Session iii dated 31.10.2012


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A Knowledge Master Class on
“Understanding New Regime of Service Taxation in India”

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Session iii dated 31.10.2012

  1. 1. Presents A Knowledge Master Class On ―Understanding New Regime of Service Taxation in India‖ Conducted by Dr. Sanjiv Agarwal FCA, FCSWednesday,31th October,2012New Delhi © Dr. Sanjiv Agarwal 1
  2. 2. SESSION – IIIServices not liable to Service Tax 2
  3. 3. This Presentation Covers – • What is Negative List • Sectors in Negative List • Analysis of Negative list of Services 3
  4. 4. Services on which no Service Tax shall be payable comprise of : • Service which are specifically excluded from the scope of definition of service itself u/s 65(44). • 17 broad services specified in the negative list of services u/s 66D. • Services which are exempt from levy of Service Tax under N. No. 25/2012-ST dated 20.06.2012. • Specified services otherwise exempt under specific notifications. • Activities where service provider and service receiver are in non –taxable territory
  5. 5. What is negative list • Defined in new section 66D • Section 66D specifies seventeen 17 broad categories of services. • Effective from 1-7-2012 • If an activity meets the characteristics of ‗ service ‗, it is taxable unless specified in Negative List. • Based on socio-economic–tax criterion 5
  6. 6. Socio – Economic Considerations in Negative list• Administrative considerations: taxation of Government, difficult to tax sectors e.g. margin-based financial services.• Under contractual obligations: Specified international bodies and diplomatic missions• Welfare considerations: welfare of vulnerable sections of society, essential education, public health; public transport, services by non-profit entities, religious services, promotion of art, culture and sports.• Economic considerations: transport of export goods, services meant for agriculture, animal husbandry and infrastructure development.• Explicit activities in the nature of services, which are within the taxing powers of States: betting and lotteries, tolls. 6
  7. 7. Negative list of services is drawn from seven sectors, viz. • services provided by specified person ie, Government • social welfare & public utilities • financial sector • transportation • construction & real estate • education • health care • others & miscellaneous 7
  8. 8. Services by Government or a local authority excluding the followingservices to the extent they are not covered elsewhere: • Services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government; • Services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; • Transport of goods or passengers; or • Support services provided to business entities to be contd.. 8
  9. 9. • Most of services provided by Central / State Governments exempt from service tax.• But following services are taxable -  Department of posts - speed post, express parcel, life insurance and agency service to non government business entity but basic mail, money orders, operation of saving accounts ,pension payment etc services are covered in negative list  In relation to vessel or aircraft service within/outside port/airport  Transport of goods and/ or passengers  Support service to business entities To be contd…..
  10. 10. • Services by government as sovereign functions (grant of licensing rights or audit of government, passport etc.)• Excludes corporations formed under Central Acts or State Acts or various Government companies registered under Companies Act, 1956 or autonomous institutions set up by a Special Acts• Government Department needs to be registered and to pay tax on support services of  Renting of immovable properties  Speed post, express parcel, life insurance.  Transport of goods and/ or passengers  Services in relation to vessel or aircraft• For other services, Government not liable to pay service tax as tax paid by service recipient in reverses charge (N. No. 30) To be contd…..
  11. 11. “Support services" means • infrastructural, • operational, • administrative, • logistic, • marketing or • any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever • shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis; • Services provided by Government Security agencies are covered under support service - under reverse charge, Service Receiver is liable to tax.
  12. 12. • All services provided by RBI are in Negative List• Service Provided to RBI is taxable unless covered in negative list.• Service provided by banks to RBI taxable unless covered in Negative List or exempted services
  13. 13. • Services by diplomatic mission of any country located in India• Does not cover services provided by any office or establishment of an International organization (Section 3 of United Nation Privileges & Immunities Act 1947)• Example- UNESCO, UNICEF, IMF, IBRD etc.• Notification No. 27/2012-ST dated 20.6.2012 conditionally exempts service provided by any person  for the official use of a provision of a foreign diplomatic mission or consular post in India  for personal use or use of the family member of diplomatic agents or career consular officers posted in India
  14. 14. services relating to agriculture by way of— (i) agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing; (ii) supply of farm labour; (iii) processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market; (iv)renting or leasing of agro machinery or vacant land with or without a structure incidental to its use; (v) loading, unloading, packing, storage or warehousing of agricultural produce; (vi)agricultural extension services; (vii)services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce; to be contd…
  15. 15. The Services relating to agriculture or agricultureproduce specified in negative list-  agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing;  supply of farm labour;  processes carried out at the agricultural farm including tending, pruning, cutting, harvesting, drying cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter essential characteristics of agricultural produce but makes it only marketable for the primary market not for retail market; (e.g. cleaning of Wheat) to be contd …….
