1. EIGHT NEW SERVICES TO BE INTRODUCED

Following eight new services are proposed to be introduced:

  • Services of promoting, marketing or organizing of games of chance, including lottery [Section 65 (105) (zzzzn)].
  • Health services, namely, health check up undertaken by hospitals or medical establishments for the employees of business entities; and health services provided under health insurance schemes offered by insurance companies.[Section 65 (105) (zzzzo)]
  • Services provided for maintenance of medical records of employees of a business entity [Section 65 (105) (zzzzp)].
  • Services of promoting of a ‘brand’ of goods, services, events, business entity etc [Section 65 (105) (zzzzq)].
  • Services of permitting commercial use or exploitation of any event organized by a person or organization [Section 65 (105) (zzzzr)].
  • Services provided by Electricity Exchanges [Section 65 (105) (zzzzs)].
  • Services related to two types of copyrights hitherto not covered under existing taxable service ‘Intellectual Property Right (IPR)’, namely, those on (a) cinematographic films; and (b) sound recording [Section 65 (105) (zzzzt)].
  • Special services provided by a builder etc. to the prospective buyers such as providing preferential location or external or internal development of complexes on extra charges [Section 65 (105) (zzzzu)].

[The tax on these services would come into effect from a notified date after the enactment of the Finance Bill, 2010.]

2. ALTERATION OR EXPANSION IN THE SCOPE OF EXISTING SERVICES

Service Amendment/Effect
Air Passenger Transport Service [section 65(105) (zzzo)] Is being expanded to include domestic journeys, and international journeys in any class.

Remarks: International journey in other than economy classes are already subjected to service tax. Now all domestic & International Journeys by all class are subjected to service tax.

Information Technology Software Service [section 65 (105) (zzzze)] Presently the taxable service is subjected to tax only in cases where such IT software is used for furtherance of business or commerce. The scope of the taxable service is being expanded to tax such service even if the service provided is used for purposes other than business or commerce.
‘Commercial Training or Coaching Service’ [section 65 (105) (zzc)] An Explanation is being added in the definition of the taxable service to clarify that the term ‘commercial’ appearing in the relevant definitions, only means that such training or coaching is being provided for a consideration, whether or not such training or coaching is conducted with a profit motive. This change is being given retrospective effect from 01.07.2003.

Remarks: This change is aimed to include all training or coaching centre within the purview of service tax, irrespective of their motive. Further, retrospective amendment will unsettle the settled cases.

‘Sponsorship Service’ [section 65 (105) (zzzn)], In the definition of the taxable service the exclusion relating to sponsorship pertaining to sports is being removed.
‘Construction of Complex service’ [section 65 (105) (zzzh)], and ‘Commercial or industrial construction service’ [section 65 (105) (zzq)], In the definition of the taxable services it is being provided that unless the entire consideration for the property is paid after the completion of construction (i.e. after issuance of completion certificate by the competent authority), the activity of construction would be deemed to be a taxable service provided by the builder/promoter/developer to the prospective buyer and the service tax would be charged accordingly.

Remarks: This seems to be most significant change in service tax this budget. This amendment is aimed to bring within the purview of service tax all the payments received by the builder/promoter/developer from the intended buyer of property before, during or after the construction of the property irrespective of nature of agreement. Only exception is purely sale of property after completion of construction on payment of entire consideration.

‘Renting of immovable property’ [section 65 (105) (zzzz)] Amendments are being made in the definition of the taxable service to,-

(i) Provide explicitly that the activity of ‘renting’ itself is a taxable service.

This change is being given retrospective effect from 01.06.2007; and

(ii) Provide that renting of vacant land, where the agreement or contract between the lessor and lessee provides for undertaking construction of buildings or structures on such land for furtherance of business or commerce during the tenure of the lease shall be subjected to service tax.

Remarks: The purpose of this amendment is to over come the effect of judgment of Delhi High Court holding the services of ‘Renting of Immovable Property’ as ultra vires the law. Retrospective effect is being given to the provision to ensure no loss of revenue.

