Service Tax Brajesh

8/2/2019 Service Tax Brajesh

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ACCOUNTING ACADEMY Prof. Farooq Haque

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SERVICE TAX -- III (Taxable Services & Scope)Topics Covered

Taxable Services - Scope with Specific ExemptionsExemption in respect of services used in relation to export goods

TAXABLE SERVICES-SCOPE WITH SPECIFIC EXEMPTIONS

20.1LEGAL CONSULTANCY SERVICE [w.e.f. 1-9-2009]

[1].Taxable service [SectioIl65(105)(zzzzm)]: Taxable service means any service

provided or to be provided to a business entity,

by any other business entity,

in relation to advice, consultancy or assistance in any branch of law,

in any manner.

Appearance before statutory authorities not covered: However, any service provided by way of

appearance before any court, tribunal or authority shall not amount to taxable services,

Business Entity [Section 65(19b)J: "Business entity" -',

includes an association of persons, body of individuals, company or firm,

but does not include an individual.

[2].Scope based on Department clarification [D.O.F. No. 334/l3/2009-TRU, dated 6-7-2009] :

Since business entity does not include an individual, thus, services provided by an individual

advocate either to an individual or even to a business entity would be outside the scope of the taxable

service.

Similarly, the services provided by a corporate legal firm to an individual ,"",auld also be outside the

purview of taxable service.

[3].Point of Taxation: As per the Point of Taxation Rules, 2011, in case of legal consultancy services

provided by Individuals or proprietary firms or partnership firms, the point of taxation shall be the date on

which payment is received by the service provider.

Illustration 1 - Legal consultancy service: Compute service tax payable by XYZ & Co., a partnership firm of

advocates, from the following information

Value of legal consultancy services provided to individuals 2,00,000

Value of legal consultancy services provided to corporate clients 25,00,000

Gross amount charged in respect of appearance in High Court and supreme Court, 35,00,000

Solution: The service tax payable shall be computed as follows-


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Value of legal consultancy services provided to individuals

Value of legal consultancy services provided to corporate clients

Gross amount charged in respect of appearance in High Court and Supreme Court

Total Value of taxable services

Service Tax thereon @ 10.3%

Not taxable

25,00,000

Not taxable

25,00,000

2,57,500

Illustration 2- Legal consultancy serviceposition after 1-4-2011-Service Tax payable on receipt basis:

Virat Kohli & Co., a partnership firm, is providing taxable legal consultancy services, for the second consecutive

assessment year. The firm furnishes the following information relating to the services rendered, bills raised,

amount received relating to this service, for the year ended 31.03.2012: (amounts in Rs.)

i. Free services rendered to poor people (Value of the services computed on comparative basis) 40,000

ii. Advance received from clients for which no taxable service has been rendered so far 5,00,000

iii. Service billed to clients: Gross amount (Service tax has been charged separately in all the bills; the firm

follows mercantile system of accounting) 12,00,000

iv. The firm has received the following amounts during the year:

a) Relating to taxable services rendered in March, 2011(excluding service tax at applicable rates and TDS under

section 194-j of IT Act, 1961 to the tune of Rs. 45,320) 5,44,680

b) Relating to taxable services rendered in current year 2011-12(excluding service tax at applicable rates and

TDS under section 194-J of IT Act, 1961 to the tune of Rs.1,20,000)* 9,80,000

(*includes Rs. 50,000 for appearance fee before Labour Court received from another firm) Service tax has

been separately received for applicable items in (iv) above

You are required to complete the value of taxable services for the year ended 31.03.2012 and the Service tax

payable, briefly explaining the treatment of each item above. (Marks 8, CA IPCC May 2010)

Solution : Computation of value of taxable services and service tax payable

i.Free services rendered to poor people (Services provided free of cost i.e. without

consideration cannot be charged to service tax. Hence, the comparative value doesnt haveany relevance)

ii.Advances received from clients for which no taxable service has been rendered so for(Service tax is chargeable on service to be provided. Further, the value of taxable services

includes the amount received before provision of taxable service. It is assumed that the

advance received is exclusive of service tax and service tax has been charged separately.]

iii.Services billed to clients: Gross amount (service tax has been charged separately in all the

bills; the firm follows mercantile system of accounting)- Even if a partnership firm

providing legal consultancy service follows mercantile system of accounting, the point of

taxation is the date of receipt of payment towards taxable services. Hence, this

Rs.

Nil

5,00,000

-


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information has not relevance for computation of value of taxable service and service tax

thereon.

iv.Receipts during the year:

a) Relating to taxable services rendered in March, 2011: Service tax is payable on receipt

basis. Hence, the amount towards the value of services provided in March 2011 and

received in 2011-12, shall be charged to tax in this year. (544680+45320)

b) Relating to taxable services rendered in current year 2011-12:

Amount received (net of TDS)Add: TDS (TDS made out of the payments is towards taxable services. It forms part ofthe gross amount charged towards taxable services, hence, includible in value of taxable

services)

Less: Fee for appearance before labour court received from another firm- Services

provided by way of appearance before any court are not taxable , hence, excluded.

5,90,000

9,80,000

1,20,000

-50,000

Value of Taxable Service


21,40,000

2,20,420

20.2 COMMERCIAL TRAINING OR COACHING SERVICE [ w.e.f. 1.07.03]

1) Commercial training or coaching [Section 65(26)]: Commercial training or coaching means-

any training or coaching

provided by a commercial training or coaching centre.

2) Commercial Training or Coaching Centre [Section 65(27)]: Commercial Training or Coaching Centre

means any institute or establishment

Providing commercial training or coaching

For imparting skill or knowledge or lessons on any subject or field other than sports,

With or without issuance of a certificate and

Includes coaching or tutorial classes

but does not include

a) Preschool coaching and training centre or

b) Any institute or establishment which issues any-

- Certificate

- Diploma

- Degree or

- Any educational qualification,

Recognized by law for the time being in force.

3) Taxable Service [Section 65(105)(zzc)]: Taxable Service means any service-

provided or to be provided to any person

by a commercial training or caching centre

in relation to commercial training or coaching.


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Consideration chargedService Tax Leviable even if chartable /non-profit motive[Explanation, Inserted by

the Finance Act, 2010 W.R.E.F. 1-7-2003]: The expression commercial training or coaching centre shall

include any centre or institute , by whatever name called,-

- Where training or coaching is imparted for consideration

- Whether or not such centre or institute is

- registered as a trust or a society or similar other organization under any law for the time

being in force and

- carrying on its activity with or without profit motive.

4) Exemption to commercial training or coaching, which forms essential part of course leading to issue of

degree recognized by law, if payment not made directly to commercial training/coaching centre

[Notification No. 10/2003-S.T. ,] dated 20-6-2003]: Taxable services provided by a commercial training or

coaching centre to any person, in relation to commercial training or coaching, which-

From an essential part of a course or curriculum of any other institute or establishment,

Leading to issuance of any certificate or diploma or degree or educational qualification recognized by

law for the time being in force,

Is exempt from service tax.

However, this exemption shall not be applicable if the charges for such services are paid by the person

undergoing such course or curriculum directly to the commercial training or coaching centre.

Analysis & Example [Circular No. 59/8/2003-S.T., dated 20-6-2003]: thus, exemption is available only if

the receiver of such service makes payment for the entire course or curriculum to the institute or

establishment issuing such certificate, diploma etc. and not to commercial coaching or training centre.

Example: ICAI hires the services of any other institute say NIIT or others for imparting some part of

training (like language or computer training ) to student undertaking the CA-course or other diploma

courses offered by ICAI. In such a case ICAI will not be chargeable to services tax because it confersqualification recognized by law and at the same time NIIT shall also be exempted from service tax provided

the student makes payment for the entire course or curriculum to ICAI.

5) Exemption to commercial training or coaching provided by vocational/recreational training institute

[notification No. 24/2004-S.T., dated 10-9-2004, as amended w.e.f. 27-2-2010]: the taxable servicesprovided in relation to commercial training or coaching, by,-

a) a vocational training institute ; or

b) a recreational training institute,

to any person, is exempt from service tax.

Computer training instituteNot exempt : However, the taxable services provided in relation to commercial

training or coaching by a computer training institute shall not be exempt.

Terms Defined:

a) Vocational training institute means-

- an industrial Training Institute or an industrial Training Centre

- affiliated to the national Council for Vocational Training,

- offering courses in designated trades as notified under the apprentices Act, 1961.


