REVERSE CHARGE SYSTEM

[pankaj jain]

A private limited company bought tender form from State Government for supplying of country liquor. Service tax department demanding Service tax on Tender form cost under Reverse Charge System, Serial no. 6 of notification no. 30/2012 dt. 20/06/2012 as amended. Is tender form covered in support services.

[Rajagopalan Ranganathan]

Sir,

The tender form is sold by the State government and it attracts sales tax/VAT. By selling tender form no service is provided by the State Government and hence no service tax is payable under support services.

[Ganeshan Kalyani]

Yes sir I agree that purchasing of form does not amount to any service being provided and hence no service tax.

[Mahir S]

Support services By Govt or Local authority:Section 65B(49) of Finance Act, 1994 provided the definition of ‘support services’.

Support services in respect of which service tax were payable by business entity receiving such services from government or local authority were as under:

"support services" means infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions 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 immovable property, security, testing and analysis;"

Further, the above definition of support services has been Omitted vide the Finance Act, 2015.

In view of above, it therefore means that the definition of support services has now been further expanded and shall now include services named above as well as such services not quoted above, but falling under the general definition of support services.

Therefore, the issue raised by the department in the query above is required to be seen in light of the above developments.

[Ganeshan Kalyani]

Service means any activity carried out by one person for another person for a consideration. Merely purchasing of tender form would not constitute to any service is provided. it is just a sale of form by one party and purchase of the same by another and hence with due respect to Mahir sir input the service tax as demanded by the service tax department is not logical. This is my view.

[Rajagopalan Ranganathan]

Sir,

Tender form is sold by Government Department to the prospective bidders and the same is subject to VAT/Sales Tax. If you look at any advertisement appearing in the news papers the same will indicate the cost of the form plus sales tax/VAT. It may be argued that by selling the tender form the Government facilitates the prospective bidders in participating in the bid. The moot question is whether the Government provide any service to the bidders to participate in the bidding by selling the tender form. CBEC has clarified in its circular No. 96/7/2007-ST dated 23.8.2007 that "Service tax is not leviable on a transaction treated as sale of goods and subjected to levy of sales tax / VAT. Payment of VAT / sales tax on a transaction indicates that the said transaction is treated as sale of goods." This clarification had been issued prior to the intriduction of Negative list regime. However, Section 66 D (e) of Finance Act, 1994 includes 'trading of goods' in the negative list. Therefore the clarification issued by CBEC hold good even after introduction of negative list regime. Therefore in my view sale of tender form by the Government will not amount to provide any support service to the bidder by selling the tender form to him. There are a lot of judicial pronouncements declaring sale of goods cannot be treated as providing any service.

[KASTURI SETHI]

Sir,

I have perused the replies of Sh.Rajgopalan Ranganathan and Sh.Ganeshan Kalyani. Replies of both are full of legal force and have been explained well. Both the replies clearly explain the difference between sale and service. Sale of Form cannot be classified under Business Support Service by any stretch of imagination, it being SALE and NOT SERVICE.

[KASTURI SETHI]

I would like to add that 'sale of tender form' is not a service. Why should we ponder over classifying the same under the category of 'Business Support Service' ? Govt. has inserted 'Trading of Goods' in the definition of 'Exempted Service'. Here Govt. is also on the wrong footing. My view gets strength from the article, 'Trading of Goods-whether Service' written by Dr.M.Govindarajan on in February, 2014. Dr.Sanjiv Aggarwal has also written on this issue. If trading is treated as service, what will be the difference sale and service ? How will you draw a line between 'Service' and 'Sale' ?

[Mahir S]

Dear all Experts,

Previously, services provided by Government or a local authority, excluding certain services specified under clause (a) of section 66D, were covered in the Negative List. An enabling provision was made, by amending section 66D (a) (iv), to exclude all services provided by the Government or local authority to a business entity from the Negative List [section 109(1) of Finance Act, 2015]. Consequently, the definition of “support service” [section 65 B (49)] was also omitted [section 107(h) of Finance Act, 2015], as discussed in my earlier reply.

After this amendment been given effect to, all services provided by the Government or local authority to a business entity, except the services that are specifically exempted, or covered by any another entry in the Negative List, shall be liable to service tax.

[Mahir S]

As per the changes discussed above, any service provided by the Government to the Business entities, shall be liable for service tax.

This will have a huge impact on all the businesses, as such service tax has to be paid by the businesses directly to the service tax department out of their pocket.

