Which new services have been brought under the ambit of Service Tax with effect from May 8, 2010, i.e. the date of enactment of the Finance Act, 1994 (14 of 2010)?
The Union finance minister had introduced the Finance Bill, 2010 in the Lok Sabha on February 26, 2010. Later, during the budget debate in the last week of April 2010 certain exemptions were extended for the purpose of levy of Service Tax. On May 8, 2010, the President gave her consent to the Finance Bill and thus the Finance Act, 1994 (14 of 2010) has come into effect from that date.
Eight new taxable services have been brought under the ambit of Service Tax through appropriate amendments in sub-section 105 of Section 65 of the Finance Act, 1994. The new services range from promotion and marketing of lotteries to special services provided by the builders. The services provided for promotion or marketing or organising games of chance are now covered by introducing a separate taxable service [Section 65 (105) (zzzzn)] to cover the services in connection with games of chance, organised, conducted or promoted by the client, in whatever form or by whatever name called (such as lottery, lotto) under the 'Games of chance' service. The tax would be applicable also to such games conducted online.
With the enactment of the Finance Act, 1994 (14 of 2010), services in the health sector are also brought under the ambit of Service Tax. Under the proposed new service, tax has been imposed on the medical charges paid by insurance companies to hospitals on behalf of a business entity for its employees. As such, the insurance company would be the service receiver and the tax paid by the hospital would be available to the insurance companies as credit.
The tax on health services would be payable only if and to the extent the payment for such medical check-up or treatment etc. is made directly by the business entity or the insurance company to the hospital or medical establishment. This new taxable service is defined under Section 65 (105) (zzzzo). Any additional amount paid by the individual (i.e. the employee or the insured, as the case may be) to the hospital would not be subject to service tax. This is to ensure that an individual is not required to pay a tax for which he cannot take credit. Apart from this services provided for maintenance of medical records of employees of a business entity [Section 65 (105) (zzzzp)] are also brought under the Service Tax net.
The Service Tax department has faced difficulties in the past in classifying certain services under the taxable category. If the brand name/house mark etc. is promoted by a celebrity without reference to any specific product or services etc., it is difficult to classify it. Such activities, like mere establishing goodwill or adding value to a brand would fall under this newly-introduced service. This new taxable service of promoting of a 'brand' of goods, services, events, business entity etc [Section 65 (105) (zzzzq)] has now come into effect. A new taxable service of permitting commercial use or exploitation of any event organised by a person or organisation [Section 65 (105) (zzzzr)] has now come into effect. This service now seeks to tax the amount received by a person or organisation, who permits the recording and broadcasting of the event, from the broadcaster, or any other person, who seeks to commercially exploit the event.
In the recent past, exchanges have been set up for transactions in electricity. The Central Electricity Regulatory Commission authorises such exchanges. Since electricity exchanges are not covered by Forward Market Regulations, such transactions are not covered under the commodity exchange taxation. A new taxable service has been introduced [Section 65 (105) (zzzzs)] which seeks to tax the charges recovered for services in relation to assisting, regulating, controlling the business of trading, processing and settlement pertaining to sale or purchase of electricity by the associations authorised by Central Electricity Regulatory Commission.
Services related to two types of copyrights were not covered under the existing taxable service of 'Intellectual Property Right (IPR)'. These two - on cinematographic films and sound recording - have now been brought under the Service Tax net [Section 65 (105) (zzzzt)]. However, it may be noted that this taxable service will not cover individual artists, composers, performers etc. as their copyrights fall under clause (a) of Sec. 13 of the Copyright Act. The finance ministry is constantly exploring new tax avenues. The builders of residential or commercial complexes provide certain facilities and charge separately for them. These charges do not form a part of the taxable value for charging tax on construction. These facilities include: (a) prime/preferential location charges for allotting a flat/commercial space according to the choice of the buyer (i.e. direction- sea facing, park facing, corner flat; floor- first floor, top floor; Vastu - having the bed room in a particular direction; number- lucky numbers); (b) internal or external development charges which are collected for developing/maintaining parks, laying of sewerage and water pipelines, providing access roads and common lighting etc; (c) fire-fighting installation charges; and (d) power back-up charges etc.
Since these charges are in the nature of service provided by the builder to the buyer of the property over and above the construction service, such charges are being brought under the Service tax. These special services provided by a builder to the prospective buyers, such as providing preferential location or external or internal development of complexes on extra charges is now taxable [Section 65 (105) (zzzzu)]. Charges for providing parking space have been specifically excluded from the scope of this service. Development charges, to the extent they are paid to state government or local bodies, would be excluded from the taxable value levy. Further, the ministry has already clarified vide its letter dated 26.02.2010 that any service provided by Resident Welfare Associations or Cooperative Group Housing Societies, consisting of residents/owners as their members, would not be taxable under this service.
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