TaxTMI 
TaxTMI 
Budget 2005 -2006, Issues pertaining to Service Tax
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....om 16th June, 2005 (refer notification No. 15/2005-Service Tax dated 7/6/2005). Certain other amendments relating to service tax in the Finance Act, 1994 are effective from the date of enactment of the Finance Act. 3. The scope of these changes is explained in the following paragraphs. 4. New services 5. Transport of goods through pipeline or other conduit [see sub-clause (zzz) of section 65(105) of the Finance Act, 1994] 5.1 Transportation of goods, other than water, through pipeline or conduit is generally employed to transport petroleum and other petroleum products, natural gas, LPG, chemicals, coal slurry and other similar products. Such transport services are liable to service tax under sub-clause (zzz) of section 65(105) of the Finance Act, 1994. Consideration for the said transportation service provided may be payable periodically or from time to time. The service provider is required to pay service tax as and when payment is received for the services provided or to be provided. 6. Site formation and clearance, excavation, earth moving and demolition services 6.1 Any service provided or to be provided to any person, by any ....
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....diments, rocks etc. of rivers, ports, harbour, backwater or estuary for providing adequate draught for ships and other vessels and to maintain shipping channels. Service tax is leviable only on dredging of river, port, harbour, backwater or estuary and dredging in any other cases does not attract service tax. The definition of dredging is an inclusive definition and the activities specified are only indicative and not exhaustive. 8. Survey and map making 8.1 Any service provided or to be provided to any person, by any other person, other than by an agency under the control of, or authorised by, the Government, in relation to survey and map-making is taxable under sub-clause (zzzc) of section 65(105) of the Finance Act, 1994. 'Survey and map-making' has been defined under clause (104b) of section 65 of the Finance Act, 1994. 8.2 This service covers geological, geophysical, geochemical and other prospecting services by studying the properties of the earth and rock formation and structures. It also includes services providing information on sub-surface earth formations by different methods such as seismographic, gravimetric, mag....
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....ests and fumigation services in respect of specified premises would be liable to service tax. In respect of multi-storeyed commercial buildings, window cleaning is a specialized service. Window cleaning services, including exterior window cleaning using swing stages would be liable to service tax; (iii) Floor cleaning and waxing, wall cleaning etc. performed on the premises of commercial or industrial buildings; (iv) Specialized cleaning services such as cleaning services for computer rooms, cleaning of machinery or plant, reservoirs and tanks of commercial or industrial buildings, furnace and chimney cleaning services and similar services. 9.3 However, such cleaning services in relation to agriculture, horticulture, animal husbandry or dairying would be excluded from the purview of service tax. Further, such cleaning services in respect of non-commercial buildings and premises thereof would not be covered within the purview of service tax under this category. 10. Membership of Clubs or Associations 10.1 Any service provided or to be provided to its members by any club or association in relation to provision of services....
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....d for get-togethers and functions charged over and above the subscription amount. This will also be liable to service tax. However, amount charged by club to its members for sale of items such as food or beverages would not be taxable provided the documents evidencing such sale are available. 10.6 Any additional fee should be treated in the same way as subscription. Life membership fees must be treated in the same way as subscription. In certain professions, persons cannot practice unless they are registered with a statutory body and have paid fees which are prescribed by law. In such cases, the organization is not providing any service in the course of its business and it is merely carrying statutory functions. Since no service is provided, the question of levy of service tax does not arise. However, if there is no statutory requirement, service tax is liable to be paid. 11. Packaging services 11.1 Any service provided or to be provided to any person, by any other person, in relation to packaging activity is taxable under sub-clause (zzzf) of section 65(105) of the Finance Act, 1994. "Packaging activity" has been defined under cla....
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....ntial complex" has been defined under clause (91a) of section 65 of the Finance Act, 1994. 13.2 Construction of new building or civil structures used for commercial or industrial purposes and repair, alteration or restoration activities of such buildings or civil structures is liable to service tax since 2004. In this year's budget the construction of new residential complex or a part thereof is also covered under service tax. The term of "construction of complex" is defined under section 65 (30a) of the Finance Act 1994. It covers,- *construction of a new residential complex *completion and finishing services in relation to a residential complex, whether or not new *repair, alteration, etc. in relation to residential complex, whether or not new. 13.3 This service would generally cover construction services in respect of residential complexes developed by builders, promoters or developers. Such residential complexes are normally constructed after obtaining approval of the statutory authority for their layout. For the purpose of this levy, residential complex means,- (i) a building or buildings located within a premises; (ii) ....