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[Authors Note: the list figuring under Schedule I of the apprentices Act covers engineering as

well as non-engineering skills/trades.]

b) recreational training institute means

- A commercial training or coaching centre

- Which provides training or coaching relating to recreational activities such as dance. Singing,

martial arts or hobbies.

c) computer training institute means a commercial training or coaching centre which provides coaching or

training related to computer software or hardware.

6) Exemption to approved Modular Employable Skill Courses [Not. No. 23/2010-ST dated 29-4-2010]:

Taxable service in the nature of commercial training or coaching services provid.

In relation to Modular Employable Skill courses approved by the National Council of Vocational

Training,

By a Vocational Training Provider registered under the Skill Development Initiative Scheme with the

Directorate General of Employment and Training, Ministry of Labour and Employment, Government ofIndia,

is exempt from service tax.

7) Clarification on scope [Circular No. 59/8/2003-S.T., dated 20-6-2003]A. Institutes preparing student for Competitive Exams-Covered : Commercial coaching and training services

provided by institutes that prepares applicants for Board examinations and competitive exams like

entrance examinations for Indian Institute of TechnologyJoint Entrance Examination/Pre Medical Tests, Civil Services exams etc. are chargeable to service tax.

B. Service tax leviable on postal coaching : the coaching provided by postal means would also be covered

under the service tax and the charges, including the postal charges collected for rendering this service

would be subjected to service tax.

C. Institutes providing commercial coaching in addition to recognized degree coursesNot liable toservice tax: some institute like colleges, apart from imparting education for obtaining recognized

degrees/diploma/certificates, also impart training for competitive examination, various entrance tests etc.

by definition, such institutes or establishments, which issue a certificate, diploma or degree recognized by

law, are outside the purview of commercial training or coaching institute. Thus, even if such institutes

or establishments provide training for competitive examinations etc., such services rendered would be

outside the scope of service tax.

D. Individuals going to houses to impart tution/coachingNot liable to service tax: Service tax is oninstitutions/ establishment, hence, only those service providers are covered under service tax who have

some establishment for providing commercial coaching or training i.e. institutional coaching or training.

Thus, individuals providing services at the premises of a service receiver are not covered under service

tax. However, if coaching or training centre provides commercial coaching by sending individuals to the

premises of service receivers, such services would be chargeable to tax, as in this case, the individuals arerendering services on behalf of an institution.

E. Free summer training /in house training provided by employers to their employees-Not covered under

service tax: In case employers provide any free training themselves, no service tax is chargeable.

However if an employer hires an outside commercial coaching or training center for imparting some

training to its employees, then the payment made by the said employer to such coaching centre will be

chargeable to service tax.

8) Service tax liability of educational institution [Circular No. 107/1/2009-S.T., dated 28-1-2009]:A. Post School Formal EducationUniversities, Deemed Universities, Recognized Colleges & Autonomous

Colleges- Not covered under this service: the following viz.-


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a. Universities established or incorporate by or under a Central or State Act; or

b. Deemed Universities i.e. institution for higher education deemed to be university; or

c. College or institution run by a trust, a registered society or a body corporate or body incorporated

under Central or State Act recognized by the UGC as an institution affiliated to or form asconstituent member with a university, providing education up to bachelors degree, masters degree

or diploma of a duration of minimum one academic year; or

d.

Autonomous colleges, who develop and submit new courses of study for approval by theuniversity and who are fully responsible for the conduct of examination, but, where the degree

continues to be awarded by the university, are not covered under this service, as all these

institutions or establishment issue degree/diploma or certificate, etc. recognized by the law for thetime being in force. They are specifically excluded from the definition of commercial training or

coaching centre.

B. Post School Professional Education Institutes recognized by All India Councils, not covered:

a. Derecognized Institutes liable to service tax: For recognition of professional courses, a number

of professional councils (such as all India Council for Technical Education-AICTE, Medical

Council of India-MCI, Indian Council for Agricultural ResearchICAR, Bar Council of IndiaBCI) have been created through independent Acts. The institutions or the establishments within

their Ambit must abide by the rules framed by them and in case of default, the councils have thepower to derecognize an institution or establishment cannot be regarded as issuing any certificate

or diploma or degree or any educational qualification recognized by the law for the time being in

force and the courses conducted would fall under the ambit of commercial training or coachingcenters and would be charged to tax.

b.

c. Unapproved technical/management institution (except deemed universities) -Liable to tax:

A technical institution or establishment (which is otherwise recognized being a university, or

affiliate college)not having AICTE approval cannot be called to be the one issuing any certificate

or diploma or degree or any educational qualification recognized by the law for the time being in

force and thus be within the ambit of service tax. However Deemed to be University are not

required to obtain the approval of AICTE to start any programme in technical or managementeducation, hence, they will be outside the scope of service tax.

d. Similar would be the situation in case of other Statutory Councils.e. Recognition to change as per the changes in law: Since the concept of recognition of an

educational qualification in India is dynamic in nature (i.e. the degree/diploma/certificate aninstitute or establishment may be recognized by the law at one time and not recognized at other,

due to change in legal provisions) the taxability of the courses conducted would depend on the

legal status of such institute or establishment at the point of time when such service is provided

(i.e. course is conducted). It cannot be said that once recognized an institute or establishment

would remain so even in future or was so in the past.

f. Foreign Courses conducted by private institutes in collaboration with foreign universitiestaxable: -Sometimes, private institutes conduct courses and issue diplomas or certificates in

collaboration with certain foreign institutes universities. In many cases private enterprises

conduct campus interviews of the students of such institutes and offer them jobs. Such

certificates/diploma cannot be called as the one recognized by the law for the time being inforce unless such a diploma/certificate has been specifically recognized by the statutoryauthorities such as UGC, AICTE. Consequently, such institutes would not fall under the

exempted category and would be subjected to tax.

C. Personality Development InstitutesLiable to service tax: Institutes that offer general course on

improving communication skills, personality development, how to be effective in group discussions or

personal interview, general grooming and finishing etc. are not covered by any of the exemption

pertaining to vocational training institutes. Hence, they are liable to service tax.


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9) Non-Profit/charitable organization covered if consideration charged [D.O.F. No. 334/1/2010-TRU, dated

26-2-2010]: the Explanation to section 65(105)(zzc) clarifies that the word commercial means any

training or coaching that is provided for a consideration irrespective of the presence or absence any profit

motive. Thus, if any consideration is charged by charitable/non-profit organization. It shall also be liable to

service tax.

Circular No.

127/09/2010-ST, dated16-8-2010

Commercial training and coaching-Donation is not consideration:

Question: Whether donations and grants-in-aid received from different sourcesby a chartable Foundation imparting free livelihood training to the poor and

marginalized youth, will be treated as consideration received for suchtraining and subjected to service tax under commercial training or coachingservice?Clarification: Unless the link or nexus between and the taxable activity can be

established, the amount cannot be subjected to service tax. Donation or grant-

in-aid is not specifically meant for the charitable cause carried out by the

registered Foundation. Between the provider of donation/grant and the trainee

there is no relationship other than universal humanitarian interest. In such a

situation, service tax is not leviable, since the donation or grant-in-aid is not

linked to specific trainee or training.

Fast Arithmetic v. ACCEx. [2010] 17 STR 158 (Tri.-Bang.): Mental arithmetic programme Abacus isrecreational in nature, hence, exempt from service tax.

T.Q. 1. Explain the term Vocational Training Institute Under the provisions of service Tax. (CA IPCCNov. 2009, 2Marks)

T.Q.2. Explain the term Commercial training or Coaching centre. (CA IPCC May 2010-2 Marks )

Illustration 3- Commercial Training or Coaching: BSB Trainers Ltd., a commercial training or coaching centre,

collected an aggregate sum of Rs. 100 Lakhs during the year from various services as follows-

A. Commercial training or coaching in the field of arts and science: Rs. 24 Lakhs (no certificate was issued

on completion of the training);B. Commercial training or coaching in the field of commerce : Rs. 18 lakhs (a certificate was awarded to

each trainee after completion of the training );

C. Commercial training or coaching in the field of sports: Rs. 12 lakhs;

D. Coaching /Training for preparing kids for admission to school : Rs. 16 lakhs:

E. Coaching /Training for preparing school going students for admission to big schools: Rs. 17 Lakhs;

F. Receipts from sale of prospectus /application forms to trainees : Rs. 5 Lakhs (assume Rs. 2 lakh relates tonon-taxable /exempt services)

G. Charges for mess facility provided to trainee (optional), where food was provided to the trainees who

opted for the facility : Rs. 8 lakhs.The above charges include value of purchased books supplied to the students/trainees. The value of books

supplied may be assumed to be 20% of the gross fees. All bills of purchased of books are available.

