A Knowledge Workshop-Presentation III dated 14th July,2012

Corporate Knowledge FoundationCorporate Knowledge Foundation

PresentsPresentsA Knowledge WorkshopA Knowledge Workshop

OnOn““New Regime of Service Taxation in India”New Regime of Service Taxation in India”

Conducted byConducted byDr. Sanjiv AgarwalDr. Sanjiv Agarwal

FCA, FCSFCA, FCS

Saturday,Saturday,1414thth July,2012 July,2012New Delhi © Dr. Sanjiv AgarwalNew Delhi © Dr. Sanjiv Agarwal

SESSION IIISESSION III

Declared Services Declared Services

(Including Valuation)(Including Valuation)

&&

Bundled ServicesBundled Services

Corporate Knowledge FoundationCorporate Knowledge Foundation

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As defined in clause 44 of section 65B, ‘service’ includes a declared service. As defined in clause 44 of section 65B, ‘service’ includes a declared service.

There are 9 categories of services or activities as declared servicesThere are 9 categories of services or activities as declared services implying that on all such nine declared services, Service Tax shall be payable implying that on all such nine declared services, Service Tax shall be payable

Does not include any such transfer, delivery or supply of any goods which is Does not include any such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of Article 366 (29A) of the Constitution deemed to be a sale within the meaning of Article 366 (29A) of the Constitution of India. of India.

What is declared services is defined in section 65B (22) to mean any activity What is declared services is defined in section 65B (22) to mean any activity carried out by a person for another person for a consideration and declared as carried out by a person for another person for a consideration and declared as such under section 66E of the Act.such under section 66E of the Act.

They are amply covered by the definition of service but have been declared They are amply covered by the definition of service but have been declared with a view to remove any ambiguity for the purpose of uniform application of with a view to remove any ambiguity for the purpose of uniform application of law all over the country law all over the country

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Following constitute Declared Services (Section 66E)Following constitute Declared Services (Section 66E) Renting of immovable property; Renting of immovable property;

Construction of a complex, building, civil structure or a part thereof, Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of partly, except where the entire consideration is received after issuance of certificate of completion by a competent authority; certificate of completion by a competent authority;

Temporary transfer or permitting the use or enjoyment of any intellectual Temporary transfer or permitting the use or enjoyment of any intellectual property right; property right;

Development, design, programming, customization, adaptation, up Development, design, programming, customization, adaptation, up gradation, enhancement, implementation of information technology gradation, enhancement, implementation of information technology software; software;

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Agreeing to the obligation to refrain from an act, or to tolerate an Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; act or a situation, or to do an act;

Transfer of goods by way of hiring, leasing, licensing or any such Transfer of goods by way of hiring, leasing, licensing or any such manner without transfer of right to use such goods; manner without transfer of right to use such goods;

Activities in relation to delivery of goods on hire purchase or any Activities in relation to delivery of goods on hire purchase or any system of payment by installments system of payment by installments ; ;

Service portion in execution of a works contract; Service portion in execution of a works contract;

Service portion in an activity wherein goods, being food or any Service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as part of the activity. intoxicating) is supplied in any manner as part of the activity.

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Renting of Immovable PropertyRenting of Immovable Property

Renting (Section 65B (41)) allowing, permitting or granting access, entry, Renting (Section 65B (41)) allowing, permitting or granting access, entry, occupation, usage or any such facility, wholly or partly, in an immovable occupation, usage or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable propertyarrangements in respect of immovable property

Renting of certain kinds of immovable properties is specified in the negative list Renting of certain kinds of immovable properties is specified in the negative list • Renting of vacant land, with or without a structure incidental to its use, Renting of vacant land, with or without a structure incidental to its use,

relating to agriculture.relating to agriculture.• Renting of residential dwelling for use as residenceRenting of residential dwelling for use as residence• Renting out of any property by Reserve Bank of IndiaRenting out of any property by Reserve Bank of India• Renting out of any property by a Government or a local authority to a Renting out of any property by a Government or a local authority to a

non-business entitynon-business entity


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Exemptions to Renting of Immovable property Exemptions to Renting of Immovable property

Threshold level exemption up to Rs. 10 lakh.Threshold level exemption up to Rs. 10 lakh.

