Service Tax - New Services shall be liable to Service Tax "

In continuation of the policy of widening of the service tax base, the Finance Bill, 2007 proposes to levy service tax on the following services

1 TELECOMMUNICATION SERVICE: 

Following telecommunication related services, which are presently specified as separate taxable services, namely:

(i) telephone connection [sub-clause (b) of section 65(105)]

(ii) pager [sub-clause (c) of section 65(105)]

(iii) leased circuit [sub-clause (zd) of section 65(105)]

(iv) communication through telegraph[sub-clause (ze) of section 65(105)]

(v) communication through telex[sub-clause (zf) of section 65(105)]

(vi) facsimile communication[sub-clause (zg) of section 65(105)]

are being merged under the proposed ¡§telecommunication service¡¨ [sub-clause (zzzx) of section 65(105)], and the term ¡§telecommunication service¡¨ [section 65(109a)] is being defined comprehensively. Specific inclusion and exclusion of telecom services may be seen in the definition.

Services  provided  by  the  telegraph  authority  to  any  person  in  relation  to telecommunication are covered under this service. It may be noted that the present condition namely, recipient of service needs to be a subscriber, under telecommunication related  services  has  been  changed  under  the  proposed  Telecommunication  Service. Telecommunication Service includes services provided to any person and not confined only to subscriber. 

2 MININGSERVICE [section 65(105)(zzzy)]: 

Presently, geological, geophysical or other prospecting, surface or sub-surface surveying or map-making services relating to location or exploration of deposits of mineral, oil or gas are leviable to service tax under ¡§survey and exploration of mineral service¡¨ [section 65(105)(zzv)]. Services such as-

- site formation and clearance, and excavation and earth moving, drilling wells for production / exploitation of hydrocarbons (development drilling)

- well testing and analysis services

- sub-contracted  services  such  as  deploying  workers  and  machinery  for extraction / breaking of rocks into stones, sieving, grading, etc. 

- outsourced services, 

provided for mining are individually classified under the appropriate taxable service. Services provided in relation to mining of mineral, oil and gas are comprehensively covered under this proposed service. With this, services provided in relation to both exploration and exploitation of mineral, oil or gas will be comprehensively brought under the service tax net. 

The trend is to outsource part or whole of the mining activities. Since exploration and mining of mineral, oil or gas are comprehensively brought under the service tax, field formations may undertake necessary action. 

3 RENTING  OF  IMMOVABLE  PROPERTY  SERVICE:  

Renting  of immovable property for use in the course or furtherance of business or commerce [section 65(105)(zzzz)] is the taxable service. Renting includes letting, leasing, licensing or other similar arrangement. The contract is for right-to-use an immovable property for a consideration. Immovable properties  excluded from the scope of this service are: 

- residential properties

- residential accommodation such as hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities

- vacant  land  solely  used  for  agriculture,  aquaculture,  farming,  forestry, animal husbandry, mining purposes

-  vacant land, whether or not having facilities clearly incidental to the use of such vacant land

- land used for educational, sports, circus, entertainment and parking purposes Similarly, renting of immovable property in the following cases is also excluded from the scope of this taxable service, namely:-

(i) renting of immoveable property by a religious body

(ii) renting of immoveable property to a religious body,

(iii) renting  of  immoveable  property  to  an  educational  body,  other  than  commercial training or coaching centre. Commercial coaching or training centre is defined under section 65 ( 27).

Where renting of immovable property is a single composite contract involving part  of  property  for  use  in  commerce  or  business  and  part  of  it  for  residential / accommodation purposes, for the purpose of levy of service tax under this sub-clause, entire property under the contract is treated as property for use in commerce or business and accordingly the total value of the contract shall be the taxable value.

4 SERVICE INVOLVED IN THE EXECUTION OF A WORKS CONTRACT [section 65(105)(zzzza)]: 

VAT / sales tax is leviable on transfer of property in goods involved in the execution of a works contract. The proposed taxable service is to levy service tax on services involved in the execution of a works contract. It may be noted that under this service only the following works contracts wherein transfer of property in goods involved in execution of such works contract is leviable to VAT / sales tax, are covered, namely:-

(i) works contract for carrying out erection, commissioning or installation

(ii) works contract for commercial or industrial construction

(iii) works contract for construction of complex

(iv) works contract for turnkey projects including Engineering Procurement and Construction or Commissioning  (EPC) projects.

Works contract  in  respect  of  specified  infrastructure  projects  namely  roads, airports,  railways,  transport  terminals,  bridges,  tunnels  and  dams  are  specifically excluded from the scope of the levy.

Taxable value under this service is that part of the value of the works contract which is relatable to services provided in the execution of a works contract. Such value is to  be determined on actual basis based on the records maintained by the assessee. However, it is proposed to give an option to an assessee to opt for a composition scheme. Under the composition scheme, the assessee is required to pay 2% of the total value of the works contract as service tax. Assessee opting for the composition scheme is not entitled to avail CENVAT credit of capital goods, inputs and input services required for use in the works contract. Valuation of works contract and details of the composition scheme will be notified separately.

5 DEVELOPMENT AND SUPPLY OF CONTENT SERVICE  [section 65 (105) (zzzzb)]:

Content developed for use in telecommunication, advertisement and internet or websites are leviable to service tax presently under ¡§business support service¡¨. It is proposed to separately specify services provided by content developers in relation to development and supply of content for use by telecommunication service providers, advertising agencies and on-line information and database access or retrieval services such as internet or website service providers under this service. The term ¡§development and supply of content¡¨ is defined separately [section 65(36c)]

6 ASSET MANAGEMENT INCLUDING PORTFOLIO MANAGEMENT AND ALL FORMS OF FUND MANAGEMENT SERVICE [section 65(105)(zzzzc)]:

Asset management including portfolio management and all forms of fund management, provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern is leviable to service tax under banking and other financial service[ section 65 (105)(zm)]. Similar services are also provided by individual service providers especially to high net worth individuals. This taxable service proposes to cover separately, similar services provided by person, other than those already covered under banking and other financial services. 

7 DESIGN  SERVICES [section 65(105)(zzzzd)]:  

Services  in  relation  to conceptualizing, outlining, creating the designs and preparing patterns for costumes, apparels, garments, clothing accessories, jewellery or any other articles intended to be worn by human beings are leviable to service tax under fashion designing service [section 65 (105) (zv)] and services in relation to planning, design or beautification of spaces is leviable to service tax under interior decorator¡¦s service  [section  65(105)(q)]. Design services,  other than the above specifically mentioned taxable services, like furniture design, aesthetic design, consumer or industrial products, logos, packaging, production of three dimensional models, etc. will be taxable under this category.

Telecommunication service expansion consolidates telecom activities and broadens taxable recipients under service tax. The Finance Bill, 2007 widens the service tax base by creating comprehensive heads: Telecommunication service merges several distinct telecom services and removes the subscriber-only recipient requirement; Mining service covers exploration and exploitation activities including outsourced and subcontracted mining work; and new services for renting of immovable property, the services portion of specified works contracts (with an optional composition scheme), development and supply of content, asset and fund management, and expanded design services are specified with defined inclusions and exclusions.