‘Airport Services’ [section 65(105) (zzm)], the ‘Port Services’ [section 65 (105) (zn)] and the ‘Other Port Services’ [section 65 (105) (zzl)] The definitions of the taxable services  are being amended to provide that,-

(a) all services provided entirely within the airport/port premises would fall under these services; and

(b) an authorization from the airport/port authority would not be a precondition for taxing these services.

Remarks: The purpose of this amendment is also to over come the effect of various judgments of CESTAT holding that services rendered with in the port area without authorization from the port authorities are not liable to service tax.

‘Auctioneer’s Service’ [section 65 (105) (zzzr)] An explanation is being added in the definition of the taxable service to clarify that the phrase ‘auction by government’ means an auction involving sale of government property by any auctioneer and not when the government acts as an auctioneer for sale of the private property.
‘Management of Investment under ULIP

Service’ [section 65 (105) (zzzzt)]

The definition of the taxable service is being amended to provide that the value of the taxable service for any year of the operation of policy shall be the actual amount charged by the insurer for management of funds under ULIP or the maximum amount of fund management charges fixed by the Insurance Regulatory & Development Authority (IRDA), whichever is higher.

3. OTHER AMENDMENTS – NO PENALTY IF TAX PAID BEFORE ISSUE OF NOTICE

Finance Act, 1994 is being amended to insert an explanation in sub-section (3) of Section 73 to clarify that no penalty shall be imposed where service tax along with interest has been paid before issuance of notice by the department.

[This would be effective from the date of enactment of the Finance bill, 2010]

4. EXEMPTIONS

The following exemptions from service tax are being provided with effect from 27th February, 2010, namely,-

• Statutory taxes charged by any government (including foreign governments, where a passenger disembarks) on air passenger would be excluded from taxable value for the purpose of levy of service tax under the Air Passenger Transport Service.

• Exemption from service tax is being provided to services relating to ‘Erection, Commissioning or Installation’ of,-

  • Mechanized Food Grain Handling Systems etc.;
  • Equipment for setting up or substantial expansion of cold storage; and
  • Machinery/equipment for initial setting up or substantial expansion of units for processing of agricultural, apiary, horticultural, dairy, poultry, aquatic, marine or meat products.

• Packaged I.T. software, pre-packed in retail packages for single use, is being exempted from service tax leviable under IT Software Service, subject to specified conditions. These conditions include that either the customs duty (in case of import) or excise duty (in case of domestic production) has been paid on the entire amount received from the buyer.

• At present, exemption from service tax is available to transport of fruits, vegetables, eggs or milk by road by a goods transport agency. The scope of exemption is being expanded by including food grains and pulses in the list of exempted goods

• Exemption from service tax is being provided to Indian news agencies under ‘Online Information and Database Retrieval Service’ and ‘Business Auxiliary Service’ subject to specified conditions.

• Exemption from service tax is being provided to the ‘Technical Testing and Analysis Service’ and ‘Technical Inspection and certification service’ provided by Central and State seed testing laboratories, and Central and State seed certification agencies.

• Exemption from service tax is being provided to the transmission of electricity.