Renting of precincts of a religious place meant for general public is exempt.Renting of precincts of a religious place meant for general public is exempt.

Renting of a hotel, inn, guest house, club, campsite or other commercial places meant Renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a room below rupees one for residential or lodging purposes, having declared tariff of a room below rupees one thousand per day or equivalent is exempt.thousand per day or equivalent is exempt.

Renting to an exempt educational institutionRenting to an exempt educational institution

Municipal taxes (Notification No. 29/2012-ST dated 20.6.2012)Municipal taxes (Notification No. 29/2012-ST dated 20.6.2012)

to be contd…to be contd…

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The immovable property could be – The immovable property could be – factoriesfactories office buildingsoffice buildings warehouseswarehouses theatrestheatres exhibition halls, andexhibition halls, and multiple use buildings.multiple use buildings. commercial markets commercial markets shops / shopping centreshops / shopping centre hotel, guest houses etchotel, guest houses etc community centre etc community centre etc

Allowing or permitting the usage of immovable property without Allowing or permitting the usage of immovable property without transferring possession of such property is also renting of immovable transferring possession of such property is also renting of immovable property. property.


Nature of ActivityNature of Activity TaxabilityTaxability

Renting of property to educational body Renting of property to educational body Chargeable to service tax; no exemption Chargeable to service tax; no exemption

Renting of vacant land for animal husbandry Renting of vacant land for animal husbandry or floriculture or floriculture

Not chargeable to service tax as it is covered in the Not chargeable to service tax as it is covered in the negative list entry relating to agriculture negative list entry relating to agriculture

Permitting use of immoveable property for Permitting use of immoveable property for placing vending/dispensing machines placing vending/dispensing machines

Chargeable to service tax as permitting usage of Chargeable to service tax as permitting usage of space is covered in the definition of renting space is covered in the definition of renting

Allowing erection of communication tower Allowing erection of communication tower on a building for consideration. on a building for consideration.

Chargeable to service tax as permitting usage of Chargeable to service tax as permitting usage of space is covered in the definition of renting space is covered in the definition of renting

Renting of land or building for entertainment Renting of land or building for entertainment or sports or sports

Chargeable to service tax as there is no specific Chargeable to service tax as there is no specific exemption. exemption.

Renting of theatres by owners to film Renting of theatres by owners to film distributors distributors

Chargeable to service tax as the arrangement Chargeable to service tax as the arrangement amounts to renting of immovable property. amounts to renting of immovable property.

Renting of immovable property outside India not taxable in India even if owners are in India

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Construction ActivitiesConstruction Activities

Construction Activities [Section 66E (b)] Construction Activities [Section 66E (b)] Construction activities means construction of a complex, building, Construction activities means construction of a complex, building, civil structure or a part thereof, including a complex or building civil structure or a part thereof, including a complex or building intendedintended for sale to a buyer, wholly or partly, except where the entire for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion certificate by the consideration is received after issuance of completion certificate by the competent authority.competent authority.It includes construction of -It includes construction of -

Complex Complex Building Building Civil structure or part thereof Civil structure or part thereof Complex or building intended for sale to a buyer except where Complex or building intended for sale to a buyer except where

entire consideration is received after issuance of completion entire consideration is received after issuance of completion certificate by the certificate by the competent authoritycompetent authority..

Actual sale after construction-if consideration received before such Actual sale after construction-if consideration received before such completion will also be taxedcompletion will also be taxed. .

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Construction is not defined Construction is not defined

Construction Includes Construction Includes

additions,additions,

alteration,alteration,

replacement, orreplacement, or

remodeling remodeling

of any existing civil structure of any existing civil structure

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Who is Competent Authority to Issue Completion Certificate Who is Competent Authority to Issue Completion Certificate

Government Government

Any authority authorized to Issue CC under any lawAny authority authorized to Issue CC under any law

In absence of any requirement to issue CC,In absence of any requirement to issue CC,

• architect under Architect Act, 1972 architect under Architect Act, 1972

• Chartered Engineer register with 10E Chartered Engineer register with 10E

• licensed surveyor (of local body / development or planning licensed surveyor (of local body / development or planning

authority) authority)

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Residential ComplexResidential Complex

Complex comprising of one or more buildings having more than one Complex comprising of one or more buildings having more than one

residential unit residential unit

Even two units would be called ‘complex’ Even two units would be called ‘complex’

Single residential unit – self contained residential unit designed for Single residential unit – self contained residential unit designed for

use, wholly / principally, for residence of one finely use, wholly / principally, for residence of one finely

Original work – new construction and all type of addition / alteration Original work – new construction and all type of addition / alteration

to abandoned / damaged structures on land as are required to make to abandoned / damaged structures on land as are required to make

them workable / erection , commissioning, installation. them workable / erection , commissioning, installation.

