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Brief History:

The Service Tax was introduced in India around 21 years back on July 1, 1994 at the recommendations of Dr. Raja Chelliah Committee on tax reforms. The introduction of this levy in India can be termed as milestone in Indian Tax history.

This is also an indicator of foresightedness and thoughtfulness of the reformers, economists and the government of India. The tax collection figures themselves state the success story of service tax. Some of the tax collection data are given hereunder:

Financial Year

Revenue Rupees (in crores)

Number of services















Negative List Regime w.e.f. 01.07.2012





2,09,774 (Estimated)


Perhaps, the reformers in favour of this levy and the government also would not have imagined such grand revenue to come 21 years back. But today, this is the reality.

On July 1, 1994, the service tax was introduced on 3 services only. These were Telephone Services, Non-Life Insurance Services and Stock Brokers’ Services. From July 1, 2012, the concept of Negative List Regime has been introduced. Meaning thereby that all the services, other than those mentioned in the Negative List (as per Section 66D of the Finance Act, 1994 as enacted by the Finance Act, 2012) are liable to service tax if not specifically exempted otherwise.

The above information is sufficient to indicate the importance of service tax in:

a. The contribution of service sector in the Indian economy;

b. Formation of appropriate fiscal and other policies by the government and

c. The growth of Indian Economy.

Therefore, it is important to understand that what is meant by service.

Meaning of Service:

As per the dictionary meaning, the term service means-

‘A valuable action, deed, or effort performed to satisfy a need or to fulfil a demand or an action of helping or doing work for someone’.

As per another thought-

‘Service means a system of supplying a public need such as transport, communications, or utilities like, electricity or water or to perform routine maintenance or repair work on a vehicle or machine or to ensure that gas appliances are serviced regularly etc.

From the economic and taxation point of view, one can say that, service is an activity, (like transportation, communication, repair or maintenance etc.), carried on by one person for another for some consideration measurable in money.

In the like manner, clause (44) of section 65B of the Fiancé Act, 1994 (as introduced by the Finance Act, 2012 w.e.f. 01.07.2012) defines the word ‘Service’ as under:

“Service means any activity carried out by a person for another for consideration and includes a declared service, 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

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;

(b) a provision of service by an employee to the employer in the course of or in relation to his  employment;

(c) fees taken in any Court or tribunal established under any law for the time being in force.”         

Now let us analyse the above definition of service:

There should be an activity, means a condition in which a person does or has done a thing for other person like repair, transportation or erection etc.

It is carried on by a person for another. The person has been defined under clause (37) of section 65B to include, an individual; a HUF; a company; a society; a LLP; a firm; an AOP/BOI (whether incorporated or not); Government; a Local Authority or every artificial judicial person.

The activity should be for consideration.

As per explanation (a) to section 67 of the Finance Act, 1994, as amended by the Finance Act, 2015:

“consideration” includes– (i) any amount that is payable for the taxable services provided or to be provided; (ii) any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed; (iii) any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket.’.

It includes a declared service.

As per section 66E of the Finance Act, 1994 as inserted by the Finance Act, 2012, the following shall constitute declared services, namely:–

i. (a) renting of immovable property; (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion-certificate by the competent authority. (c) temporary transfer or permitting the use or enjoyment of any intellectual property right; (d) development, design, programming, customisation, adaptation, up-gradation, enhancement, implementation of information technology software; (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; (f) transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods; (g) activities in relation to delivery of goods on hire purchase or any system of payment by instalments; (h) service portion in the execution of a works contract; (i) service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity.

ii. It is not transfer of title in goods or immovable property by way of sale gift or any other manner.

iii. It is not a deemed sale under Article 366(29A) of the constitution of India. As per the sais Article, the following transactions are termed as deemed sale:

a. the transfer, otherwise than in pursuance of a contact, of property in any goods for cash, deferred payment or other valuable consideration;

b. the transfer of property in goods (whether as goods or in some other form) invoked in the execution of a works contract;

c. the delivery of goods on hire purchase or any system of payment by instalments;

d. transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;

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

f. 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 consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, 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 supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;

iv. It is not a transaction in money, means a transaction like deposit or withdrawal of money from a bank; advancing or repayment of principal amount of loan or conversion of currency of once denomination to another. However, the services rendered in connection with the monetary transactions like commission taken by money changers or banks will be termed as service.

v. It is not an actionable claim like, unsecured debt, which is not secured by any mortgage of immovable property or hypothecation/pledge of any movable property or any beneficial interest in the movable property not in possession of the claimant which the civil courts recognise as affording grounds for relief

vi. It is not the service provided by an employee to the employer and

vii. It is not a fee taken by any court or a tribunal established under any law.

viii. Vide explanation 1 to the said clause (44), it is also clarified that the services rendered by MPs, MLAs, Members of Local Authorities/Municipalities or by the persons who hold any post in pursuance of the provisions of the Constitution of India or by the person/chairperson or the member or director in the body established by the central or state government, will not termed as service.


The introduction and levy of service tax in India w.e.f. July 1, 1994 is one of the most important and successful tax reforms in the country. Huge tax collections of service tax prove this fact. These are also indicators of role of service sectors in the growth of Indian economy since last 21 years. In fiscal and other policy formations in the country, the service tax and service sectors play a vital role.

In order to term an activity a service it is necessary to see that such activity is carried out by once person for another for monetary consideration and that activity is neither sale/transfer/gift of immovable/movable property or goods nor a deemed sale in terms of Article 366 (29A) of the constitution of India. Likewise it is not a service rendered by an employee to the employer or a service rendered by an MP/MLA or the like persons. Similarly, the transactions in money or actionable claims or the fees taken by any court of law or the tribunal will not be termed as service.

By CA. Jai Kishan

The author can be reached at Email: jkmanghani@rediffmail.com 

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CA JaiKishan
(CA Practice )
Category Service Tax   Report

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