Compute the value of taxable service under commercial Training or Coaching Service Covered u/s 65(105)(ZZC) of the Finance Act, 1994 and service tax payable under this service only.

Solution: the service tax liability is computed hereinbelow (amounts in Rs.)-


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Total Receipts of the year

Less: Commercial training or coaching in the field of arts and scienceTaxable servicemay be provided with or without issuance of certificate, hence, covered.

Less: Commercial training or coaching in the field of commerce- Liable to tax, issuance

of certificate doesnt affect the charge of service tax.

Less: Commercial training or coaching in the field of sports - It is specifically excludedfrom the definition of 'commercial training or coaching centre'

Less: Coaching/Training for preparing kids for admission to schools - It is 'preschool

coaching or training', hence, excluded from the levy of service taxLess: Coaching/Training for preparing school g6ing students for admission to big

schools -This is not covered by 'preschool coaching or training', as the children are

already school going students. Hence, liable to service tax.

Less: Receipts from Sale of prospectus/ application form to trainees - These receipts are

related to provision of commercial training or coaching service. Hence, they are liable to

tax.However, sale of prospectus related to non-taxable/exempt services is not liable to

tax.

Less : Charges for mess facility provided to trainees - For charge of service tax, there

should be a nexus between the amount collected and services rendered. The Messcharges collected cannot be considered as receipt for rendering the service of

'Commercial Training and Coaching' and, hence, they could not be subject to service

tax.Gross Taxable Fees (inclusive of value of books)

Less: Value of goods I.e. books sold to the students is exempt under Notification No.12/2003. 'Sale' cannot be charged to service tax. Hence, 20% of the taxable fees shall be

claimed as deduction, as the evidence i.e. bills of the books are available. [621akh

20%]

Taxable Value under 'Commercial Training or Coaching Service'

Service Tax thereon@10%

Add: EC and SHEC @ 3%

Total Service Tax payable thereon

1,00,00,000

Liable to

service tax

Liable to

service tax

-12,00,000

-16,00,000

Liable to

service tax

-2,00,000

-8,00,000

62,00,000

-12,40,000

49,60,000

4,96,000

14,880

5,10,880

Illustration 4 - Commercial Training or Coaching: B2V Education Ltd. collected an aggregate sum of Rs. 100

lakhs during the year from various services as follows-

a. Receipts from running hobby classes: Rs. 8 lakhs ; 3

b.Receipts from running dance classes: Rs. 5lakhs;

c. Receipts from a college affiliated to University of Rajasthan for B.A. and M.A. Course: Rs. 30 lakhs;

d.Receipts from an Industrial Training Institute affiliated to National Council for Vocational Training

from courses in designated trades: Rs. 12lakhs;

e.

Receipts from providing training in computer software and hardware: Rs. 15 lakh ;f. Receipts from a unit registered as Vocational Training Provider in relation to Modular Employable

Skill Courses approved by National Council for Vocation Training: Rs. 9lakh;

g.Home tuition facility where the individuals were sent to the premises of students: Rs. 4lakh; .

h. Postal Coaching Receipts: Rs. 6 lakh ;

i. Receipts from organising a course affiliated to a foreign university: Rs. 11 Lakh.

Compute the value of taxable service under 'Commercial Training or Coaching Service' covered u/s 65(105)(zzc)

of the Finance Act, 1994 and service tax payable under this service only.

Solution: the service tax liability is computed hereinbelow (amounts in Rs.)-


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Total Receipts of the year

Less: Receipts from running hobby classes is exempt under recreational traininginstituteReceipts from running dance classes is exempt under 'recreational training institute

Less: Receipts from college affiliated to University of Rajasthan - It results in

issuance of BA/MA degree, which is recognized by the law. Hence, not taxable.

Less: Receipts from an Industrial Training Institute affiliated to National Council for

Vocational Training from courses in designated trades - EXEMPTLess: Receipts from providing training in computer software and hardware - Notexempt.

Less: Receipts from unit registered as Vocational Training Provider in relation to

Modular Employable Skill Courses approved by National Council for Vocation

Training - Exempt.

Less: Home tuition facility where the individuals were sent to the premises ofstudentsliable to service tax.

Less: Postal Coaching Receipts - Liable to service tax

Less: Receipts from organizing a course affiliated to a foreign university - The

course is not recognized by the law in force in India. Hence, liable to service tax.

Taxable Value

Service Tax there on @10%

Add: EC and SHEC @ 3%

Total Service Tax payable thereon

1,00,00,000

-8,00,000

-5,00,000

-30,00,000

-12,00,000

Taxable

-9,00,000

Taxable

Taxable

3,60,000

3,60,000

10,800

3,70,800

20.3 INFORMATION TECHNOLOGY SOFIWARE SERVICE [W.E.F.16-S-2008]

1)

Information technology software [Section 65(53a)]: Information technology software means-

any representation of instructions, data, sound or image, including source code and object code

recorded in a machine readable form, and

capable of being manipulated or providing interactivity to a user

by means of a computer or an automatic data processing machine or any other device or equipment ;

2) Taxable service [Section 65(105)(zzzze)] : Taxable service means any service -

provided or to be provided to any person, by any other person

in relation to information technology software

[This expression omitted by Finance Act, 2010 w.e.f. 1-7-2010. Hence, IT 'software services provided in,all cases i.e. whether or not used in the course or furtherance of business or commerce shall be liable toservice tax.]

Including,-

a) Development of information technology software,

b) Study, analysis, design and programming of information technology software,

c) Adaptation, up gradation, enhancement, implementation and other similar services related to

information technology software,


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d) Providing advice, consultancy and assistance on matters related to information technology software,

including conducting feasibility studies on implementation of a system, specifications for a database

design, guidance and assistance during the start-up phase of a new system, specifications to secure a

database, advice on proprietary information technology software,

e) providing the right to use

- information technology software for commercial exploitation including right to reproduce,

distribute and sell information technology software and- software. components for the creation of and inclusion in other information technology

software products,

f) providing the right to use information technology software supplied electronically

3) Packaged or Canned software - Exemption from Service Tax [Notification No. 53j201()"S.T., dated 21-12-2010 and Circular No. 15 j2011-Cus., 18-3-2011] :

"Packaged software or canned software" means a software developed to meet the needs of variety of

users, and which is intended for sale or capable of being sold off the shelf.

Exemption from service tax if excist/customs duty paid on retail sale price-basis [Notification No.

53/2010-S.T., dated 21-12-2010] : The taxable service referred to in section 6S(10S}(zzzze}(v} (item (e)

of the definition given above) of the Finance Ad, 1994 ("providing right to use software, etc."), for

packaged or canned software is exempt from service tax if

a) the said goods have been charged to central excise duty or additional customs duty based on the value

computed u/s 4A of the Central Excise Act, 1944 (i.e. Retail Sale Price or MRP -based excise duty in

case of packaged caImed software sold in retail) ;

b) i. the appropriate duties of excise on such value have been paid by the manufacturer, duplicator or the

person holding the copyright to such software, as the case may be, in respect of software manufactured

in India; or

ii. the appropriate duties of customs including additional duty of customs on such value, have been paid

by the importer in respect of software which has been imported into India; or

c) a declaration is made by the service provider on the invoice relating to such service that no amount inexcess of the retail sale price declared on the said goods has been recovered-from the customer.

Packaged or Canned Software not covered by RSP-based excise duty [Circular No. 15/2011-Cus,.18-3-

2011]: If the packaged or canned software is not liable to excise duty based on Retailsale price, then, the

aforesaid exemption shall not apply and service tax under the category Information Technology

Software Service would be levied on such lithe value representing consideration for transfer of right to

use such packaged/ canned software". .

4) Electronic Delivery of Software - Taxable [CBECl : Software and upgrades of software are also

supplied electronically, known as digital delivery. 5 such supply ofIT software electronicallyshall be covered within the scope of the service.

Illustration 5- Information Technology Software service: M/s. Oracle Companies provided the

provided the following services during the year-

A. Design and programming of new information technology software for customers: Rs. 100

lakhs (out of which Rs. 20 lakhs is towards the IT software used by the customers for their

personal use)

B. Up gradation of softwares installed in the earlier years: Rs. 25 lakhs;

C. Consultancy in the matter of software analysis and implementation Rs. 16 lakhs;

D. Consultancy in the matter of hardware selection: Rs. 17 Lakhs


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E. Electronic Supply (paid download) of information technology software : Rs. 10 Lakhs;

F. Repair of information technology software : Rs. 12 lakhs

G. Testing and Analysis of Information Technology Software: Rs. 11 Lakh.

Compute the value of taxable service under 'Information Technology Software Service' coveredu/s 65(105) (zzzze) of the Finance Act, 1994 and service tax payable under this service only.