  16. 16. • renting of agro machinery or vacant land with or without a structure incidental to its use (e.g. green house, storage shed.)• loading, unloading, packing, storage and warehousing of agricultural produce;• agricultural extension services (application of scientific research, farmer education & training)• services provided by any Agricultural Produce Marketing Committee or Board (APMC) for agriculture or agricultural produce but does not include non - agricultural activities (e.g. renting of shops or other property or services provided by commission agent for sale or purchase of agricultural produce) to be contd …….
  17. 17. Agriculture -Section 65 B(3) Cultivation of plants and rearing of all life-forms of animals except the rearing of horses, for food, fiber, fuel, raw material or other similar productsAgriculture Produce -Section 65B(5) any produce of agriculture on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market (E.g. Plantation crops like rubber, tea or coffee but does not include potato chips or tomato ketchup) to be contd …….
  18. 18. • Trading of goods is not a taxable service, it being a sale and not a service.• If a transaction is a sale, it is not a service and vice versa• Transfer of title in goods is crucial• Activities of a commission agent / clearing and forwarding agent who sells goods on behalf of another for a commission are not trading of goods (Title of goods does not pass)• Forward contracts are in the nature of trading of goods.• Future contracts are not trading of goods to be contd …….
  19. 19. Goods - Section 65B(25) ―goods" means • every kind of movable property • other than actionable claim and • money • includes securities, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale
  20. 20.  process amounting to manufacture or production of goods" means a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 or any process amounting to manufacture of alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act for the time being in force. Covers manufacturing activity carried out on contract or job work basis where • Transfer of title of goods is not involved • Duties of excise are leviable on such process 20
  21. 21.  “excisable goods” means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt Mobility and marketability are essential conditions Goods includes any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable.
  22. 22. Carrying out an intermediate production process as job work inrelation to -(a) agriculture, printing or textile processing;(b) cut and polished diamonds and gemstones; or plain and studded jewelleryof gold and other precious metals, falling under Chapter 71 of the CentralExcise Tariff Act ,1985 (5 of 1986)(c) any goods on which appropriate duty is payable by the principalmanufacturer or(d) processes of electroplating, zinc plating, anodizing, heat treatment,powder coating, painting including spray painting or auto black, during thecourse of manufacture of parts of cycles or sewing machines upto anaggregate value of taxable service of the specified processes of one hundredand fifty lakh rupees in a financial year subject to the condition that suchaggregate value had not exceeded one hundred and fifty lakh rupees duringthe preceding financial year
  23. 23. Selling of space or time slots for advertisements other than advertisements broadcast by radio or televisionThis entry in negative list should qualify the following tests – • involves selling of space (in case of print media) • involves selling of time slots ( in case of electronic media) • purpose of selling time slots / space to be for advertisements (publicity / sales promotion, awareness etc.) • excludes broadcast by radio or television ( i.e. broadcast will be taxable) to be contd …….
  24. 24. Taxable Non-taxableSale of space or time for Sale of space for advertisement inadvertisement to be broadcast on print mediaradio or televisionSale of time slot by a broadcasting Sale of space for advertisement in billorganization boards, public places (including stadia), buildings, conveyances, cell phones, automated teller machines, internet Aerial advertising Presentation made in person
  25. 25. Not covered in Negative List Covered In Negative ListPrinting & Publishing of yellow pages, Spaces allotted in buses and publicbusiness directory and trade catalogues transport system public transport systemetc. to run display of advertisementAdvertisement services to Government Private circulation of magazines / journalsdepartmentsPurchase of time slots from broadcaster Telephone directoriesand sold to advertising agencyPreparing advertisement for display Clubs, associations, professional bodiesduring a movie in theatre etc. members list / directoriesServices provided by advertisement Internal directories / businessagencies in relation to preparation of informationsadvertisementCommission received by advertisementagencies from broadcasting or publishingcompanies
  26. 26. “Advertisement" means • any form of presentation for promotion of, • or bringing awareness about, • any event, • idea, • immovable property, • person, service, • goods or actionable claim through • newspaper, television, radio or any other means • but does not include any presentation made in person; • Services provided by advertisement agencies relating to preparation / designing etc of advertisements are taxable. • Print media includes newspaper and books.