Because of this, the following services come into service tax impact:

1. Tender Fees

2. Licence Fees paid to government for operating in a particular industry Eg. Liquor, 2G / 3G licences

3. Fees paid under the Various Laws

[Mahir S]

Dear all,

In view of my above submissions, I am strongly of the view that service tax department demanding service tax on tender form cost under reverse charge mechanism is legal and correct and I stand by my views.

I sincerely advise Mr Pankaj Jain to pay up the service tax with interest

I also sincerely request my learned friends who had offered their views above to either accept to the fact discussed herein or to provide any authority to deny my submissions.

[Ganeshan Kalyani]

I stand by the truth that service tax is not leviable on mere purchase of tender form. I also support views of experts backing the contention that purchase of tender form is not subject to service tax.

[Mahir S]

Supplying of tenders is a part of the whold operation for carrying out auctions and therefore a service provided by Govt.

Supply of tender cannot be termed as a trading activity, till the same is clarified and backed by legal opinions and rules framed therein, as quoted in above 03 replies dated 24.11.2015.

[Ganeshan Kalyani]

Suppose I gave a painting contract to a contractor to paint my house. the contract would includes supply of paints and the service of painting the house. can I say that paint being material which is incidental to the service of painting shall attract service tax because main work is service of painting the house. In the same line if the Government has sold the Tender form which may be a part of the service provided by the Government should attract service tax and not Vat. Also the purchase of form do not constitute the support service has been provided. I am of the view that Vat should be applicable and service tax.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

When you get your vehicle serviced from any authorised service station ( registered with the department for payment of service as taxable Service Provider), the service provider raises the bill indicating sale of material, parts and accessories and labour charges separately. The dealer/Service Provider charges sale tax/VAT for material/auto parts, accessories fitted in the vehicle and Service Tax for labour charges. (Board's circular no.96/7/2007/ST dated 23.8.2007 Reference Code .036.03 dated 23.8.2007). There is a difference between 'sale of form' and 'sale of paint' SALE OF TENDER FORM OR SALE OF PAINT (AS EXAMPLE CITED BY YOU) cannot form for part of service. Thus I think conception is clear that SALE has nothing to do with SERVICE.

Another example:- if any Commercial Coaching or Training Centre provides study material i.e. competitive books,textbooks, and other printed material/ notes etc., the cost price of such study material is excluded from the gross receipt while arriving at taxable value. Notification No.12/2003-ST dated 20.6.2003 (now rescinded vide Notification No.34/2012-ST dated 20.6.2012). It is my opinion.

[Ganeshan Kalyani]

A moral of the story is Vat is applicable on supply part and service tax on service element. both stand separate in the platform for taxation.

[Mahir S]

Let Pankaj Jain provide the charging section and points on which notice issued to them.

Department always issues notices on basis of sections and notifications framed under the law, so plain reading of the notice itself shall provide the background for issuance of notice.

There is no end to arguments without support of any rule/act on the issue, for which i have no time to discuss it.

[Ganeshan Kalyani]

Dear Mahir sir. There are different types of flowers in the Garden with different colours and appearance and fragrance. It is up to the visitors of the Garden to appreciate and choose the flower he/she likes. Similarly their are experts in this TMI forum who has got different views and opinion. It is upto thw queriest to choose the reply which suits best to their contention. We all have high regards to your knowledge and views but fact remain that each of us stand on our views.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

I like simile given by you.However, I request you to close the chapter on this issue.

[pankaj jain]

Thanks to all for participating on my query. Department has raised Shaw Cause on the RCM on Tender form . I have replied to the spot memos issued by the auditors during audit . I have stated that, Tender form is a kind of goods and VAT should be applicable and according to Definition of "Goods" as per Sale of goods act, 1930 section 2- "goods means every kind of movable property other than actionable claims and money and includes stock and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale". However, VAT is 5% on Printed material including dairy and calendar (Schedule 2nd part 2nd entry no.67 of M.P. VAT Act) in Madhya Pradesh. Department view is that , Govt. has provided services wherein they had displayed their requirement of service or products, and the person paying for Tender is receiving the said service for intending to growth in his business. If any other view of the experts please write here. Thanks

AI Summary

Reverse charge exposure for tender fees hinges on whether tender form is sale of goods or a government service to businesses.
Whether sale of a government issued tender form attracts service tax under the reverse charge mechanism depends on classification: if treated as a sale of goods subject to VAT, it is not a service; if characterised as a government service provided to a business entity, it may be taxable under service tax rules post 2015 amendments that removed the specific definition of support services and brought government services to businesses within taxable scope unless exempted.