Solution: The service tax li9bility is computed here in below (amounts in Rs.)

Design and Programming of new information technology software forcustomersTaxable (in view of amendment by Finance Act, 2010, the ITsoftware service shall be taxable irrespective of whether it is used forpurpose of business /commerce. Hence, personal use is also covered.)

Add: Up gradation of software installed in the earlier yearsCovered underthis service

Add: Consultancy in the matter of hardware selectionNot covered underthis service, as this service relates to software only

Add: Electronic supply (paid download) of information technology softwareCovered

Add: Electronic supply (paid download) of information technology softwareCovered

Add: repair of information Technology Software- Not covered any point ofIT software service under section 65(105) (zzzze)

Add: testing and Analysis of information Technology softwarenot coveredany point of IT software service under section 65(105)(zzzze)

1,00,00,000

25,00,000

16,00,000

Not coveredhere

10,00,000

Not coveredhere

Taxable Value 1,51,00,000

Service Tax there on @ 10% 15,10,000

45,300Add: EC and SHEC @ 3%

Total Services Tax payable thereon 15,55,300

20.4 CARGO HANDLING SERVICE [w.e.f. 16.08.2002]

1) Cargo handling service [Section 65(23)] : Cargo handling service means-a) Loading, unloading, packing or unpacking or cargo and

b) Includes

I. Cargo handling services provided for freight in special containers or for non-Containerized

freight,

Service provided by a container freight terminal or any other freight terminal for all modes of

transport , and

Cargo handling service incidental to freight ; andII. Service of packing

Together with transportation of cargo or goods,

With or without one or more of other services like loading, unloading, unpacking,

c) But does not include

I. Handling of

Export cargo or

Passenger baggage or

II. Mere transportation of goods.2) Taxable Service [Sec. 65(105)(zr)]: Taxable service means any service provided or to be provided


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to any person by a cargo-handling agency

in relation to cargo handling services.

3) Services for agricultural produce & cold-storage goods - Exempt [Not. No. 10j2002-S.T., dated 1-82002]The taxable service provided to any person by a cargo handling agency in relation to, -

Agricultural produce* or

Goods intended to be stored in a cold storage,

Is fully exempt from service tax.

Agriculturalproduce [Service Tax (Removal of Difficulty) Order, 20021: Agricultural produce means- any produce resulting from cultivation or plantation, on which

either no further processing is done or

such processing is done by the cultivator like tending, pruning, cutting, harvesting, drying which does not

alter its essential characteristics but make it only marketable and

includes all careals, pulses, fruits, nuts and vegetables, spices, copra, sugarcane, jiggery, raw vegetable

fibres such as cotton, flax, jute, etc., indigo, unmanufactured tobacco, betel leaves, tendu leaves, rice,

coffee and tea

but does not include manufactured products such as sugar, edible oils, processed food, processed tobacco.4) Exemptions in respect of service provided to GTA [Notification No. 1/2009-S.T., dated 5-1-2009} : If

this service is provided to a goods transport agency (GTA) for use in GTA service it will be exempt

subject to specified conditions

5) GTA Service v. Cargo Handling [Circular No. 1 04/7/2008-S. T., dated 6-8-2006]:

Transportation with Packing/Unpacking, etc. : If the essential/predominant character of services

provided is transportation of goods by road in a goods carriage and packing is undertaken as an

integral part of the service provided, then, such service provided by a person registered as GTA who

issues consignment note therefor, shall be taxable as GTA only. The charges inclusive of packing

shall be taxable as GTA service

Packing/Unpacking, etc. with Transportation : However, since transportation is not essential character

of cargo handling service but only incidental to the cargo handling service, hence, if essential

character is not transportation but transportation is merely incidental to packing, etc., then, charges

(inclusive of transportation) will be taxable as Cargo Handling Service.

Mete transportation of goods is not taxable here; it is already taxable as CTA.

6) Clarifications on Scope of Taxable Service [F. No. Bl1/1/l002-TRU,dated 1-8-2002]: Means of transport & Examples: Cargo handling implies handling (activity of packing, unpacking,

loading & unloading) of goods meant to he transported by any means of transport-a lion namely truck,rail, ship or aircraft. Few examples of cargo handling agencies are Container Corporation of India, InlandContainer Depot (lCD)1 Container Freight Stations (CFS), etc.

Export after transshipment - Services, not taxable: All goods meant for export are excluded from thislevy. In case where goods are transhipped at a place other than the place of packing before reaching the

place of export (say, goods are packed at Agra for transportation to Bhopal where it is transshipped andultimately reaches Mumbai, from where it is exported), then, cargo handling service at Agra would alsonot be taxable, as the same is provided in relation to export cargo, of the fact that it reaches the place ofexport after transshipment.

Unaccompanied baggage also not covered: Passenger baggage has been excluded from levy of servicetax Unaccompanied baggage of a passenger will also not be leviable to service tax.

Charges recovered from CHAs also taxable: If Container Freight Stations (CFSs) recover any charges forhandling import cargo, not from the importer directly, but, from the Customs House Agent (CHA), then,such charges would also be liable to tax.

Auction. of abandoned cargo - Not covered here: Auction of abandoned cargo by Cargo HandlingAgency is not 'cargo handling service'. The same is not covered here. (Note: Presently, the auction


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services are covered under 'separate service'). Marketing of cargo for airlines - Not covered here: Some cargo handling agencies also act as

marketing agents for individual airlines for which they get a commission on the freight. Marketing orcanvassing for cargo for airlines is not' cargo handling service'

Handling of. Empty Containers - Not covered : CFSs also sometimes undertake storing/ washing/repairing and handling of empty containers for tl,e shipping lines for which they charge the shippinglines. Empty containers cannot be treated as cargo. Therefore, the said activities do not come within the

purview of cargo handling services. Individuals undertaking loading/unloading of cargo - Not covered: If someone hires labour/

labourer for loading or unloading of goods in their individual capacity, such labour/ labourer,

acting in individual capacity, would not be liable to service tax as a cargo handling agency.7) Rake handling charges - Includible in taxable Value: Since loading & unloading activities are

integral part of cargo handling service, therefore, rake handling charges, which consist of loading

and unloading expenses, shall be includible in the value liable to service tax. - Ridhi SidhiTransport/v. CCEx. [2008112 STR 555 (Tri. - Bang.).

Illustration 6 - Cargo Handling : M/ s. Krishna & Co., a sole proprietary firm presents the followinginformation of the services provided by it during the year (all amounts in addition to each other)

I. Charges of loading, unloading, packing and unpacking of cargo: Rs. 5 lakhs

II. Packing together with transportation of cargo: Rs. 4 lakhs ;

III. Handling of export cargo: Rs. 2 lakhs

IV. Handling of passenger baggage & unaccompanied baggages: Rs. 2lakhs + Rs. 1 lakh ;

V. Transportation of goods along with packing thereof (consignment note issued): Rs. 2

lakhs;

VI. Handling of goods stored in cold storage: Rs. l lakh;

VII. Transportation of goods along with packing thereof (consignment note issued): Rs. 2

lakhs;

VIII. Handling of goods stored in cold storage: Rs. l lakh;

IX. Marketing of cargo for various airline companies: Rs. 3 lakhs ;

X. Handling of empty containers: Rs. 40,000 ;

XI. Rake Handling Charges: Rs. 31akhs ;

Compute the value of taxable service under 'Cargo Handling Service' falling u/s 65(105)(zr); and theservice tax, if any, payable thereon by M/ s. Krishna & Co for cargo handling service only.