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Intellectual Property RightIntellectual Property Right

Temporary transfer or permitting the use or enjoyment of any Temporary transfer or permitting the use or enjoyment of any intellectual property right [Section 66 E (c)]intellectual property right [Section 66 E (c)]Intellectual property right’ has not been defined but Intellectual Property Intellectual property right’ has not been defined but Intellectual Property Right includes :Right includes :• Copyright Copyright

Patents Patents

Trademarks Trademarks

Designs Designs

Any other similar right to an intangible property Any other similar right to an intangible property

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Examples of IPRsExamples of IPRsPatents Patents - - New technical concepts, New technical concepts,

inventionsinventions

Copyright Copyright - - Text, graphics, software, data Text, graphics, software, data

compilations, art, musiccompilations, art, music

Trademarks - Brands (Services/ Products) Trademarks - Brands (Services/ Products)

image and reputation image and reputation

Confidential Information Confidential Information - - Ideas, information, know-how Ideas, information, know-how

etc.etc.

Design Rights Design Rights - - Form and appearance, Form and appearance,

decorationdecoration

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What is taxed in IPRWhat is taxed in IPR

all IPRs (whether recognized in law or not) all IPRs (whether recognized in law or not)

excluding copy rights excluding copy rights

temporary transfer of IPRs temporary transfer of IPRs

permitting the use of IPRspermitting the use of IPRs

enjoyment of IPRsenjoyment of IPRs

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Copyrights as IPRs are exempted which include :Copyrights as IPRs are exempted which include :

literary workliterary work

dramatic work dramatic work

musical work musical work

artistic works artistic works

cinematograph films cinematograph films

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Information Technology SoftwareInformation Technology Software

Information Technology software related services [section 66E(d)] Information Technology software related services [section 66E(d)]

It includes following in relation to Information Technology Software (ITS) – It includes following in relation to Information Technology Software (ITS) –

Development Development

Design Design

Programming Programming

Customization Customization

AdaptationAdaptation

UpgradationUpgradation

EnhancementEnhancement

Implementation Implementation

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ITS is defined in Section 65B(28)ITS is defined in Section 65B(28)ITS is a representationITS is a representation

Representation in ITS should be of any of the following – Representation in ITS should be of any of the following – • InstructionInstruction• Data Data • Sound Sound • Image Image • Source code Source code • Object code Object code

Such items represented should be recorded in a machine readable form,Such items represented should be recorded in a machine readable form,Such items represented and recorded should be capable of being Such items represented and recorded should be capable of being manipulated.manipulated.They should provide interactivity by way of a – They should provide interactivity by way of a –

• computer, or computer, or • automatic data processing machine, or automatic data processing machine, or • any other device or equipment. any other device or equipment.

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Scope of ITS ServiceScope of ITS Service

Design Design - - plan, schemeplan, scheme

Programming Programming -- process of writing a computer process of writing a computer programme programme

Customisation Customisation -- modifying to meet a specific requirement modifying to meet a specific requirement

Adaptation Adaptation -- change to suit, adopt change to suit, adopt

Upgradation Upgradation -- raising standard, improving quality / version / raising standard, improving quality / version /

features features

Enhancement Enhancement -- in value, content, quality in value, content, quality

Implementation Implementation -- execution execution

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Obligations / ActionsObligations / Actions

Agreeing to obligation to refrain from on Act / to tolerate Act Agreeing to obligation to refrain from on Act / to tolerate Act or situation / to do an Act [section 66E(e)] or situation / to do an Act [section 66E(e)]

Following activities if carried out by a person for Following activities if carried out by a person for another for consideration would be treated as another for consideration would be treated as provision of service -provision of service -

Agreeing to the obligation to refrain from an act.Agreeing to the obligation to refrain from an act.Agreeing to the obligation to tolerate an act or a situation.Agreeing to the obligation to tolerate an act or a situation.Agreeing to the obligation to do an act.Agreeing to the obligation to do an act.

