New Services taxable w.e.f 1-6-07 and amendments to existing
Services and Service Tax Rules
The Finance Bill, 2007 received the assent of the President
of India on the 11th May 2007 and the corresponding Act is published in the
Gazette of India dated 12th May 2007 as Act No.22
of 2007.
Following new services will applicable from the 1st June
2007:
-
Telecommunication services
-
Mining of mineral, oil and natural gas services
-
Designing services
-
Development and supply of content services
-
Renting of immovable property for business & commerce
-
Service provided in relation to execution of works
contract
-
Fund/Portfolio/Asset Management Services.
Seven services which are specifically mentioned in the
category of taxable services and amendments made relating to existing taxable
services shall come into effect from the 1st June 2007. [Notification
No.23/2007-Service Tax dated 22-5-2007].
Section 65 defines taxable services and various terms used in
relation to taxable services. Section 66 is the charging section and provides
for levy of service tax on taxable services. These two sections have been
amended in the Finance Act, 2007 and these amendments shall come into effect
from 1-6-2007 [Notification No.23/2007-Service Tax dated 22-5-2007].
Seven taxable services are
|
Taxable Service |
Sub-clause in Section
65(105) |
|
Telecommunication service |
zzzx |
|
Mining of mineral, oil or gas |
zzzy |
|
Renting of immovable property |
zzzz |
|
Execution of a works contract |
zzzza |
|
Development and supply of content for use in telecom |
zzzzb |
|
services, advertising agency services and on-line
information and database access or
retrieval services |
|
|
A person, except a banking company or a financial
institution including a non-banking financial company or any other
body corporate or commercial concern, in relation to asset management
including portfolio management and all forms of fund
management |
zzzzc |
|
Design services |
zzzzd |
Taxable Service Sub-clause in
Section 65(105)
|
Inclusion/Insertion |
In Definition |
Section/Sub-Clause |
|
Motor vehicles capable of carrying more than twelve
passengers for hire or reward, other than such motor vehicle and maxi cab
rented to an educational body, imparting skill or knowledge
or lessons on any subject or field,other than a commercial training or
coaching centre |
“Cab” under rent-a-cab service |
Section 65(20) |
|
Social function includes marriage functions |
- Mandap keeper services
|
Section 65(66) and 65(67)
|
| |
- Pandal or shamiana contractor
|
Section 65(77a) |
|
Marriage event |
Event management |
Section 65(40) |
|
Pre-recruitment screening, verifying the credentials
of the candidate, authenticity of documents
submitted by the candidates and verification of antecedents |
Manpower recruitment
or supply |
Section 65(105)(k) |
- “Any other person” with “commercial
concern”
- Cash management
- Financial leasing
|
Banking and other
financial |
Section 65(105)(zm) Section
65(12) |
|
Consultancy in the discipline of computer hardware
engineering |
Consulting engineer |
Section 65(105)(g) |
|
Renaming of management consultant’s service as
management or business consultant’s service
Inclusion of business consultancy in the definition |
Management consultant’s
service |
Section 65(105)(r)
Section 65(65) |
|
Clarification that ‘Goods’ includes computer software |
Management,maintenance
or repair service |
Section 65(64) |
|
Exclusion |
In Definition |
Section/Sub-Clause |
|
Business directories, yellow pages and trade catalogues
which are primarily meant for commercial purposes |
“Book” under sale of space
or time for advertisement service |
zzzm |
Amendment to Rules
In view of the merger of various telecommunication related
taxable services into "telecommunication service", notification No.
36/2004-Service Tax dated
31-12-2004 and Rule 2(1)(d)(i) of the Service Tax Rules, 1994 have been amended
so as to substitute the reference to various telecommunication related taxable
services, namely telephone connection, pager, leased circuit, communication
through telegraph, communication through telex and facsimile communication, with
the merged "telecommunication service" [Notification No.27/2007-Service Tax
dated 22-5-2007 & Notification No.28/2007-Service Tax dated 22-5-2007.