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....uction of new buildings or civil structures used for commercial or industrial purposes and repair, alteration or restoration activities of such buildings and civil structures was already liable to service tax since 2004. In this year's budget, such construction service has been renamed as 'commercial and industrial construction service' under section 65(25b) of the Finance Act 1994 and renovation of a commercial or industrial building or civil structure has now been specifically included within the purview of service tax. 14.2 Post construction completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, especially if undertaken as an isolated or stand alone contract, are also specifically included. Thus post construction completion and finishing services are specifically included in the definition of commercial or industrial construction services. 14.3 Construction of pipeline or conduit has been included within the purview of service tax. Thus, the construction of long distance pipeline which was earlier excluded from the coverage of construction services wo....
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....vices relating to maintenance or management of immovable property (such as roads, airports, railways, buildings, parks, electrical installations and the like) have also been covered under the purview of service tax. Such services would be taxable when provided under a contract or an agreement by any person or by a manufacturer or any person authorized by a manufacturer. 16.3 Maintenance is to keep a machine, building etc. in a good condition by periodically checking and servicing or repairing. While repair is a one time activity, maintenance is a continuous process of which repairing may be incidental or ancillary. 16.4 Prior to 16/6/2005, maintenance or repair carried out under a maintenance contract or agreement was covered under service tax. Repair or servicing carried out under a contract other than a maintenance contract or agreement was not covered within the purview of service tax. Maintenance or repair, including reconditioning or restoration or servicing of any goods or equipment, except motor vehicle (which is taxable under the category of authorized service station), undertaken as part of any contract or agreement (not necessarily maintenance contract o....
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....orised Service Station 20.1 Prior to 16/6/2005, the definition of authorized service station covered only service or repair of motor cars, two-wheeled and light motor vehicles by service stations or centres authorized by the manufacturers. A number of motor vehicle manufacturers provide a scheme by which the old vehicles are sold to the customers after reconditioning or restoration. For this purpose, old vehicles are reconditioned or restored by such authorized service stations or centres. Such reconditioning or restoration of an old vehicle was not explicitly covered as a taxable service. Amendments have been made to specifically include reconditioning or restoration of motor cars, two-wheeled and light motor vehicles carried out by the authorized service stations or centers under this service tax. 20.2 Taxable services rendered by authorized service stations in relation to motor cars or two-wheeled motor vehicles was covered under clause (zo) of section 65 (105), while such taxable services performed in relation to light motor vehicles were covered under clause (zzj) of section 65 (105). Amendments have been made in clause (zo) so that taxable services rendered by aut....
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....rganisation or business, directly, without engaging the services of any other person in any manner, in such cases, the artisans are contractually employed by the company. There is no intermediary and hence no consideration is paid to or payable to any intermediary. The service tax would be leviable only when the services of a person are engaged for recruitment or supply of artisans. 23. Franchise Service 23.1 Prior to 16/6/2005, franchise services were liable to service tax only when the agreement between the franchisor and the franchisee satisfies all of the following conditions [as mentioned in section 65(47)]: (i) Franchisor grants representational right to franchisee to sell or manufacture goods or provide service identified with the franchisor; (ii) Franchisor provides expertise in business operation, know how, quality control etc. to the franchisee; (iii) Franchisee pays fees to the franchisor; (iv)The franchisee is under an obligation not to engage in selling goods or providing services identified with any other person. 23.2 To make the coverage of franchise service more comprehensive, effective from 16/6/2005, amendments ha....