Solution: It must be noted that only an individual providing any cargo handling service in his individual

capacity is not liable to service tax. However, in this case, M/ s. Krishna & Co. is a sole proprietary

firm (which is different from individual acting in individual capacity). Hence, M/s. Krishna &Co. is a

cargo handling agency liable to tax. The relevant issues are answered herein below-

Charges of loading, uploading, packing and unpacking of cargo-Covered u/s 65(23)

Packing together with transportation of cargoCovered u/s 65(23)

5,00,000

4,00,000


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Handling of export cargo - Excluded from section 65(23) 0

Handling of passenger baggage & unaccompanied baggages - Excluded ul s 65(23) 0

Transportation of goods along with packing thereof (since consignment note issued, hence,

covered by GTA service, not this service)

0

Handling of goods stored in cold storage - EXEMPT 0

Marketing Ofcargo for various airline companies - NOT amounts to cargo handling 0

Handling of empty containers - Empty containes are not Icargo', hence, excluded. 0

Rake Handling Charges 3,00,000

Taxable Value

Service tax thereon @ 10.3%12,00,000

1,23,600

Illustration 7-Cargo Handling Service : Calculate the value of taxable service under Cargo handling

services of Cargo Ltd., providing brief reasons where required with suitable assumptions based on the

following information' for the month of April, 2011 - (Similar RTF May 2011)i. Total amount charged for all services 40

ii. Receipts for services in relation to export cargo and handling of passenger baggage

included in (i) above 13

iii. Charges for storage and cleaning of empty containers of shipping lines included in (i) above 10 10

iv. Charges for packing and transport of Cargo included in (i) above 3

v. Charges for handling of agricultural produce included in (i) above 2

vi. Charges for transportation of Cargo included in (i) above 5

Solution: The computation of value of taxable service under Cargo Handling Services is as follows

Total amount charged for all services

Less: Receipts for services in relation to export cargo and handling of passenger

baggage (it is specifically excluded from the scope of taxable service in definition

u/s 65(23))

Less: Charges for storage and cleaning of empty containers of shipping lines

(Activity of storing/washing/repairing and handling of empty containers for the

shipping lines is not cargo handling services, as empty containers cannot be

treated as cargo)

Less: Charges for packing and transport of Cargo (Charges for packing together

with transportation of cargo is classifiable as cargo handling service in view of

section 65(23) hence, the same need not be deducted)

Less: charges for handling of agricultural produce (Cargo handling service for

agricultural produce is exempt from service tax, hence, excluded here.)

Less: Charges for transportation of cargo (mere transportation of cargo is not

40,00,000

13,00,000

10,00,000

2,00,000

5,00,000


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Page | 15

cargo handling service, hence, excluded u/s 65(23))

Value of Cargo Handling Service

10,00,000

20.5 CUSTOMS HOUSE AGENT'S SERVICE [w.e.f. 15-06-1997]

[1].Customs house agent [Section 65(35)] : Customs house agent means-

a person licensed , temporarily or otherwise, 3

under the regulations made under sub-section (2) of section 146 of the Customs Act, 1962 (i.e. the

Customs House Agents Licensing Regulations, 2004).

[2].Taxable service [Section 65(105)(h)]: Taxable service means any service-

Provided or to be provided to any person by a custom house agent

In relation to

the entry or departure of conveyances or

the import or export of goods.

[3].Scope : the The activity of CHA relates to the entry or departure of conveyances or import or

export of goods at any Customs station. Therefore the activity of the CHA is limited to the

Customs Station; it cannot extend beyond it. Hence, only the CHA services relating to import/

export of goods and documentation relating to customs clearance are taxable under this service.

Other Services provided by a CHA cannot be taxed under this service. - DHL Lemuir Logistics

Pvt. Ltd. v. CST [2010117 STR 266 (Tri.-Bang.)

[4].Clarification on Valuation Issues [Circular No. 119/13/2009-S.T., dated 21-12-2009]:

The activities of a QIA pertaining to customs formalities in relation to the entry or departure of

conveyance or the import or the export of goods, is subjected to service tax under CHA services.

Sometimes, the CHA also arrange services for packing, unpacking, loading, unloading, bringing or


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Page | 16

removing the goods to or from the customs area, vessels or aircrafts for their customers (i.e. importers or

exporters). These services are provided by different agencies. Normally the OIAs initially pay the service

charges to these agencies and later recover these charges from the customer along with their own charges.

Similar arrangement can occur for payment of statutory levies like Custom Duties, Port charges, Cesses

etc. leviable on the said goods.

Rule 5 of the Service Tax Valuation Rules, 2006 provides that expenditure or costs incurred by the

service provider as pure agent alone will be eligible for exclusion from taxable value. Accordingly, in

respect of GIA, the exclusion should be allowed to all such charges from the taxable value of CHA

services, where all the following conditions are satisfied, -

i. the activity / service for which such charge is made, should be in addition to CHA service;

ii. there should be arrangement between the customer & the CHA which authorizes or allows the

CHA to : (a) arrange for such activities/ services for the customer; and (b) make payments to

other service providers on his behalf;

iii. CHA does not use such service for his own benefit or for benefit of his other customer;

iv.

CHA recovers reimbursements on' actual'. basis'. If reimbursement is not, on 'actual basis', then,whole of the reimbursement for such activity/service would be included in value.

v. CHA should provide evidence to prove nexus between other services (including statutory levies,

charges by carriers and custodians, insurance agencies, etc.) and reimbursable amounts. It is not

necessary that such evidence should bear the name or address of the customer. Any evidence like

BE No./Container No./BL No/ packing lists is acceptable.

vi. Each charge for separate activities /services is to be covered either by a separate invoice or by a

separate entry in a common invoice (showing charges against each entry separately).

vii. Other miscellaneous or out of pocket expenses charged by CHA would not be excluded.

Illustration 8 - CRA: M/ s. Govindam Clearing Agencies, a Customs House Agent licensed under

Customs Act, had total gross receipts of the year from various services of Rs. 50 lakhs, which

includes

i. Reimbursement of freight charged by airlines: Rs. 10 lakhs (actual basis);

ii. Reimbursement of Customs Duty: Rs. 4lakhs (actual basis);

iii. Reimbursement for various taxable services paid for by the CHA on behalf of its customers : Rs.

61 lakhs (actual Rs. 4.5lakhs, exclusive of -service tax) ;

iv. Charges for warehousing the goods, after getting customs clearance, in warehouse owned by M/s.

Govindam Clearing Agencies: Rs. 7.5 lakhs;

v. Charges for Transporting the goods from owned warehouse to place of customers: Rs. 3.5lakhs ;

Compute the value of taxable service under 'Customs House Agent Service' falling ul s 65(105)(h) ; and the

service tax, if any, payable thereon by M/s. Govindam Clearing Agencies for CHA service only.

Solution: The relevant issues are answered herein below-Total Gross Receipts of the year from various services

Less: Reimbursement of freight charged by airlines - CHA acts as pure agent, as

reimbursement claimed on actual basis - Excluded assuming separately shown in

invoice

Less: Reimbursement of customs duty - CHA acts as pure agent, as reimbursement

claimed on actual. basis, hence, excludible assuming separately shown in invoice

Less: Reimbursement of various other taxable services - CHA has charged amount in

50,00,000

-10,00,000

-4,00,000

0


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Page | 17

excess of what has been actually incurred. Hence, fully includible in value.

Less: Charges for warehousing the goods (CHA services extend only to the customs

station. Since warehouse is owned by the CHA, the CHA may be liable under 'Storage &

Warehousing Service', but, not under this service in any case)

Less: Transportation of goods from warehouse owned by CHA to customer's premises

(CHA services extend only to the customs station. Hence, charges for transportation aftercustoms clearance do not fall under this service. They may fall under other service(s)).

Taxable Value

Services Tax thereon @ 10.3%

-7,50,000

-3,50,000

25,00,000

2,57,500

20.6 PRACTICING CHARTERED ACCOUNTANTS [w.e.f. 16.10.1998]

[1].Practicing Chartered Accountant [Section 65(83)] : Practicing Chartered Accountant means -

A person who-Is member of the institute of Chartered Accountants of India andIs holding a certificate of practice granted under the Chartered Accountants Act, 1949 and

Includes any concern engaged in rendering services in the field of chartered accountancy.

[2].Taxable services [section 65(105) (s)]: Taxable service means any service-

Provided or to be provided to any person by a Practicing Chartered Accountant

In his professional capacity.

In any manner.

[3].Exemption to representation before statutory authorities in course of proceedings initiated underlaw [Not. No. 25/2006-S.T,! dated 13-7-2006] : Taxable services provided or to be provided-

by a practicing chartered accountant, in 1-ds professional capacity, to a client

relating to representing the client before any statutory authority

in the course of proceedings initiated under any law for the time being in force,

by way of issue of notice, is exempt from the whole of service tax leviable thereon.

Point of Taxation : As per the Point of Taxation Rules, 2011, in case of Chartered Accountants

servicft provided by Individuals or proprietary firms or partnership firms, the point of taxation

shall be the date on which payment is received by the service provider.

