Whether is this a service liable for service tax?

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Suraj (Querist)
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14 August 2012
Dear Sir / Madam,

Whether following activity can be treated as a Service liable for Service tax?:

Mr. A opens a Bank account for his clients who do not understand net banking, and pays Tax on their behalf after depositing tax amounts received from them and provides this facility free of cost. Is this a Service liable to service tax?
Whether the status changes, if he charges some fees for this facility?

Kindly revert.

Thanks,
Suraj

CA Navin Jain

CA Navin Jain (Expert)
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14 August 2012 service tax is not applicable.

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CA Nikhil Jhanwar

CA Nikhil Jhanwar (Expert)
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14 August 2012 If service is provided free of cost, then no service tax is applicable. If he charges some fees then it is in the nature of consultancy service and service tax applicable.

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Suraj

Suraj (Querist)
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18 August 2012 Dear Mr. Navin,

Is it not liable to service tax even if he charges some extra fees for this service?

Regards
Suraj

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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03 August 2025 Hi Suraj,

Let's analyze the scenario from a **Service Tax** perspective as it stood on **14 August 2012**, under the **Finance Act, 1994**, as amended by the **negative list-based service tax regime** introduced from **1 July 2012**.

---

### 🔹 Scenario:

* **Mr. A opens bank accounts for clients** and helps them pay taxes **on their behalf**, using money received from them.
* He **does not charge** for this service initially.
* Later, a question arises: **What if he charges a fee for this service?**

---

### 🔍 Analysis:

#### ✅ **If the Service is Provided Free of Cost**:

* **No consideration = No service tax.**
* As per Section 65B(44) of the Finance Act, 1994 (post 1 July 2012), a "service" must involve:

* An activity carried out by one person for another,
* For **consideration**.

👉 Hence, if Mr. A is doing this as a **free-of-cost** favor, **no service tax liability** arises, because **no "service" as per law** is being rendered.

---

#### ✅ **If a Fee is Charged for the Service**:

* Then it becomes a **taxable service**, since:

* There is an **activity**,
* For another person (the client),
* For **consideration (the fee)**.

In this case, the service would likely fall under the heading of **Business Auxiliary Service** or **Support Services**, depending on how the transaction is structured. Since it involves facilitation of banking and financial transactions for a fee, it **qualifies as a taxable service** under the post-July 2012 service tax regime.

---

### ✅ Conclusion:

| Scenario | Service Tax Applicable? | Reason |
| --------------------------------------- | ----------------------- | ---------------------------------------- |
| Mr. A provides service **free of cost** | ❌ No | No consideration = Not a taxable service |
| Mr. A **charges a fee** for the service | ✅ Yes | Consideration received = Taxable service |

If Mr. A starts charging, he may need to **register for service tax** if his total taxable services exceed the threshold (₹10 lakhs at the time).

---

Let me know if you need help drafting documentation or checking if any exemption might apply under notifications from that time.

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