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.... for use by the client. Thus, services rendered for procurement of any goods or services intended for use by the client would be taxable. This definition of input is different from the definition of input under Cenvat Credit Rules. 24.4 Services provided by commission agents are specifically included within the scope of business auxiliary service. However, the term 'commission agent' was not defined in the Finance Act, 1994. Definition of 'commission agents' has been provided in Explanation (a) in section 65 (19) of the Finance Act. 25. Outdoor Catering Service 25.1 Service tax is already leviable on the services provided by an outdoor caterer. Prior to 16//6/05, outdoor caterer was defined as a caterer providing catering services "at a place other than his own". Doubts were expressed about the scope of the term "at a place other than his own" where the caterer provides catering service from a premises provided by the recipient of the service, on rent. In such cases, whether the place is to be treated as the place owned by the caterer and therefore the services are not subject to service tax or the place is to be treated as not owned by the caterer and therefore subj....
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....ss entirely from a head office in another country. In such cases, business establishment is treated to be in a country where the business is entirely done from the head office. 26.4 A fixed establishment is an establishment other than the business establishment. It should have both the technical and human resources necessary for providing or receiving services permanently present. A business may have several fixed establishments including a branch. If there is no business or other fixed establishment in any country and the business is a limited company or a other corporate body, it belongs wherever it is legally constituted. 26.5 Individuals receiving services are treated as belonging in the country where they have their usual place of residence. An individual has only one usual place of residence at any point in time. Individuals are normally resident in the country where they have set up home with their family and are in full time employment. If either the provider of services or recipient of services have establishments in more than one country, the establishment most directly connected with the particular service would be the deciding factor.....
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....ovision of service, such payments would have to be apportioned appropriately between the two periods and that part of service provided on or after the service becomes taxable service, is only liable for service tax. Similarly, when payment is received in advance for services to be provided but subsequently the services are not actually provided, then in such cases service tax paid is liable to be refunded. 28. Prior to amendment of sections 69 and 70 by the Finance Act, 2005, only the 'person liable to pay the service tax' was required to get registered with the Department and required to submit periodical returns submit statutory returns. Thus, a person who was not liable to pay service tax was not required to get registered with the Department. It was felt that in certain instances, though the person may not be liable to pay service tax, for the sake of accountability, such person needs to get registered with the Department. 28.1 Amendments have been made in sections 69 and 70 to incorporate the enabling provisions for registration and filing of return by Input Service Distributors and small service providers whose aggregate value of taxable service exceeds Rs. ....
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.... Commissioner of Central Excise. If these offices or premises are outside the jurisdiction of Commissioner of Central Excise but within the jurisdiction of Chief Commissioner of Central Excise, in those cases, the jurisdictional Chief Commissioner would grant centralized registration. Further, if these offices or premises fall within the jurisdiction of more than one Chief Commissioner of Central Excise, the centralized registration would be granted by the Director General of Service Tax, Mumbai. 30. Miscellaneous Issues 30.1 A threshold exemption scheme has been introduced in this year's budget (effective from 1.4.2005) exempting from service tax aggregate value of taxable services not exceeding four lakh rupees received by the service provider during a financial year. A point has been raised whether payments received after 1.4.2005 towards the services provided prior to 1.4.2005 would be included while computing this threshold value of Rs. 4 lakhs. 30.1.1 The exemption is related to first payments received in a financial year irrespective of the actual date of provision of services. Thus, the payments received after 1.4.2005 even if they relate to....
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....of goods for, or on behalf, of a client" referred to in sub-clause (v) of clause (19) of section 65 of the Finance Act, 1994, provided by a commercial concern, in the course of manufacture of cut and polished diamonds and gem stones or plain and studded jewellery of gold and other precious metals. However, other taxable services, such as, supply of manpower, banking and other financial services, other business auxiliary services, provided in the course of manufacture of cut and polished diamonds and gem stones or plain and studded jewellery of gold and other precious metals, are leviable to service tax and no exemption for these services is provided. All taxable services received from abroad by an Indian recipient in relation to these goods are held to be liable to be taxed under "Reverse Charge " norms. 33. Taxable Services received from abroad Taxable services received from abroad by a person belonging to India are taxed in the hands of the Indian recipient. Relevant provisions are section 65(105) of the Finance Act, 1994 and rule 2(1)(d)(iv) of the Service Tax rules. In such cases, the Indian recipient of taxable services is deemed to be the s....