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Obligations / ActionsObligations / Actions

Examples of Obligations / ActionsExamples of Obligations / Actionsnon compete fees for agreeing not to competenon compete fees for agreeing not to compete compensation on termination of business agreementscompensation on termination of business agreementsadvance forfeited for cancellation of agreement to provide a advance forfeited for cancellation of agreement to provide a service. service. forfeiture of security deposit for damages done by service forfeiture of security deposit for damages done by service receiver in course of receiving of services. receiver in course of receiving of services. cancellation charges being charged by airlines, hotels etc.cancellation charges being charged by airlines, hotels etc.consideration for non-appearance in a court of law or consideration for non-appearance in a court of law or withdrawal of suit.withdrawal of suit.demurrage charges or detention chargesdemurrage charges or detention charges

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Transfer of GoodsTransfer of Goods

Transfer of goods by hiring, leasing, licensing [66E(f)]Transfer of goods by hiring, leasing, licensing [66E(f)]There should be transfer of goods involvedThere should be transfer of goods involved

Such transfer of goods should be by way of – Such transfer of goods should be by way of – hiring hiring leasingleasing licensing, or licensing, or any such mannerany such manner

Such transfer should be Such transfer should be without transfer of right to usewithout transfer of right to use such goods. such goods. Excludes intangible goods Excludes intangible goods Only goods [section 65B(25)] covered Only goods [section 65B(25)] covered

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Transfer of right to useTransfer of right to useTaxable only when transfer of right to use goods is there Taxable only when transfer of right to use goods is there Constitutional / legal concept Constitutional / legal concept Can be determined when agreement in read in whole, not Can be determined when agreement in read in whole, not just one clause just one clause Transfer of right to use is deemed sale u/a 366(29A) of Transfer of right to use is deemed sale u/a 366(29A) of Constitution Constitution If owner retains effective control, no transfer of right can If owner retains effective control, no transfer of right can take place take place Service excludes deemed sale u/a 366(29A) Service excludes deemed sale u/a 366(29A)

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Tests laid down by Supreme Court in BSNL v UOI [(2006)2 STR 161 Tests laid down by Supreme Court in BSNL v UOI [(2006)2 STR 161 (SC)](SC)]

There must be goods available for delivery ; There must be goods available for delivery ; There must be consensus ad idem as to the identity of the goods;There must be consensus ad idem as to the identity of the goods;The transferee should have legal right to use the goods – The transferee should have legal right to use the goods – consequently all legal consequences of such use including any consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the permissions or licenses required therefore should be available to the transferee; transferee; For the period during which the transferee has such legal right, it has For the period during which the transferee has such legal right, it has to be the exclusion to the transferor – this is the necessary to be the exclusion to the transferor – this is the necessary concomitant of the plain language of the statute, viz., a ‘transfer of the concomitant of the plain language of the statute, viz., a ‘transfer of the right to use’ and not merely a license to use the goods; right to use’ and not merely a license to use the goods; Having transferred, the owner cannot again transfer the same right to Having transferred, the owner cannot again transfer the same right to others others

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Article 366 (29A) of Constitution of India, as amended by Constitution (46th Article 366 (29A) of Constitution of India, as amended by Constitution (46th Amendment) Act, 1982, w.e.f 2.2.1983 Amendment) Act, 1982, w.e.f 2.2.1983 "Tax on the sale or purchase of goods" includes-"Tax on the sale or purchase of goods" includes-

a tax on the transfer, otherwise than in pursuance of a contract, of a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable property in any goods for cash, deferred payment or other valuable consideration;consideration; a tax on the transfer of property in goods (whether as goods or in some a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;other form) involved in the execution of a works contract;a tax on the delivery of goods on hire-purchase or any system of a tax on the delivery of goods on hire-purchase or any system of payment by installments;payment by installments;a tax on the transfer of the right to use any goods for any purpose a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or (whether or not for a specified period) for cash, deferred payment or other valuable consideration;other valuable consideration;

