Budget Amendments- Service Tax – 1st September 2009
CA Madhukar N Hiregange
& CA Vinay K.V.
It is the practice followed in every budget by our Honorable Finance Minister to expand the scope (coverage) by introducing new categories of services without actually understanding the word “Service” nor defining the term “Service”. Post 2003, all the commercial activities which were not liable under state list were covered under Service Tax. In some case the categories were introduced and tax was levied even though, these activities could not be called as service in common parlance and in some instances liable to VAT/CST as goods. This has to led to complication in understanding the actual scope and intention across the country and due to which, there are lot of litigation across the country where the revenue is interpreting the provision to its benefit and on the other hand, assesses are interpreting the provisions to its benefit. However as on day, there are many unanswered questions and poor assesses are paying the same as the penal provisions under service tax are very strict i.e. theoretically double the tax amount.
The present Honorable Finance Minister has taken a cue and has followed the same philosophies from the immediately past Finance Minister and has introduced three new services, without actually explaining the scope and intention. The coverage of legal practitioners is quite suspect though it appeared that they would be covered.
This year, budget was presented by Mr. Pranab Mukerjee – Honorable Finance Minister on 06th July 2009, and received the presidential assent on 19th day of August 2009. Normally all the amendments are effective from the effective date to be notified after the bill has received the presidential assent. However to the surprise, the Honorable Finance Minister after receiving representation from various trade forums, has made 1st day of September 2009 as the effective date for new services and also for services like Business Auxiliary Service, where amendment was made.
The following are the new services introduced:
- Transport of coastal goods and goods transported through inland water.
- Legal Consultancy Service.
- Cosmetic and plastic surgery service.
Now, let us precede our discussion discussing the important changes in the services.
Transport of coastal goods and goods transported through inland water:
- This service aims at taxing any service provider or to be provided by any person to any other person in relation to transportation of the under mentioned
- coastal goods or
- goods through national waterway; or
- goods through inland water or
- The costal goods means goods transported in a vessel from one port in India to another (other than imported goods) as given under section 2(7) of the Customs Act, 1962.
Cosmetic and plastic surgery service
- This services aims at taxing any service provided or to be provided in relation to cosmetic surgery or plastic surgery. However this service does not intend to tax surgeries undertaken to restore or reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, degenerative diseases, injury or trauma. Generally these processes could be undertaken to correct impairment caused by burns, fractures or congenital abnormalities like cleft lip etc.
TRU circular also provides the indicative surgeries that can be taxed under this service listed as under:
- Buttock augmentation and lift;
- Rhinoplasty (reshaping of nose);
- Otoplasty (ear surgery);
- Rhytidectomy (face lift);
- Liposuction (removal of fat from the body);
- Brow lift;
- Cheek augmentation;
- Facial implants;
- Lip augmentation;
- Forehead lift;
- Cosmetic dental surgery;
- Orthodontics;
- Aesthetic dentistry;
- Laser skin surfacing
Legal Consultancy Service
- This service aims at taxing 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. For the purpose of this service business entity includes an association of persons, body of individuals, company or firm. Individual here is excluded, However if the individual providing the service from his proprietor concern can be excluded has to be examined. This service excludes any service provided by way of appearance before any court; tribunal or authority shall not amount to taxable service. This service is wide enough to cover not only advocates but also any person (entity) providing such service.
- It is very important to highlight here is Chartered Accountants/Cost Accountants/Company Secretary are exempted for any service provided in relation to representing the client before any statutory authority in the course of proceedings initiated under any law for the time being in force. Therefore the services such as reply to show cause notice, collection of facts or preparation of statements for the purpose of the notice etc are also exempted along with the appearance fee. However this service excludes only appearance fee and not other services.
- The table below provides the various situations and their taxability.
|
Sl. No.
|
Service provider
|
Service Receiver
|
Taxability
|
|
1.
|
Individual
|
Entity
|
Non-taxable
|
|
2.
|
Entity
|
Individual
|
Non-taxable
|
|
3.
|
Individual
|
Individual
|
Non-taxable
|
|
3.
|
Entity
|
Entity
|
Taxable
|
Extension in the existing service
Transportation by Indian Railways
- Finance Bill 2009 (No.2) intends to tax by amending the “transportation by rail in container service” to extend the scope of taxable service beyond transportation in a container by a person other than Indian Railways. In other words goods transported by Indian railways in any form are now intended to be taxable with this finance bill.
Manufacture of non-excisable goods
- Production or processing of goods for or on behalf of a client was covered under Business Auxiliary service. However the service / process that amounts to manufacture in terms of provision of central excise was excluded. Earlier the product like liquor which is not excisable goods (Subject to state excise) was not taxable if the process was amounting to manufacture. In this finance bill it is proposed to amend this service to exclude only excisable goods that amounts to manufacture. Therefore the non-excisable goods that are manufactured for or on behalf of the client attract service tax.
Amendment to existing service
Sub-Stock Broker Service exempted
- Finance Bill 2009 (No.2) has proposed to amend the stock broker service to exclude the taxable service provided by a sub-broker form the tax net. This amendment is proposed in view of the SEBI regulation that only the main broker can issue the contract note, so main broker collects the commission and pays the tax on the same, then passes some share as agreed to the sub-contractors which is now exempted from the tax net. TRU circular has also clarified that such consideration received by the sub-contract are also not taxable under Business Auxiliary Service)
Information technology software service
- Information technology software service taxed “acquiring the right to use the information technology software ….” Now Finance Bill 2009 (No.2) proposes to amend the same to “providing right to use….” This change is proposed to be amended with effect from 16.05.2008.
Some FAQ on amendments:
- What is the effective date for the new service?
The effective date for the above amendments effected through Budget 2009 is 1st day of September 2009.
- Whether the services provided prior to 01.09.2009 is taxable?
No, the services provided prior to 01.09.2009 are not taxable.
- Whether any new services introduced in Budget 2009 are taxable under any other category prior to 01.09.2009?
No, tribunals in the case of Glaxo Smithline Pharmaceuticals Ltd Vs CCE 2006 (003) STR 711 and BCCI Vs CST 2007 (7) STR 384 has held that when an existing tariff definition remains the same, then the introduction of new tariff entry would imply that the coverage under the new tariff for purpose of tax is an area not covered by the earlier entry.
- Whether all the receipts that are to be received after 01.09.2009 is taxable?
No, the receipts pertaining to service provided after 01.09.2009 are liable for service tax at 10% and not for the receipts pertaining to service provided prior to that rate.
- In case the service is provided prior to 1.09.2009 and the bill is made after 01.09.2009, whether the service provider is liable to service tax?
It is very important to note that in case of service tax, the point of levy is on the service provided and point of collection is on realization. Therefore the service tax is not required to be paid when the provision of service is complete prior to 01.09.2009. However proof of the same maybe retained.
- What would be the liability if the service was started prior to 01.09.2009 and is continuing after 01.09.2009?
The date of billing is not the criteria for deciding the taxability, but what is important is the point of provision of service, practically, the service provider has to make a bill for all the services provided upto 01.09.2009 and a separate bill for all the services provided post 01.09.2009. Service Tax is to be paid only on those services provided post 01.09.2009.
- What would be the liability when advance is received prior to 01.09.2009 for the services to be provided post 01.09.2009?
What is relevant under service tax is the date of provision of service and not receipt of consideration. Therefore the advance amount received prior to 01.09.2009 for the services to be provided post 01.09.2009 is taxable.
The above are some of the impact of the budget amendments which were passed and received the presidential assent.
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