  27. 27. • Only covers toll charges for access to road and bridge• Includes National highways or state highways• Toll on other roads not in negative list• Collection charges or service charges paid to any toll collection agency are not covered under negative list• Dose not include services used for providing such service
  28. 28. Betting or Gambling means • putting on stake something of value, • particularly money, • with consciousness of risk and hope of gain on the outcome of a game or a contest, • whose result may be determined by chance or accident, or on the likelihood of anything occurring or not occurring• Betting is a form of wagering contract in which money or money‘s worth is made payable by the parties on the result of an uncertain event, usually a game or sport• Gambling means playing game of chance for money or risky action undertaken with the hope of success• Lottery is a game of chance (e.g. lottery, bingo, lotto etc.) which may include online games to be contd …….
  29. 29. • Auxiliary services for organizing or promoting betting or gambling events are not covered in negative list• State subject covered in list II• Actionable claim• In Union of India & Others v. Martin Lottery Agencies Ltd (2009) 14 STR 593 (Supreme Court), it was held that service tax can not be levied on sale of lottery ticket• In Martin Lottery Agencies Ltd. v. Union of India (2007) 8 STR 561 (Sikkim), it was held that petitioner was not rendering services in relation to promotion of client‘s goods and service tax liability did not arise
  30. 30. ‗Entertainment event‘ if it is intended (may notnecessarily provide) to provide any one or more ofthe following to the recipients / viewers / audience• recreation• pastime• fun , or• enjoyment to be contd …….
  31. 31. This could be by way of – • exhibition of cinematographic film • circus • concerts • sporting events • pageants • award functions • dance performance • musical performance • theatrical performances – drama, ballets or any such event / programme. to be contd …….
  32. 32. “Amusement facility" means • a facility where fun • recreation is provided by means of rides • gaming devices • bowling alleys in amusement parks • amusement arcades • water parks • theme parks • such other places • but does not include a place within such facility where other services are provided to be contd …….
  33. 33. • Amusement means entertainment, diversion, pastime, sport etc.• Theatrical performances need not be performed in theatre• Standalone amusement ride in a mall – fun or recreation by means of ride – covered under amusement – excluded• Membership of club which provides amusement facilities - excluded• Event manager for organizing an entertainment event or entertainment is not covered in this category
  34. 34. • Provided by Electricity Transmission or Distribution utility• Covers both – • Transmission • Distribution• Installation of gensets or similar equipment by private contractor for distribution - taxable• Charges collected by developer or a housing society for distribution of electricity within a residential complex - taxable but excluded if it acts as a licensed authority
  35. 35. • Service by way of - i. Pre-school education and education up to higher secondary school or equivalent ii. Education as a part of a prescribed curriculum for obtaining a qualification recognized by law iii. Education as a part of an approved vocational education course• Conduct of degree courses by colleges, universities or institutions which lead to grant of qualifications recognized by law to be contd …….
  36. 36. Approved vocational education course • a course run by an industrial training institute or an industrial training centre affiliated to the National Council for Vocational Training, offering courses in designated trades as notified under the Apprentices Act, 1961 • a Modular Employable Skill Course, approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Employment and Training, Ministry of Labour and Employment, Government of India • a course run by an institute affiliated to the National Skill Development Corporation set up by the Government of India to be contd …….
  37. 37. • Education upto higher secondary school or equivalent are in negative list.• Services provided to or by an educational institution for Auxiliary educational services and renting of immovable property – exempted under mega notification Negative list will not include – • Private tuitions • Education as a part of prescribed curriculum for obtaining qualification recognized by law of a foreign county • Services provided to educational institutions • Placement services to be contd …….
  38. 38. Education related services not in negative list but exemptfrom tax under Notification No. 25/2012-ST dated20.06.2012 • Transportation of students to / from institutions • Provision of mid-day meal in schools • Admission related services to educational institutes where education services are exempt. • Coaching / training in recreational activities of arts, culture or sports.