Illustration 9 - Chartered Accountancy : M/ s. SB & Co., Chartered Accountants, is run by Mr. SB, a

chartered accountant, who is a sole-proprietor. He collected the following charges during the year

i. Routine visit to tax-office for tax-related clarification or work: Rs. 5 lakhs ;

ii. Filing of returns and other documents (manual as well as e-filing) : Rs. 6lakhs ; (iii) Providing

coaching to students of CA/CS/ICWA courses: Rs. 7lakhs;

iii. Providing coaching to students of CA/CS/ICWA courses : Rs. 7 lakhs ;

iv. Fees for drafting appeal and representing the client before Commissioner (Appeals) (the show-

cause notice was represented before adjudicating authority by some other Chartered Accountant)

:-Rs. 10 lakhs ;

v. Audit of accounts of a client located outside India: Rs. 15 lakhs;


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Page | 18

vi. Fees for drafting reply to show-cause notices and representing the client in the matter of service

tax/income-tax and other laws: Rs. 25lakhs;

vii. Fees for carrying out statutory audit and certification: Rs. 5.5lakhs ;

viii. Fees for carrying out management audit and internal audits: Rs. 4 lakhs.

ix. Charges for routine accounting work of clients (other than clients whose accounts were audited

by SB & C6.), carried out by staff: Rs. 8 lakhs ;

Compute the value of taxable service under 'Chartered Accountancy Service' falling u/s 65(105)(s); and theservice tax, if any, payable thereon by M/ s. SB & Co. for this service only.Solution: The relevant issues are answered herein below

Routine visit to tax-office for tax-related clarification or work - Liable to service

tax, as falls within the 'professional capacity' of chartered accountant. Further, not

exempt as doesn't relate to representation before any statutory authority in course

of proceedings initiated by way of any show-cause notice/ order, etc.

Filing of returns and other documents (manual as well as e-filing) - Taxable

Providing coaching to students of CA/CB/ICWA courses - Not taxable under this

service, as not provided in professional capacity as a chartered accountant

Fees for drafting and filing appeal before Commissioner (Appeals) - Though there

is no notice issued in case of appeals filed by the clients when the proceedings are

initiated with filing of appeal, however, so long as representation is before a

statutory authority for the purpose of statutory proceedings (viz. appeal, etc.), the

exemption is admissible

Audit of accounts of a client located outside India (It amounts to export of taxable

service, assuming that all other conditions are fulfilled. Hence, exempt)

Fees for drafting reply to showcause notice and representing the client in the

matter of service tax/incometax and other laws- EXEMPT

Fees for statutory audit , certification, management and internal

audit(5.5.+4lakhs)

Charges for routine accounting work of clients (other than clients whose accounts were

audited by SB& Co.), carried out by staff - Not in 'professional capacity' of a chartered

accountant as work is done by staff, hence, not covered under this service

5,00,000

6,00,000

not taxablehere

Export

Exempt

9,50,000

Not taxable

here

Taxable Value


20,50,0002,11,150

Illustration 10 Practicing Chartered Accountant's services - Position on or after 1-4-2011 - Point of

Taxation Rules, 2011: Rajul is a qualified Chartered Accountant He acquired the certificate of

practice from the ICAI in March, 2011. For the quarter ended in June, 2011, his receipts are asfollows:-

Particulars Amount (Rs.)


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Page | 19

Certification of documents under Export and Import Policy of Government of India 2,00,000

Preparation of the financial statement of ABC Ltd. 5,00,000

Representation of the client before ITAT in April 2011 50,000

Receipts for tax consultancy provided in the month of March, 2011 10,000

Using the above information, calculate the value of taxable serVices for the quarter ended on June,

2011.

(SimilarRTP May 2011)

Solution:Calculation of the value of taxable services for the quarter ended on June, 2011 : In this case,

the sums given in the question are "receipts" of the assessee. Assuming that the receipts are inclusive of

service tax, the service tax is to be computed by making backward calculations as given below

Particulars

Certification of documents under Export & Import Policy of

Govt of India - Services provided in professional capacity by

a Chartered Accountant - Liable to Service Tax [Value =

2lakh x 10.3 + 110.3]

Preparation of the financial statement of ABC Ltd. - Services

provided in professional capacity by a Chartered Accountant

Liable to Service Tax [Value = 5lakh x 10.3 + 110.3]

Representation of the client before ITAT - Taxable services

provided by a practising Chartered Accountant in his

professional capacity, to a client, relating to representing the

client before any statutory authority in the course of

proceedings initiated under any law for the time being in

force, by way of issue' of notice, is exempt.

Receipts for tax consultancy provided in the month of

March, 2011 - As per the Point of Taxation Rules, in the case

of Chartered Accountant's services provided by an

individual, the point of taxation is the date of receipt of

payment. Hence! even though the services were provided in

March, ~Ol1, it will be liable to tax in Quarter ending June,

2011 i.e. in the quarter of the receipt.

Total

Receipts

(inclusive

of tax)

2,00,000

5,00,000

Exempt

Taxable

Value (Rs.)

1,81,324

4,53,309

0

Service Tax @

10.3%(Rs)

18,676

46,691

0

6,43,699 66,301

20.7 CONSULTING ENGINEERS SERVICES [w.e.f. 07.07.1997]

[1].Consulting Engineer [Section 65(31) :] Consulting Engineer Means any professionally qualified engineer or any body corporate or any other firm

who, either directly or indirectly, renders any advice, consultancy or technical assistance

any manner to any person


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Page | 20

in one or more disciplines of engineering.

[2].Taxable service [Section 65(l05)(g)] : Taxable service means any service- provided or to be provided to any person, by a consulting engineer

in relation to advice, consultancy or technical assistance in any manner

in one or more disciplines of engineering including the discipline of computer hardware

engineering.

Advice in relation to hardware and software engineering, both - Classifiable under this service only [ExplanationJ:

For the purposes of the above, services provided by a consulting engineer -

in relation to advice, consultancy or technical assistance

in the disciplines of both computer hardware engineering and computer software engineering

shall also be classifiable under this service.

[3].R&D Cess paid on transfer of technology - Deductible from service tax [Exemption Not. No.18/2002-S.T., dated 16-12-2002] : Taxable services provided by a consulting engineer to any

person on transfer of technology is exempt from service tax leviable thereon to the extent of the

amount of cess paid on the said transfer of technology u/ s 3 of the Research and Development

Cess Act, 1986.[4].Service relating to computer hardware and software engineering - Classificatiol1 [M.F. (D.R.)

Letter D.O.F. No. 334/1/2008-TRU, dated 29-2-20081:

Advise/Consultancy in the discipline of computer hardware engineering is leviable to service tax

under Consulting Engineering service in view of section 65(105)(g).

Consultancy service, covering both hardware and software engineering consultancy, shall be

classifiable under 'Consulting engineer's service' as per Expl. to section 65(105)(g).

Advise/Consultancy in relation to computer software/information technology software isleviable to service tax under Information Technology Software Service, not in this service.

[5].Departmental clarifications on scope of this service:

Self-employed engineers - Liable to service tax [Circular No. 96f7/2007-S.T., dated 23-8-2007] :

Consulting engineers include self-employed professionally qualified engineer, whether or not

employing others for assistance. Services provided by such self-employed professionally

qualified engineer is liable to service tax under consulting engineer service.

All types and stages of engineering consultancy covered (Trade Notice No. 53-C.E. (STI/97,

dated 4-7-19971: The services pertaining to structural engineering works or civil/ mechanical/

electrical engineering works or relating to construction management are also covered. The scope

of the services include wide range of services from feasibility study to post-operation and

management and troubleshooting and technical services.

[6].Valuers of property - Covered under this service: Valuers of plant and machinery being professionallyqualified engineers are to be regarded as 'consulting engineers' and valuation is to be regarded

as advice in the nature of 'engineering advice' on the basis of knowledge of engineering. - Dr.

V. Shanmughavel v.'CCEx.[2001]131ELY14 (Mad.).

Illustration 11 - Give four illustrations to explain the scope of service rendered by a consulting engineer-

Ans: Consulting engineer service would include

i. Design engineering

ii. Pre design services /project report


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Page | 21

iii. Supervision or construction and project management

iv. Feasibility study

v. Supervision of commissioning and initial operation

vi. Post operation and management

vii. Trouble shooting and technical services including establishing system and procedures for an

existing plant.Illustration 12Service tax: The value of service provided by a consulting engineer is Rs.10,00,000 He

has paid Rs50,000 as cess under section 3 of the Research and Development Cess Act, 1986. What is the

amount of service tax payable by him?

Ans: A consulting engineer is granted exemption by way of deduction of the amount of Research and

Development Cess paid by him from the amount of service tax payable by him. Therefore, service tax

payable = 10.3% of Rs. 10 lakhs - 50,000 = Rs. 53000.

