IS SERVICE TAX APPLICABLE ON COMMISSION

e of introduction : 01.07.2003 – vide Notification No. 7/2003 Dated 20.06.2003

Definition :

b) “Business Auxiliary service” means any service in relation to -

i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or

ii) promotion or marketing of service provided by the client; or

iii) any customer care service provided on behalf of the client; or

iv) any incidental or auxiliary support service such as billing, collection or recovery of accounts and remittance evaluation of prospective and public relation services, and includes services as a commission agent, but does not include any information technogloy service. Explanation: For the removal of doubts, it is hereby declared that for the purposes of this clause “Information technology service” means any service in relation to designing, development or maintaining of computer software, or computerized data processing or system networking, or any other service primarily in relation to operation of computer system. In the Budget proposal for the year 2004-05 following further additions are proposed in the definition of “Business Auxiliary Service”. iv) procurement of goods or services, which are inputs for the client; or

v) production of goods on behalf of the client; or

vi) provision of service on behalf of the client; or 

Further the earlier entry no.(iv) is proposed to be amended as under and renumbered as (vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision. and includes services as a commission agent, but does not includes any information technology service and any activity that amounts to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944.

Value of Taxable Service:

Value of taxable service shall be the gross amount charged by the service provider of such service rendered by him. 
i) Scope of Service: Any service provided to a client for promotion or marketing of his goods/services, providing customer care service on behalf of the client, or providing any incidental or auxiliary support service to the client for conduct of his business is taxable. However services in relation to information technology are excluded from tax net. 
Exemptions: 
i) Call centres & Medical transcripttion centres are exempted from payment of service tax (Notfn.8/2003 S.T. dated 20.06.2003)

ii) The commission agents were exempted from payment of service tax vide Notfn.No.13/2003-S.T. dated 20.06.2003. However with effect from 09.07.2004, by virtue of amendment to above notfn. Vide Notfn.8/2004-S.T. dated 09.07.2004, the exemption is available only to the commission agents dealing in agricultural produce.