Export of Services Rules, 2005 and the Taxation of Services
(Provided from outside India and received in India) Rules, 2006 have been
amended so as to categorise the newly specified taxable services under Rule 3
[Notification No.30/2007-Service Tax dated 22-5-2007& Notification
No.31/2007-Service Tax
dated 22-5-2007].
There are three categories:
Category 1. Service provided in relation to immovable
property situated outside India;
Category 2. Service performed outside India partly or
wholly
Category 3. Service provided to a recipient located
outside India
Category 1. Service provided in relation to immovable
property situated inside India
Category 2. Service performed in India party or
wholly
Category 3. Service provided to a recipient located
inside India
Taxable services have been categorised as under:
Sr.
No. |
Name of Taxable Service |
Sub-clause of
section
65(105) |
Export of Services
Rules, 2005 |
Taxation of Services (Provided from
outside India and received in India) Rules, 2006 |
|
1 |
Telecommunication service |
zzzx |
Category 3 [Rule 3(1)(iii)] |
Category 3 [Rule
3(iii)] |
|
2 |
Mining of mineral, oil or gas |
zzzy |
Category 1 [Rule 3(1)(i)] |
Category 1 [Rule
3(i)] |
|
3 |
Renting of immovable property |
zzzz |
Category 1 [Rule 3(1)(i)] |
Category 1 [Rule
3(i)] |
|
4 |
Works contract service |
zzzza |
Category 1 [Rule 3(1)(i)] |
Category 1 [Rule
3(i)] |
|
5 |
Development and supply of content |
zzzzb |
Category 3 [Rule 3(1)(iii)] |
Category 3 [Rule
3(iii)] |
|
6 |
Asset management |
zzzzc |
Category 3 [Rule 3(1)(iii)] |
Category 3 [Rule
3(iii)] |
|
7 |
Design services |
zzzzd |
Category 3 [Rule 3(1)(iii)] |
Category 3 [Rule
3(iii)] |
Exemption from service tax
Notification No.24/2007-Service Tax, dated 22-5-2007 exempts
taxable service provided by any person in relation to renting of immovable
property from service tax equivalent to service tax payable on the amount of
property tax, actually paid by the service provider to the local authority. In
other words, service tax is payable on the rental amount received less the
actual amount of property tax paid.
However, any amount such as interest, penalty paid to the
local authority by the service provider on account of delayed payment of
property tax or any other reasons can not be treated as property tax for the
purpose of this exemption and hence, deduction of such amount from the gross
amount charged shall not be allowed.
If property tax is paid for a period, which is different from
the rental period, property tax proportionate to the rental period shall be
calculated and the amount so calculated shall be excluded from the rental amount
received for the purpose of levy of service tax.
For Example,
Property tax paid for April to September = Rs. 24,000
Rent Received for April = Rs. 2,00,000
Service Tax payable for April = Rs.1,96,000 (2,00,000-40000)
* Applicable rate of service tax
There may be a situation where property tax is paid after the
payment of service tax on the rental. As a result, deduction of property tax
paid from rental could not be availed of at the time of payment of service tax.
In such cases, Rule 4C of the Service Tax Rules, 1994 provides self-adjustment
of excess service tax paid against the service tax liability without any limit
within 1 year from the date of payment of such property tax. [Notification
No.24/2007-Service Tax, dated 22-5-2007].
-
Commercial or industrial construction service, and
services provided in relation to the execution of works contract, in
relation to construction of a port or other port: Construction of ports is
specifically exempted from levy of service tax under commercial or
industrial construction service [section 65(25b)] vide notification
No.16/2005-Service Tax, dated
7-6-2005. Construction of ports under the newly introduced commercial or
industrial construction service provided in relation to the execution of
works contract under section 65(105)(zzzza) has also been exempted.
Accordingly, notification No.16/2005-Service Tax, dated 7-6-2005 has been
rescinded and a combined notification No.25/2007-Service Tax dated 22-5-2007
has been issued exempting commercial or industrial construction service, and
services provided in relation to the execution of works contract, provided
to any person by any other person in relation to construction of a port or
other port. However, services such as completion and finishing, repair,
alteration, renovation, restoration, maintenance or repair provided in
relation to existing port or other port shall be outside the scope of this
exemption and hence, leviable to service tax.