to be contd……to be contd……

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a tax on the supply of goods by any unincorporated association or body of a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable persons to a member thereof for cash, deferred payment or other valuable consideration;consideration;

a tax on the supply, by way of or as part of any service or in any other a tax on the supply, by way of or as part of any service or in any other

manner whatsoever, of goods, being food or any other article for human manner whatsoever, of goods, being food or any other article for human

consumption or any drink (whether or not intoxicating) , where such supply consumption or any drink (whether or not intoxicating) , where such supply

or service is for cash, deferred payment or other valuable consideration,or service is for cash, deferred payment or other valuable consideration,

and such transfer, delivery or supply of any goods shall be deemed to and such transfer, delivery or supply of any goods shall be deemed to

be a sale of those goods by the person making the transfer, delivery or be a sale of those goods by the person making the transfer, delivery or

supply and a purchase of those goods by the person to whom such supply and a purchase of those goods by the person to whom such

transfer, delivery or supply is made.transfer, delivery or supply is made.


Examples of transfer without right to use Examples of transfer without right to use

Car on hire with driver – right to use not transferred Car on hire with driver – right to use not transferred

Conditional supply of equipment – not free to use goods Conditional supply of equipment – not free to use goods

Bank lockers – possession not transferred to hirer Bank lockers – possession not transferred to hirer

Hiring of audio visual equipment with attendant – no transfer of Hiring of audio visual equipment with attendant – no transfer of

right / possession right / possession

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Includes delivery of goods on -Includes delivery of goods on -

hire purchase hire purchase

any system of payment by installment any system of payment by installment

Payment in parts / installmentsPayment in parts / installments

Lease payment is calculated so as to cover full cost of asset together Lease payment is calculated so as to cover full cost of asset together

with interest charges with interest charges

Transfer of substantially all risks and rewards in relation to goods so Transfer of substantially all risks and rewards in relation to goods so

transferred transferred

Not taxable as covered under deemed sale of goods Not taxable as covered under deemed sale of goods

But services in relation to such sale taxableBut services in relation to such sale taxable

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Delivery of goods on hire purchaseDelivery of goods on hire purchaseTransfer of possession (and not just of custody) Transfer of possession (and not just of custody) The hirer has the option or obligation to purchase the goods in The hirer has the option or obligation to purchase the goods in accordance with the terms of the agreement. accordance with the terms of the agreement. In hiring, hirer has no such option and risks remain with owner / In hiring, hirer has no such option and risks remain with owner / not transferred to hirernot transferred to hirerIn hire purchase, hirer has option / obligation to purchase goodsIn hire purchase, hirer has option / obligation to purchase goodsOperating lease not covered Operating lease not covered Involves two transactions – financial transaction and hire Involves two transactions – financial transaction and hire purchase. Financial transaction is chargeable to Service Tax purchase. Financial transaction is chargeable to Service Tax [Association of Leasing & Financial Services v. Union of India [Association of Leasing & Financial Services v. Union of India (2010) 20 STR 417 (SC)].(2010) 20 STR 417 (SC)].Service Tax levied only on 10 percent value representing interest Service Tax levied only on 10 percent value representing interest in financial lease and not full value (Notification No. 26/2012-ST) in financial lease and not full value (Notification No. 26/2012-ST)

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Works contract [65B(54)]Works contract [65B(54)]

““Works Contract” means a contract wherein transfer of Works Contract” means a contract wherein transfer of

property in goods involved in the execution of such contract property in goods involved in the execution of such contract

is leviable to tax as sale of goods and such contract is for the is leviable to tax as sale of goods and such contract is for the

purpose of carrying out construction, erection, purpose of carrying out construction, erection,

commissioning, installation, completion, fitting out, repair, commissioning, installation, completion, fitting out, repair,

maintenance, renovation, alteration of any movable or maintenance, renovation, alteration of any movable or

immovable property or for carrying out any other similar immovable property or for carrying out any other similar

activity or a part thereof in relation to such property. activity or a part thereof in relation to such property.