5. WITHDRAWALS OR AMENDMENTS TO EXISTING EXEMPTIONS

The following changes have been brought about in the existing exemptions,-

  • Exemption from service tax on service provided in relation to ‘Transport of Goods by Rail’ is being withdrawn. However, exemption has been provided to certain specified goods transported by rail. An abatement of 70% of the gross value of the freight charged on goods (other than exempted goods) is being provided.
  • The exemption from service tax on ‘Commercial training or coaching service’ extended to vocational training institutes vide notification No. 24/2004-ST dated 10.09.2004 is being limited by introducing a new definition of vocational training institutes. Service tax exemption will be available only to industrial training institutes or industrial training centers affiliated to National Council of Vocational Training (NCVT) and offering courses in the designated trades covered under Schedule I of the Apprentices Act, 1961. The List figuring under Schedule I of the Act covers engineering as well as non-engineering skills/trades.
  • Exemption from service tax, presently available to Group Personal Accident Scheme provided by Govt. of Rajasthan to its employees, under General Insurance Service is being withdrawn.
  • Notification No.1/2002-ST dated 01.03.2002 is being superseded by Notification No.14/2010-ST, dated 27th February 2010 to provide that the construction and operation of installations, structures and vessels for the purposes of prospecting or extraction or production of mineral oils and natural gas in the Exclusive Economic Zone and the Continental Shelf of India and supply of any goods connected with these activities would be within the purview of the provisions of Chapter V of the Finance Act, 1994. Similar changes have been made in the definition of the term ‘India’ appearing in the Export of Services Rules, 2005 and Taxation of Services (Provided from Outside India & Received in India) Rules, 2006.

6. AMENDMENT TO EXPORT OF SERVICE RULES, 2005

Export of Service Rules, 2005 has been amended as follows:

• The taxable service, namely ‘Mandap Keeper Service’ has been shifted from the list under rule 3(1) (ii) [i.e. performance related services] to the list under rule 3(1)(i) [immovable property related services] and three taxable services, namely ‘Chartered Accountant Services’, ‘Cost Accountant Services’ and ‘Company Secretary’s Services’, have been shifted from the list under rule 3(1) (ii) [i.e. performance related services] to the list under rule 3(1)(iii) [residual category of services].

The condition prescribed under rule (2) (a) i.e. ‘such service is provided from India and used outside India’ has been deleted (Notification No.6/2010-ST, dated 27th February 2010 refers).

Remarks: In case of Mandap Keeper Service, earlier at least part performance outside India was required to qualify the service as ‘Export’. Now the service will qualify as export if the immovable property is situated outside India.

In case of three other taxable services also, namely ‘Chartered Accountant Services’, ‘Cost Accountant Services’ and ‘Company Secretary’s Services’, earlier at least part performance outside India was required to qualify the service as ‘Export’. Now, the service will be treated as export, if the recipient of the service is located outside India subject to some further conditions as prescribed under Rule 3(1)(iii).

Further, to avoid the complications and disputes, one of the common conditions ‘such service is provided from India and used outside India’ has been deleted, which is a great relief.

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0 Comments

  1. sandy says:

    The law is very clear. Even if a part payment is made by the customer to the builder, Service tax is leviable on the entire value of the flat, including the amount paid after the completion.

  2. v swaminathan says:

    Clarifying one’s own thought:

    What KH Viswanathan is reported to have said is this: –

    “The proposal is to tax construction if the entire payment for the flat is made before completion of construction”

    That would be construed to mean that, – service tax will NOT be attracted if – only a PART PAYMENT (NOT the entire payment) is made before….

    THAT IS NOT THE PROPOSAL

    vswaminathan

  3. veena says:

    In service tax on rent of comercial property, tax had to be paid if total rent recieved in the financial year was more than Rs. 10,00000. does this still hold true

  4. v swaminathan says:

    Reproduced below for ready reference extracts from the 2 separate write-ups received from Tax Guru today on the subject:

    1. “The proposal is to tax construction if the entire payment for the flat is made before completion of construction,” said consulting firm RSM Astute executive director K H Viswanathan. “This would increase the cost of the apartment and may discourage potential buyers.” The service tax would be 10% on 33% of the price of the apartment, while on the remaining 67%, tax won’t be levied.

    2. In the definition of the taxable services it is being provided that unless the entire consideration for the property is paid after the completion of construction (i.e. after issuance of completion certificate by the competent authority), the activity of construction would be deemed to be a taxable service provided by the builder/promoter/developer to the prospective buyer and the service tax would be charged accordingly.

    COMMENT (off hand):

    Is there not an obvious contradiction in the understanding of the cited amendment – as highlighted in bold fonts above?

    vswaminathan

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