Optional Composition Scheme for Works Contract
Services provided in relation to the execution of a works
contract [section 65(105) (zzzza)] is a taxable service. Works contract for the
purposes of levy of service tax has been defined to mean a contract wherein:
-
Transfer of property in goods involved in the
execution of such contract is leviable to tax as sale of goods, and
-
Such contract is for the purposes of carrying out, -
-
Erection, commissioning or installation,
-
Commercial or residential construction and related
completion and finishing services, and
-
Turnkey projects including engineering, procurement
and construction or commissioning (EPC) projects.
Works contract is a composite contract for supply of goods
and services. A composite works contract is vivisected and, –
-
VAT/sales tax is leviable on transfer of property in
goods involved in the execution of works contract [Art.366 (29A)(b) of the
Constitution of India], and
-
Service tax will be leviable on services provided in
relation to the execution of works contract.
Service tax is chargeable on the gross amount charged by the
service provider for the taxable services provided (section 67). In the case of
works contract, the taxable value of services is to be determined by vivisecting
the composite works contract. Rule 2A of Service Tax (Determination of Value)
Rules, 2006 [Notification No.29/2007-Service Tax dated 22-5-2007], provides that
value of works contract service shall be equivalent to the gross amount charged
for the works contract less the value of transfer of property in goods involved
in the execution of the said works contract. Thus, wherever the service provider
maintains records, the value of services shall be the gross amount charged for
the works contract less the value of transfer of property in goods involved in
the execution of the works contract.
Wherever VAT/sales tax on transfer of property in goods
involved in the execution of works contract is paid on actual value, the same
value is also taken for the purpose of determining the value of works contract
service. In other cases, value of works contract service shall be determined
based on the actuals. It has also been explained that value of works contract
service shall include:
-
Labour charges for execution of the works;
-
Amount paid to a sub-contractor for labour and
services;
-
Charges for planning, designing and architect’s
fees;
-
Charges for obtaining on hire or otherwise,
machinery and tools used for the execution of the works contract;
-
Cost of consumables such as water, electricity, fuel,
used in the execution of the works contract, the property in which is not
transferred in the course of execution of a works contract;
-
Cost of establishment of the contractor relatable to
supply of labour and services;
-
Other similar expenses relatable to supply of labour and services; and
-
Profit earned by the service provider relatable to
supply of labour and services;
If the gross amount charged for the works contract is
inclusive of VAT or sales tax, the value for the purposes of service tax shall
be computed as follows:
[Gross amount charged – (Value of transfer of property in
goods involved in the execution of works contract and VAT or sales tax paid, if
any, on the said transfer of property in goods involved in the execution of the
said works contract)].
As a trade facilitation measure and also for ease of
administrative convenience, the service provider has been given an option to
adopt the composition scheme for payment of service tax on works contract
service. The Works Contract (Composition Scheme for Payment of Service Tax)
Rules, 2007 has accordingly been notified vide notification No.32/2007-Service
Tax dated
22-5-2007.
The scheme provides that the service provider shall have an
option to pay an amount equivalent to two per cent of the gross amount charged
for the works contract instead of paying service tax at the rate specified in
section 66. Gross amount charged for the works contract shall not include VAT or
sales tax paid on transfer of property in goods involved in the execution of the
said works contract. The provider of taxable service opting to pay service tax
under the said composition scheme is not entitled to take CENVAT credit of duty
on inputs, used in or in relation to the said works contract, under the
provisions of CENVAT Credit Rules, 2004.
The provider of taxable service who opts to pay service tax
under these rules shall exercise such option in respect of a works contract
prior to payment of service tax in respect of the said works contract and the
option so exercised shall be applicable for the entire works contract and cannot
be withdrawn until the completion of the said works contract.
Presently, erection, commissioning or installation service
[section 65(105)(zzd)], commercial or industrial construction service [section
65(105)(zzq)] and construction of complex service [section 65(105)(zzzh)] are
separate taxable services.
Contracts which are treated as works contract for the purpose
of levy of VAT / sales tax shall also be treated as works contract for the
purpose of levy of service tax. This is clear from the definition under section
65(105)(zzzza).