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Works contract covers Works contract covers ConstructionConstructionErection Erection Commissioning Commissioning CompletionCompletionFitting out Fitting out Repair Repair Maintenance Maintenance RenovationRenovationAlteration, or Alteration, or Any other similar activity or part there of Any other similar activity or part there of

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Such activities could be in relation to any – Such activities could be in relation to any –

Movable property (plant, machinery, Movable property (plant, machinery, equipments etc) equipments etc)

Immovable property (land, building, Immovable property (land, building, structures etc) structures etc)

This definition is very vast and covers This definition is very vast and covers almost everythingalmost everything

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Some issues in works contracts Some issues in works contracts Labour contracts Labour contracts ExcludedExcluded

Repair & Maintenance of motor Repair & Maintenance of motor vehicles vehicles

yes if property in goods yes if property in goods transferred in execution of transferred in execution of WCWC

Construction of pipeline / conduit Construction of pipeline / conduit yes, structures on landyes, structures on land Painting/repair/renovation of Painting/repair/renovation of building building

yes if involves provision of yes if involves provision of material also material also

Erection/commissioning Erection/commissioning installation of plant/ machine etc installation of plant/ machine etc

yes if transfer of property in yes if transfer of property in goods is involved and goods is involved and machinery etc are embedded machinery etc are embedded / attached to earth after the / attached to earth after the job. job.

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Value of service portion in execution of work contract = gross amount charged for works Value of service portion in execution of work contract = gross amount charged for works

contact less value of transfer of property in goods involved in execution of works contractcontact less value of transfer of property in goods involved in execution of works contract

Gross amount includesGross amount includes Gross amount does not includeGross amount does not include

Labour charges for execution Labour charges for execution of the works of the works

Amount paid to a sub-Amount paid to a sub-contractor for labour and contractor for labour and servicesservices

Charges for planning, Charges for planning, designing and architect’s fees designing and architect’s fees

Value of transfer of property in goods involved in the Value of transfer of property in goods involved in the execution of the said works contract.execution of the said works contract.

Note:Note:

As per Explanation (c) to sub-rule (i), where value As per Explanation (c) to sub-rule (i), where value added tax or sales tax has been paid or payable on added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the actual value of property in goods transferred in the execution of the works contract, then such value the execution of the works contract, then such value adopted for the purposes of payment of value added adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the property in goods transferred in the execution of the said works contract. said works contract.

Cost of establishment of the Cost of establishment of the contractor relatable to supply contractor relatable to supply of labour and services and of labour and services and other similar expenses other similar expenses relatable to supply of labour relatable to supply of labour and services and services

Value Added Tax (VAT) or sales tax, as the case may Value Added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of property in goods be, paid, if any, on transfer of property in goods involved in the execution of the said works contract involved in the execution of the said works contract

Profit earned by the service Profit earned by the service provider relatable to supply of provider relatable to supply of labour and services labour and services

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Alternative valuation model (Rule 2A of Valuation Rules) Alternative valuation model (Rule 2A of Valuation Rules) Where works contract is for…Where works contract is for… Value of the service portion shall Value of the service portion shall

be…be…

(A) execution of original works (A) execution of original works forty percent of the total amount forty percent of the total amount charged for the works contract charged for the works contract

(B) maintenance or repair or (B) maintenance or repair or reconditioning or restoration or reconditioning or restoration or servicing of any goods servicing of any goods

seventy per cent of the total amount seventy per cent of the total amount charged including such gross amountcharged including such gross amount

(C) in case of other works contracts, (C) in case of other works contracts, not included in serial nos. (A) and not included in serial nos. (A) and (B) above, including contracts for (B) above, including contracts for maintenance, repair, completion maintenance, repair, completion and finishing services such as and finishing services such as glazing, plastering, floor and wall glazing, plastering, floor and wall tiling, installation of electrical tiling, installation of electrical fittings. fittings.

sixty percent of the total amount sixty percent of the total amount charged for the works contract charged for the works contract

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Total Value Total Value == Sum total of Sum total of ++ gross amount charged gross amount charged ++ value of goods and services supplied free of value of goods and services supplied free of

cost for use in or in relation to execution of WCcost for use in or in relation to execution of WC Same ContractSame Contract Any other ContractAny other Contract

++ value of land charged as part of total value of land charged as part of total considerationconsideration

-- amount charged for such goods / services, if amount charged for such goods / services, if any any