Illustration 13 Consulting Engineers: M/s. Tenalirama & Co., is a firm of professional qualified

engineers of various disciplines, registered under Service tax law. The firm had a total gross receipts ofRs. 75 lakhs during the year, which includes the following-

i. Consultancy in the field of mechanical and applied engineering: Rs. 15lakhs (40% of the work

was done by hired engineers who charged an equivalent sum along with service tax) ;

ii. Consultancy in the field of hardware engineering: Rs. 7 lakhs;

iii. Consultancy in the filed of software engineering: Rs. 9 lakhs ;

iv. Consultancy in the field of hardware as well as software engineering: Rs. 8 lakhs

v. Charges for valuation of plant, machinery and property: Rs. 6 1akhs;

vi. Consultancy in relation to setting up of a power project: Rs. 15.5 lakhs ;

Given that the firm has paid a sum of Rs. 1 lakh u/s 3 of Research & Development Cess Act, 1986 in

relation to services pertaining to transfer of technology included hereinabove.

Compute the value of taxable service under 'Consulting Engineer Service' falling u/s 65(105)(g) ; and

the service tax, if any, payable thereon by Mis. Tenalirama & Co. for this service only.

Solution: The relevant issues are answered hereinbelow


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Page | 22

Total gross receipts of the year

Less: Consultancy in the field of mechanical and applied engineering - Covered under

this service. Further, charges paid for sub-contracting cannot be excluded from value

of taxable service, however, the same will be eligible for CENV AT Credit.

Less: Consultancy in the field of hardware engineering - Taxable under this service

Less: Consultancy in the filed of software engineering - Not taxable under this

service, taxable as 'Information Technology Software Service'

Less: Consultancy in the field of hardware as well as software engineering -

Classifiable and taxable under this service only

Less: Charges for valuation of plant, machinery and property- Valuation amounts to

engineering advice hence, classifiable and taxable under this service.

Less: Consultancy in relation to setting up of a power project-Classifiable and taxable

under this service, as it is also a form of engineering.

Taxable Value


Exemption in respect of R&D Cess paid on transfer of technology

Net service tax payable

75,00,000

Taxable

Taxable

-9,00,000

Taxable

Taxable

Taxable

66,00,000

6,79,800

1,00,000

5,79,800

Illustration 14- Consulting Engineer's services: Mr. Ramesh, a consulting engineer provides the following

particulars in respect of various services rendered by him during the quarter ending December 2010:

No. Particulars Rs.

(i) Professional advice to one of his friend 45,000

(ii) Consultancy services in computer hardware engineering 35,000

(iii) Technical assistance in computer software engineering 25,000(iv) Advice in relation to metallurgical engineering 10,000

(v) Professional advice to his friend free of charge

Rs. 5,000 has been paid by him as cess payable under section 3 of the Research and Development Cess Act,1986 in respect of the above-mentioned services. Compute the service tax payable by Mr. Ramesh for thequarter ending December, 2010. Service tax has been charged separately by Mr. Ramesh and is not includedin any of the receipts mentioned above. Mr. Ramesh is not entitled to the benefit of small service provideravailable under Notification No. 6/2005 ST dated 01.03.2005.

Will your answer be different if the above services are rendered by AB Ltd. , a consulting engineering company?


23/28


Page | 23

(Similar RTP May 2011)

Solution: Computation of service tax payable:-

Consulting Engineer's Services:

Professional advice to one of his friend - Advice to friend is taxable as service rendered to

any person is taxable

Consultancy services in computer hardware engineering - Covered under this service

Technical Assistance in relation to computer software/information technology software is

leviable to service tax under Information Technology Software Service, not in this service

Advice in relation to metallurgical engineering. - Advice in relation to any branch of

engineering is taxable

Professional advice to his friend free of charge - Services rendered free of charge are

not liable to service tax

45,000

35,000

Not

Covered

10,000

Not taxable

Taxable Value of Consulting Engineers Service 90,000

Service Tax thereon @10.3%

Less: Exemption in respect or R&D Cess paid on transfer of technology this exemption

is granted in respect of the service tax; not the value of the service

Net service tax payable on consulting Engineers Service (A)

Tax on Information Technology Software Service : Technical Assistance in relation tocomputer software engineering tax = 10.3% of 25,000 (B)

9,270

5,000

4,270

2,575

Total Service =(A)+(B) 6,845

If the services are rendered by AB Ltd., a consulting engineering company: The answer will not be different as

consulting engineer inter alia means any body corporate as well.

20.8 MANPOWER RECRUITMENT OR SUPPLY AGENCY'S SERVICE [w.e.f. 07.07.1997]

[1].Manpower recruitment or supply agency [Section 65(68)] : Manpower recruitment or supply agencymeans any person engaged in providing

any service, directly or indirectly, in any manner

for recruitment or supply of manpower,

temporarily or otherwise

to any other person.

[2]. Taxable service [Section 6S(10S)(k)] : Taxable service means any service provided or to be provided to any person by a manpower recruitment or supply agency

in relation to the recruitment or supply of manpower,


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temporarily or otherwise, in any manner.

[3].Recruitment or supply of manpower - Scope [Explanation to Section 65(105)(k)] : For the purposes ofthis service, recruitment or supply of manpower includes services in relation to-

pre-recruitment screening,

verification of the credentials and antecedents of the candidate and

authenticity of documents submitted by the candidate.[4].Exemptions in respect of service provided to GTA [Notification No.1/2009-S.T., dated 5-1-2009] : If

this service is provided to a goods transport agency for use in GT A service, it will be exempt subject

to specified conditions. For details, refer the 'Transport of goods by road service',

[5].CBEC Clarifications [Master Circular No. 96/7/2007-S.T., dated 23-8-2007}: Campus Recruitment fees - Taxable: Educational institutes such as IITs and IIMs charge a fee fro

prospective employers like corporate houses/MNCs, who come to the institutes for recruiting candidates

through campus interviews. Such institutes fall under this service and are liable to service tax on services

provided by them relation to campus recruitment.

Temporary supply of manpower- Taxable:

Business/Industrial organizations engage services of manpower recruitment or supply agencies for

temporary supply of manpower which is engaged for a specified period or for completion of particular

projects or tasks.

In these cases of supply of manpower, individuals are contractually employed by the m anpower

recruitment or supply agency. The agency agrees for use of the services of an individual, employed by

him, to another person for a consideration. Employer-employee relationship in such case exists between

the agency and the individual and the individual and not between the individual and the person who uses

the services of the individual

Such supply agencies are liable to services.

[6].Scope a/Taxable Service [Trade Notice No. 53-CE (service Tax)/97, dated 4-7-1997]:

Manpower Recruitment : It shall include the services provided by an agency from the primary stage of

building a database of manpower for different categories of personnel employment, whether white collar or

blue collar, whether for employment in India or overseas determining manpower requirement for the client

preliminary identification; short listing and screening of . prospective candidates, providing specialists for

interviewing prospective candidates, arranging for their interviews at each stage; placing advertisements for

recruitment of manpower in the print or electronic media etc. In short, service tax on manpower recruitment

agency shall cover within its fold the entire gamut of services provided by a manpower recruitment agency

to a client from the incipient. stage of selecting/ identifying manpower required for any prospective

employment, till the stage of actual selection for the same.

Services to Prospective Candidates - Taxable :. In certain cases, a person approaches a manpowerrequirement agency for being employed in a suitable positions abroad, as normally happens in case ofemployment in Gulf countries. Such services provided to the prospective candidate for employment isalso covered under service tax.

[7].Value [Letter F.No. B1/6/2005-TRU, dated 27-7-2005] : Service tax is to be charged on the full amountof consideration for the supply of manpower, whether full-time or part-time. The value includes

recovery of staff costs from the recipient e.g. salary and other contributions. Even if the .arrangement

does not involve the recipient paying these staff ,costs to the supplier (because the salary is paid directly

to the individual or the contributions are paid to the respective authority) these amounts are still part of

the consideration and hence form part of the gross amount.


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[8].Direct hiring of Contractual Labour - No service, not taxable [Letter F.No. Bl/6/200STRU, dated 277-2005] : Hiring of skilled artisans for making jewellery is not service. When the artisans are hired by any

organization 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.

