Negative list 02 -


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this article covers the discussion on the new service tax mechanism and its the second part of the discussion, for 1st part refer to

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Negative list 02 -

  1. 1. In today’s article we are going to discuss about the definition of the term “Service” underthe new approach. Earlier the term service was not defined at all, however the same hasbeen now defined in Section 66B(44).Service has been defined in clause (44) of the new section 66B and means any activity forconsideration carried out by a person for another and includes a declared service.The said definition further provides that Service does not include - any activity thatconstitutes only a transfer in title of (i) goods or (ii) immovable property by way of sale, giftor in any other manner (iii) a transfer, delivery or supply of goods which is deemed to be asale of goods within the meaning of clause (29A) of article 366 of the Constitution, atransaction only in (iv) money or (v) actionable claim, a service provided by an employee toan employer in the course of the employment, fees payable to a court or a tribunal set upunder a law for the time being in force.The said definition further covers four explanations.Let us now focus on the said definition. If we concentrate on the above definition we cansee that the same has been divided into three parts – means part, includes part and shallnot include part.“Servicemeans any activity carried out by a person for another for consideration, andincludes a declared service, butshall 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 tohis employment;(c) fees taken in any Court or tribunal established under any law for the time being inforce.”1.) Means partMeans part covers “any activity carried out by a person for another for consideration”On the basis of above part service covers every activity which has been carried on forconsideration by one person for other. Now let us divide the above sentence:Any activityIn general the word activity means an act done, a deed done, an operation carried out,execution of an act, provision of a facility etc.
  2. 2. By a person for anotherService should be provided by a person to another person. This means that service providedto one self is outside the ambit of taxable service. For example - service provided by onebranch of a company to another or to its head office or vice-versa. However there are twoexceptions to it (discussed later on).For considerationThe activity must be carried out for consideration for being covered under the term“service”. So the services which are being provided free of charge are outside the ambit ofthe term service. Hence no service tax can be levied on the free services.Consideration means everything received or recoverable in return for a provision of servicewhich includes monetary payment and any consideration of non-monetary nature ordeferred consideration. Therefore consideration will include both monetary and non-monetary consideration.Non-monetary consideration essentially means compensation in kind such as:♦ Supply of goods and services in return for provision of service♦ Refraining or forbearing to do an act in return for provision of service♦ Tolerating an act or a situation in return for provision of a service♦ Doing or agreeing to do an act in return for provision of serviceIf……… And in return...A agrees to dry clean Bs clothes B agrees to click As photographA agrees not to open dry clean B agrees not to open photography shop inshop in Bs neighbourhood As neighbourhoodA agrees to design Bs house B agrees not to object to construction of As house in his neighbourhoodA agrees to construct 3 flats for B B agrees to provide one flat to A withouton land owned by B any monetary considerationThenFor the services provided by A to B, the acts of B specified in 2nd column are non- monetaryconsideration provided by B to A.To be taxable to service tax, an activity should be carried out for a consideration. Forexample – donations, gifts, free charities etc will not be covered.Means part – Summary – Activity for considerationTo sum up the above means part ---- activity must be for consideration i.e. there should bereciprocity of activity for consideration. Activity for consideration means the activity shouldbe carried out for consideration. This however does not a cover a case where an activity hasbeen carried out and later on a consideration has been received which was not fixed orcertain at the very beginning. Activity for consideration involves an element of contractualrelationship wherein the person doing an activity does so at the desire of the person for
  3. 3. whom the activity is done in exchange for a consideration. An activity done without such arelationship i.e. without the expressed or implied contractual reciprocity of a considerationwould not be an ‘activity for consideration’ even though such an activity may lead to accrualof gains to the person carrying out the activity.For example – An artist performing on a street does an activity without consideration even though passersby may drop some coins in his bowl kept after feeling either rejoiced or merely out of compassion. They are, however, under no obligation to pay any amount for listening to him nor have they engaged him for his services. On the other hand if the same person is called to perform on payment of an amount of money then the performance becomes an activity for a consideration. Other examples being Grant of pocket money, a gift or reward, amount paid as alimony for divorce (which has not been given in terms of reciprocity). However a reward given for an activity performed explicitly on the understanding that the winner will receive the specified amount in reciprocity for a service to be rendered by the winner would be a consideration for such service. Thus amount paid in cases where people at large are invited to contribute to open software development (e.g. Linux) and getting an amount if their contribution is finally accepted will be examples of activities for consideration. An award received in consideration for contribution over a life time or even a singular achievement carried out independently or without reciprocity to the amount to be received will not comprise an activity for consideration. Provisions of free tourism information, access to free channels on TV and a large number of governmental activities for citizens are activities without consideration.2.) Includes PartThe includes part covers “a declared service”. To avoid the litigations certain actives havebeen defined for clarity purpose under declared services. A list of declared service has beengiven for the same. Services not covered in Declared list and Negative list too are stillcovered.The following nine activities have been specified in section 66E: 1) renting of immovable property; 2) 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 certificate of completion by a competent authority; 3) temporary transfer or permitting the use or enjoyment of any intellectual property right; 4) development, design, programming, customization, adaptation, up gradation, enhancement, implementation of information technology software; 5) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; 6) transfer of goods by way of hiring, leasing, licensing or any such manner without transfer of right to use such goods;
  4. 4. 7) activities in relation to delivery of goods on hire purchase or any system of payment by instalments; 8) service portion in execution of a works contract; 9) 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 part of the activity.3.) Shall not include part and ExplanationsTo discussed in the next article.The above article gives a general view from authors point of view and cannot be treated asexhaustive.For any related queries kindly reach me at