-- VAT levied, if any VAT levied, if any If value of FOC goods / services is not ascertainable, it will be If value of FOC goods / services is not ascertainable, it will be determined on basis of fair market value having close resemblancedetermined on basis of fair market value having close resemblanceFMV based on generally accepted accounting principles FMV based on generally accepted accounting principles No Cenvat available on goods / inputs used in works contract No Cenvat available on goods / inputs used in works contract

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Supply of foods and drinks is deemed sale and hence not taxable Supply of foods and drinks is deemed sale and hence not taxable

However, only service portion in deemed sale is sought to be taxedHowever, only service portion in deemed sale is sought to be taxed

Service portion in activity wherein goods, being food or any other article Service portion in activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity is a declared service. supplied in any manner as a part of the activity is a declared service.

Levy of Service Tax on services provided by only such restaurants where Levy of Service Tax on services provided by only such restaurants where service portion in total supply is substantial and discernible service portion in total supply is substantial and discernible

Restaurants provided conditional exemptionRestaurants provided conditional exemption Services provided in relation to serving of food or beverages by Services provided in relation to serving of food or beverages by

a restaurant, eating joint or a mess, other then those having the a restaurant, eating joint or a mess, other then those having the facility of air-conditioning or central air-heating in any part of the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, and which has a establishment, at any time during the year, and which has a license to serve alcoholic beverage.license to serve alcoholic beverage.

Threshold exemption Threshold exemption

What activities are covered – What activities are covered – • Supply of food or drinks in a restaurant; Supply of food or drinks in a restaurant; • Supply of food and drinks by an outdoor caterer. Supply of food and drinks by an outdoor caterer.

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in a restaurant in a restaurant -40% of total value charged -40% of total value charged

by outdoor catering - 60% of total value chargedby outdoor catering - 60% of total value charged

Exemption under Notification No. 25/2012-ST to mid day meal scheme Exemption under Notification No. 25/2012-ST to mid day meal scheme and restaurants without bar license / air conditioning / central heating and restaurants without bar license / air conditioning / central heating facility facility

Abatement @ 30% Notification No. 26/2012-ST provided Cenvat credit is Abatement @ 30% Notification No. 26/2012-ST provided Cenvat credit is not taken on goods not taken on goods

Total Value Total Value == Sum total of Sum total of ++ gross amount charged gross amount charged ++ Value of goods and services supplied free of cost for Value of goods and services supplied free of cost for

use use in or in relation to supply of food underin or in relation to supply of food under Same contactSame contact

Any other contractAny other contract

++ value of land charged as part of total considerationvalue of land charged as part of total consideration-- amount charged for such goods / services, if any amount charged for such goods / services, if any -- VAT levied, if any VAT levied, if any

If value of FOC goods / services is not ascertainable, it will be determined on basis of If value of FOC goods / services is not ascertainable, it will be determined on basis of fair market value of having close resemblancefair market value of having close resemblanceFMV based on generally accepted accounting principles FMV based on generally accepted accounting principles No Cenvat available on goods used in supply of foodNo Cenvat available on goods used in supply of food

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Amendment in Rule 6Amendment in Rule 6Inclusion -Inclusion - a) Any amount realized as demurrage, or by any other name, for the a) Any amount realized as demurrage, or by any other name, for the provision of a service beyond the period originally contracted or in any provision of a service beyond the period originally contracted or in any other manner relatable to the provision of service will be included in other manner relatable to the provision of service will be included in taxable value taxable value Exclusions -Exclusions - a) Accidental damages due to unforeseen actions not relatable to the a) Accidental damages due to unforeseen actions not relatable to the provision of service will be excluded from the value of serviceprovision of service will be excluded from the value of service b) Interest on loan has been substituted withb) Interest on loan has been substituted with

I.I. Interest on Deposits and Interest on Deposits and II.II. Interest on delayed payments. (Interest on loans will now be exempt)Interest on delayed payments. (Interest on loans will now be exempt)

c) subsidies and grants disbursed by the Government, not directly affecting c) subsidies and grants disbursed by the Government, not directly affecting the value of service.the value of service.