Illustration 15 - Manpower Recruitment or Supply Agency: MI s. Superior Manpower Services Pvt. Ltd. (SMSPL)

received an aggregate sum of Rs. 105 lakhs from the following services provided by it (all information to be

assumed to be in addition to the other)

i. Temporary supply of various employees hired by it (i .e. hired by M/s. SMSPL) to various industries for

carrying out various assignments : Rs. 15 lakhs (Salaries amounting to Rs. 20 lakhs to various categories of

labour was directly paid by the industries). This includes a sum of Rs. 2 lakhs charged from a goods

transport agency, which paid a salary of Rs. 3 lakhs directly.

ii. In some other cases, the employees of M/ s. SMSPL were permanently transferred as employees of its

clients on the first day of the year itself. For the said purpose, SMSPL charged an employee transfer fee of

Rs. 5 lakhs. The clients paid a salary of Rs. 30 lakhs to employees during the year.

iii. SMSPL runs a job-search engine whereby it maintains database of all prospective candidates for the variousposts in various companies. It collected an aggregate of Rs. 10 lakhs from various companies for providing

access to such data.

iv. When the companies selected a few candidates, SMSPL was asked to verify the credentials and history of

such candidates and also examine the authenticity of the documents submitted by them for which SMSPL

charged a sum of Rs. 13 lakhs ;

v. M/s. SMSPL owns a premises where the prospective employers come, conduct the interviews and make

selections. M/s. SMSPL provides services in relation thereto. A total recruitment fees of Rs. 31 lakhs was

charged. for the employers and an equivalent sum of Rs. 31 lakhs (equal to one months salary of the

employees) was charged for the candidates selected.

Compute the value of taxable service under 'Manpower Recruitment & Supply Service' falling u/ s 65(105) (k) ; and

the service tax, if any, payable thereon by M/ s. SMSPL for this service only.

Solution: The relevant issues are answered hereinbelow-

Temporary supply of labour/employees of the manpower agency (M/s. SMSPL) is liable to 30,00,000

service tax. The salaries paid to such labour forms part of the value of taxable service even if

directly paid by the client. However, such services provided to goods transport agency are

exempt. Hence, taxable amount =:=[(15 - 2) + (20 - 3)] = 30 lakhs .

Permanent Transfer of Employees - In case of permanent transfer of employees, the 5,00,000

employer-employee relationship between SMSPL and the employees came to an end. Hence,salaries paid to such employees by their actual employers cannot be a subject matter of service

tax. However, employee transfer fee is a consideration for service provided by M/ s . SMSPL to

its clients and is, therefore, liable to service tax.

Providing access to prospective-employees related data is covered by this service 10,00,000

Services by way of verifying credentials/ antecedents (history) of prospective candidates and 13,00,000

authenticity of documents submitted by them is taxable under this service .


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Providing campus for recruitment and charging fees therefore is liable to service tax under this

service. Both, the prospective employers and the candidates, are service receivers for the

manpower recruitment agency. Hence, consideration charged from both of them shall be

liable to service tax. [31 + 31 = 621akhs]

62,00,000

Taxable Value 1,20,00,000

Service Tax thereon @ 10.3% 12,36,000

Illustration 16 -Manpower Recruitment& Supply Agency: Anthrix Consultants is engaged in providing

manpower recruitment and supply agency's services. For the financial year 2010-11, its receipts are as

follows-

Particulars Amount (Rs.)

Pre-recruitment screening of the prospective candidates 12,00,000

Verification of the credentials of the candidates 7,00,000

Supply of contractual employees to big business houses 15,00,000

Manpower recruitment services provided to Sindhu Transporters 2,25,000

- a goods transport agency

On the basis of the above information, compute the service tax payable by Anthrix Consultants under the

category of Manpower Recruitment and supply agency services for the financial year 2010-11.

Note: Anthrix Consultants enjoys a good reputation among its clients. Resultantly, its aggregate value of taxable

services amounted to Rs. 23lakh in the financial year 2009-10. Further, the amount of service tax has been

charged separately. (Similar RTF May 2011)

Solution : Since the aggregate value of taxable services provided during the financial year 2009-10 amounted toRs. 23 lakh i.e. exceeding Rs 10 lakh, hence, M/s. Anthrix Consultants is not eligible for small service provider

exemption under Not. No. 6/2005-ST. the relevant computation are-

Pre-recruitment screening of the prospective candidates Specifically covered

Verification of the credentials of the candidates-Specifically covered

Supply of contractual employees to big business house covered in this service

Manpower recruitment services provided to Sindhu Transporter, a GTA- such

services provided to a GTA are exempt from service tax.

12,00,000

7,00,000

15,00,000

Exempt

Taxable ValueService Tax [email protected]%

34,00,0003,50,200

EXEMPTION IN RESPECT OF SERVICES USED IN RELATION TO EXPORT GOODS

20.9 EXEMPTION IN RESPECT OF CERTAIN SPECIFIED SERVICES USED FOR EXPORT GOODS

[Notification No. 17/2009-S.T., dated 7-7-2009]

[1].Exemption to specified services used for export goods: The taxable services specified below, as are

received by an exporter of goods and used for export of goods, are exempt from service tax u/s 66 and


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66A subject to the conditions specified in notification-

a) General insurance services in relation to insurance of said goods.

b) Port services in respect of the export of said goods.

c) Technical testing and analysis service in relation to technical testing and analysis of said goods.

d) Technical inspection & certification service in relation to inspection & certification of export goods.

e) ) Other port services in respect for export of said goods.

f) Transport of goods by road and Transport of goods in container by rail : (i) Service provided for

transport of said goods from inland container depot to port of export; (ii) Service provided to an

exporter in relation to transport of export goods directly from the place of removal, to inland container

depot or port or airport, as the case 'may be, from where goods are exported.

(Alternatively exemption is available for 'Transport of goods by road' under N at. No. 18/2009) (g)

g) Cleaning activity service : Specialized cleaning services namely disinfecting, exterminating,

sterilizing or fumigating of containers used for export of said goods provided to an exporter.

h) Storage & warehousing service: Service provided for storage and warehousing of said goods.i) Courier Agency's Service in relation to transportation of time-sensitive documents, goods or articles

relating to export, to a destination outside India.

j) Customs House Agent's Service in relation to export goods exported by the exporterk) Banking and other financial services: (i) Service provided in relation to collection ofexport bills; (ii)

Service provided in relation to export letters of credit such as advising commission, advising

amendment, confirmation charges; (iii) Service of purchase or sale of foreign currency, including

money changing provided to an exporter in relation to export goods

l) Foreign exchange broking by Individuals: Service of purchase or sale of foreign currency including

money changing provided to an exporter in relation to export goods,

m) Supply of tangible goods for use service in relation to goods exported by the exporter.

n) Clearing and Forwarding Agent's service in relation to export goods exported by the exporter,

o) Taxable under 'any category of service Payment of, service tax paid on services commonly known as

terminal handling charges,

p) Transport of coastal goods or good's through national/inland waterway: Service provided for

transport of export goods through national waterway, inland water and coastal shipping.

q) Airport Services in respect for export of said goods.

General Conditions governing exemption: Exemption shall be governed by following conditionsa) the exemption shall be claimed by the exporter for the specified service received and used by him

for export of the said goods;

b) the exemption claimed by the exporter shall be provided by way of refund of service tax paid on the

specified service used for export of the said goods;

c) the exporter claiming the exemption has actually paid the service tax on the specified service to its

provider;

d) no CENV AT credit of service tax paid on the specified service used for export of said goods hasbeen taken under the CENV AT Credit Rules, 2004.


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20.10 EXEMPTION TO GOODS TRANSPORT AGENCY SERVICE AND FOREIGN COMMISSION

AGENT SERVICE RECEIVED BY EXPORTERS [Notification No. ISj2009-S.T., dated 7-7-2009] :

The taxable services specified below, as are received by an exporter of goods and used for export of goods,

are exempt from service tax u/ s 66 and 66A subject to the conditions specified in the Notification

[1].Transport of goods by road: (i) Service provided to an exporter for transport of the said goods byroad from any container freight station or inland container depot to the port or airport, as the case maybe, from where the goods are exported; or (ii) Service provided to an exporter in relation to transport

of said goods by road directly from their place of removal, to an inland container depot, a containerfreight station, a port or airport from where the goods are exported.

[2].Business Auxiliary Services: Service provided by a commission agent located outside India and

engaged under a contract or agreement or any other document by the exporter in India, to act on behalfof the exporter, to cause sale of goods exported by him.

T.Q.3. Whether export service provided by Service Provider is excluded for the purpose of Paymentof Service Tax? (CA IPCC Nov. 2009, 3 marks)

[Hint: Yes. Export of services is exempt from payment of service tax if services are exported inaccordance with the Export of Services Rules, 2005.

However, service provided to an exporter is not excluded for the purpose of payment of service tax.The person liable to pay service tax u/ s 68(1) or 68(2) shall pay service tax as applicable on thespecified services provided to the exporter and used for export of such goods, and such person shallnot be eligible to claim exemption for the specified services. In other words, the service provider isrequired to pay service tax and the actual exporter shall claim refund of service tax paid on servicesreceived by him.]

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Service Tax Brajesh