With the Goods and Service tax round the corner, the absorption of cascading effect of taxes on input services and goods becomes all the more important. The scope of meaning of the terminology used in the statutory laws creates a major hurdle is smooth functioning of any tax related laws and more so in the case of Service tax, the later being an ever controversial Tax. One of such terminology used in the Cenvat rules is “business” and “Activities in relation to Business”. In a recent judicial pronouncement its held that the word business is to be understood as a continuous activity and not confined or restricted to mere manufacture of the product. Activities in relation to the business cover all activities that are related to the functioning of the business. Words relating further widens the scope of expression activities relating to business. It is a know fact that service tax like CENVAT is basically value added tax which is operative through credit mechanism. It is consumption tax which ultimately must be borne by the consumer.
The term business therefore, cannot be given a restricted definition to say that business of a manufacturer is to manufacture final products only. Business comprises of the regular and systematic activity with an object of earning of profits. The machinery, plant, building and the land over which they have erected or constructed are only the tools of such business. Assets and liabilities including goodwill are the necessary ingredients to constitute a business, besides the stocks and other movable and immovable items connected with the said business. The term “business" therefore, particularly in fiscal statutes is of wide import.
The definition of input service employs the phrase activity relating to business. The words relating to further widens the scope of the expression activities relating to business. The expression relating to thus widens the scope of the definition. Similarly, the use of the word activities in the phrase activities relating to business further signifies the wide import of the phrase "activities relating to business”. The Rule making authority has not employed any qualifying words before the word activities, like main activities or essential activities etc. Therefore, it must follow that all and any activity relating to business falls within the definition of input service provided there is a relation between the manufacturer of concentrate and the activity. Therefore, the phrase "activities relating to business” are words of wideimport.
The word services is given such a wide meaning for the purposes of value added tax that it is capable of embracing everything which a taxable person does in the course or furtherance of a business carried on by him which is done for a consideration. The name or description which one might apply to the service is immaterial, because the concept does not all for that kind of analysis. The service is that which is done in return for the consideration. The terminology used and the scope of the meaning of these words go a long way in putting an end to numerous pending litigations at various levels. The Ministry has to ensure that the forthcoming GST is free of all such ambiguities and has an inbuilt mechanism of exhaustive predefined terms and phrases based on various judicial pronouncements. It is observed that many a times simple words and phrases are the most complex when it comes to define or interpret them in the context of any particular taxation law. The quasi judicial authorities have a peculiar approach when it comes to interpreting the scope and meaning of words and phrases. They tend to completely ignore settled principles and simply back on the bookish definitions which give rise to unending saga of painful journey of litigations.
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