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Principles of Interpretation of specific description of services [section 66F] Principles of Interpretation of specific description of services [section 66F] Section 65A dealing with classification of taxable services omitted w.e.f. Section 65A dealing with classification of taxable services omitted w.e.f. 1.7.2012 1.7.2012 useful in deciding whether a service falls in negative list / exemptions / useful in deciding whether a service falls in negative list / exemptions / declared services declared services composite v. bundled servicecomposite v. bundled servicebundled service – bundled service – collection of services / tied up servicescollection of services / tied up services more than one service more than one service element of one service combined with element of provision of other service element of one service combined with element of provision of other service

(s). (s). Examples - Mailing done by RTI, Air traveling and catering therein Examples - Mailing done by RTI, Air traveling and catering therein Earlier issue – which taxable service Earlier issue – which taxable service Now – whether any activity is a ‘service’ or not a ‘service’. Now – whether any activity is a ‘service’ or not a ‘service’.

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Rule 1 Rule 1 Reference to main service can not be used for services used for providing Reference to main service can not be used for services used for providing the main servicethe main service

If some service is provided with reference to provision of main service,If some service is provided with reference to provision of main service,it does not be come main service,it does not be come main service,

Related services do not take the colour of main service.Related services do not take the colour of main service.Examples Examples

• Provision of access to any road or bridge on payment of toll Provision of access to any road or bridge on payment of toll Security services Security services IT related same IT related same Contract commission Contract commission

Transportation of passengers by rail Transportation of passengers by rail Air travel agency Air travel agency Tour operators Tour operators

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Rule 2Rule 2

Most specific description to be preferred over more general Most specific description to be preferred over more general

description for services capable of differential treatment for description for services capable of differential treatment for

any purpose based on its description any purpose based on its description

Examples Examples Real estate agent for immovable propertyReal estate agent for immovable property

• If taxed as intermediary, his location is important If taxed as intermediary, his location is important • If taxed as immovable property, location of property is If taxed as immovable property, location of property is

important important

Outdoor catering by pandal & shamiana / convention to be Outdoor catering by pandal & shamiana / convention to be taxed as specific combined entry exist for abatement and taxed as specific combined entry exist for abatement and not as individual servicesnot as individual services

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Taxability of naturally bundled services in ordinary course Taxability of naturally bundled services in ordinary course of business (Rule 3)of business (Rule 3)

If various elements of a bundled service are naturally If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such treated as provision of a single service which gives such bundle its essential characterbundle its essential characterPerception of service provider / service receiver Perception of service provider / service receiver Trade practice Trade practice Example Example

• Packaged hotel accommodation for convention Packaged hotel accommodation for convention delegates may include delegates may include Hotel room accommodationHotel room accommodation Breakfast Breakfast Tea / coffee during conferenceTea / coffee during conference

Access to gym / health club / pool Access to gym / health club / pool Internet Internet Business centre Business centre Sight seeing Sight seeing

Could be considered as naturally bundled Could be considered as naturally bundled conventionconvention services as each services as each activity is taxable but does not provide essential character and taxed activity is taxable but does not provide essential character and taxed accordingly accordingly Indicators of naturally bundled services Indicators of naturally bundled services

There is a single price or the customer pays the same amount, no matter There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or usehow much of the package they actually receive or use

The elements are normally advertised as a package.The elements are normally advertised as a package. The different elements are not available separately.The different elements are not available separately. The different elements are integral to one overall supply – if one or more is The different elements are integral to one overall supply – if one or more is

removed, the nature of the supply would be affected.removed, the nature of the supply would be affected.Each case to be individually examinedEach case to be individually examined

Bundled ServicesBundled Services

Rule 4 Taxability of services not naturally bundled ink ordinary course of Rule 4 Taxability of services not naturally bundled ink ordinary course of business business

If various elements of a bundled service are not naturally If various elements of a bundled service are not naturally bundled in the ordinary course of business, it shall be bundled in the ordinary course of business, it shall be treated as provision of a service which attracts the treated as provision of a service which attracts the highest amount of service tax.highest amount of service tax.Examples Examples

Renting of two floors or two portions of building by a common Renting of two floors or two portions of building by a common agreement (treated as commercial use) agreement (treated as commercial use)

Management of event covering advertisement, promotion, space Management of event covering advertisement, promotion, space booking, photography, videography, public relation etc.booking, photography, videography, public relation etc.

Education

A Knowledge Workshop-Presentation III dated 14th July,2012