Enabling Service Tax Practice

1. Enabling Service Tax Practice By CA. Dhruv Seth ds@sethspro.com

4. Coverage of this presentation • Overview of Indian Tax structure • Importance of Service Tax • Definition of “Service” • Definition of “Declared Service” • Draft Place of provision of service rules

5. Overview of the Indian tax structure

6. Power to levy • Article 265 – No tax shall be levied or collected except by the authority of law • Article 246 – Distributes legislative powers • Schedule VII - List I – Center List (97) • List II – State List (66) • List III – Concurrent List (47)

7. Power to levy

8. Direct vis-à-vis Indirect tax collection Actual 2008-09 Actual 2009-10 Actual 2010-11 Revised 2011-12 Budgeted 2012-13

9. Direct vis-à-vis Indirect • Regressive • Administrative Cost • Inflationary • Growth Oriented

11. Breakup of Indirect Tax collection

12. Importance of Service Tax

13. Service Tax vis-à-vis GDP

14. Service wise contribution 2011-12

15. Most Trending Services

17. Change • From Positive Approach • To Negative Approach • Define “Service” – 65B (44) • Define “Declared Services” – 65B (22) • Define “Negative Service” – 66D • Notify “Exempt Service” – 12 / 2012

18. Determination Service Sec 65B (44) ? Declared Service Sec 66E ? NO YES YES NO Negative List Sec 66D ? Not Taxable YES NO YES Exemption 12/2012 ? Taxable NO

19. 66B – Charging section • There shall be levied a tax (hereinafter referred to as the Service Tax) at the rate of twelve per cent. On the value of all services, other than those services specified in the negative list, provided oragreed to be providedin the taxable territory by one person to another and collected in such manner as may be prescribed

20. Sec 65B (44) of the Finance Act, 1994 Service

21. 65B(44) – Flow chart Basic Provision Includes Exclusions Further exclusions vide Explanation 1 Explanation 2 Explanation 3 - Deeming Explanation 4

22. 65B (44) - SERVICE means any activity carried out by a person for anotherfor considerationand includes a declared service but shall not include….

23. 65B (44) - Essentials

24. Activity • Busy or vigorous action or movement • The state or quality of being active • Lively action or movement

25. Guidance Note 2 – What is activity? • Activity could be active or passive and would also include forbearance to act. Agreeing to the obligation to refrain from an act or to tolerate an act or a situation has also been specified as a declared service under section 66E of the Act.

26. A person for another • Necessary to have two persons • Has to be carried out for the other person • Caveat - Explanation 2(a) and 2(b) of 65B(44)

27. Sec 65B(37) - Person • (i) an individual, • (ii) a Hindu undivided family, • (iii) a company, • (iv) a society, • (v) a limited liability partnership, • (vi) a firm, • (vii) an AOP or BOI, whether incorporated or not, • (viii) Government, • (ix) a local authority, or • (x) every artificial juridical person, not falling within any of the preceding sub-clauses;

28. Consideration - Sec 2(d) • When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such Act or abstinence or promise is called a consideration for the promise

29. Special Consideration • Gifts or Donation • Research • Charity

30. 65B(44) – Flow chart Basic Provision Includes (covered later) Exclusions Further exclusions vide Explanation 1 Explanation 2 Explanation 3 - Deeming Explanation 4

31. 65B (44) - SERVICE continued ...but shall not include a.) an activity which constitutes merely – (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; OR

32. 65B (44) - SERVICE continued ii.) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; OR iii.) a transaction in money or actionable claim

33. 65B (44) - SERVICE continued b.) a provision of service by an employee to the employer in the course of or in relation to his employment ; OR c.) fees taken in any court or tribunal established under any law for the time being in force.

34. 65B(44) – Flow chart Basic Provision Includes (covered later) Exclusions Further exclusions vide Explanation 1 Explanation 2 Explanation 3 - Deeming Explanation 4

35. 65B (44) – Explanation 1 Nothing in this clause shall apply to a.) M.P. / M.L.A. / Local authorities b.) Person holding post pursuance to the provisions of the Constitution c.) Chairperson / Member / Director of a body established by the CG / SG

36. 65B (44) – Explanation 2 Transaction in money shall not include any activity relating to the use of money for conversion by cash or by any other mode, from one form, currency or denomination, to other form, currency or denomination for which a separate consideration is charged.

37. 65B (44) – Explanation 3 a.) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons. b.) an establishment of a person in the taxable territory and any of his other establishment in a non taxable territory shall be treated as establishment of distinct persons.

38. 65B(44) – Flow chart Basic Provision Includes (covered later) Exclusions Further exclusions vide Explanation 1 Explanation 2 Explanation 3 - Deeming Explanation 4

39. Sec 65B (22) of the Finance Act, 1994 Declared Service

40. Declared Service • Sec 65B (22) of the Finance Act, 1994 • “Means any activity carried out by a person for another person for consideration and declared as such in Section 66E”

41. Section 66E • Renting of Immovable Property • Construction of a complex, building • Temporary transfer of IPR • Development, design etc. IT Software • Agreeing to refrain or tolerate

42. Section 66E • Transfer of goods without transfer of right of such goods • Activities in relation to hire purchase • Service portion in execution of Works Contract • Service portion of food being served

43. Section 66E (a) • Renting of Immovable Property • - Sec 66D(M) – Negative List – Renting of residential dwelling for use of residence

44. Section 66E (e) • Agreeing to the obligation • to refrain from an act OR • to tolerate an act or a situation OR • to do an act.

45. Section 66E (f) • Transfer of goods by way of hiring, leasing, licensing, or in any manner such manner without transfer of right to use such goods.

46. transfer of right - tests • BSNL Vs. UOI (2006) 145 STC 91 (SC) • There must be goods available for delivery • The identity of the goods must be certain • All permissions and license required should be available to the transferee • It must be a transfer of right to use and not merely a license to use the goods • The owner cannot transfer the right to anyone else till it is with the original transferee

47. Section 66E (g) • Activities in relation to delivery of goods on hire purchase or any system of payment by installments.

48. Section 66E (h) • Service portion in the execution of a works contract • - Works contract definition 65B(54) • - Notification 24/2012 dated 06-06- 2012 superseding 11/2012

49. Section 66E (h) • a.) Pay on service portion of contract • OR

50. Sec 66F of the Finance Act, 1994 Bundled Service