that is a service outsides his regular employment services, hence it would be classified as a service and liable to service tax.

Note 6: Activities performed by MPs, MLAs, President, Governor, Diplomats , Chairman/member/director in a body established by Central Government/State Government/Local authority , are not services and outside the scope of service tax.

Hope this article has explained the concept of service and its exceptions, kindly comment below if you have any doubt on any point and I will revert back as soon as possible.

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