  39. 39. Renting coves all types of arrangements in relation toimmovable property with or without its transfer of possession orcontrol and whether wholly or partly. It would cover / include – • allowing • permitting • granting access / entry / occupation • use of facility • letting • leasing • licensing, or • other similar arrangements (such as right to use, sub-lease, space sharing etc.) to be contd …….
  40. 40. Renting of certain kinds of property already covered inthe negative list• renting of vacant land, with or without a structure incidental to its use, relating to agriculture.• renting of residential dwelling for use as residence• renting out of any property by Reserve Bank of India• renting out of any property by a Government or a local authority to non-business entity to be contd …….
  41. 41. • Residential dwelling not defined but includes residential accommodation• Does not include hotel, motel, inn, guest house, camp site, lodge, house boat or other place meant temporary stay• Residential dwelling used partly as a residence and partly for non residential purpose- treated as bundled service• Residential unit – independent residential unit with specific facilities for living, cooking and sanitation to be contd …….
  42. 42. Services by way of— (i) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount; (ii) inter se sale or purchase of foreign currency amongst banks or authorised dealers of foreign exchange or amongst banks and such dealers; to be contd …….
  43. 43. • Transactions in money outside the ambit of ‗service‘• Any activity related to a transaction in money by way of its use or conversion by cash or by any other mode, from one form , currency or denomination to another form, currency or denomination would not be treated as a transaction in money if a separate consideration is charged for such an activity• Service tax levied on service charges for transactions in money including of charges for making of drafts, letter of credits issuance charges, service charges relating to issuance of CDs/ CPs etc• Interest rate swaps and foreign exchange swaps are excluded being securities and hence excluded to be contd …….
  44. 44. • Only interest and discount are in negative list• Interest on • Money borrowed • Debt incurred • Deposit • Claim / obligation/ similar right• Service charge / fee/ commission not covered (e.g. pre payment fee, late fee, cheque bounce charges)• interest on credit facility not utilized (commitment charges ) not covered• Bill discounting – only discount covered to be contd …….
  45. 45. • Any charges over and above interest/ discount taxable• Purchase/ sale of foreign currency between banks and authorized dealers under negative list• Examples of services in negative list- • Fixed deposits or saving deposits or any other such deposits in a bank for which return is received by way of interest • Providing a loan or over draft facility for in consideration for payment of interest • Mortgages or loans with a collateral security to the extent that the consideration for advancing such loans or advances are represented by way of interest • Corporate deposits to the extent that the consideration for advancing such loans or advances are represented by way of interest or discount
  46. 46. Services by- • a stage carriage; • railways in a class other than (i) first class; or (ii) an AC coach; ( now exempt under Notification No 43/2012) • metro, monorail or tramway; • inland waterways; • public transport, other than predominantly for tourism purpose, in a vessel, between places located in India; and • metered cabs, radio taxis or auto rickshaws. to be contd …….
  47. 47. • ‗Stage Carriage‘ is defined in section 2(40) of Motor Vehicles Act, 1988. It means a motor vehicle constructed or adapted to carry more than six passengers excluding the driver for hire or reward at separate fares paid by or for individual passengers, for the whole journey or for stages of the journey• National waterways covered in inland waterways• Metered cab - any contract carriage on which an automatic device, of the type and make approved by the State Transport Authority, is fitted which indicates reading of the fare chargeable at any moment and that is charged accordingly under the conditions of its permit issued under the Motor Vehicles Act, 1988 to be contd …….
  48. 48. Covered under negative list Not Covered under negative listMotor vehicles on hire to state Motor vehicles to state transporttransport undertaking (more taken undertaking12 passengers)Exemption to Transport of No exemption for Tourism,passengers by a contract carriage conducted tours, chartered or hire
  49. 49. services provided in relation to transportation ofgoods specified in the negative list• by road except the services of (i) a goods transportation agency or (ii) a courier agency• by aircraft or vessel from a place outside India up to the customs station of clearance in India; or• by inland waterways (agents covered) to be contd …….
  50. 50. • Services provided by GTA taxable except under separate exemption available for • fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage; • goods where gross amount charged on a consignment transported in a single goods carriage does not exceed one thousand five hundred rupees; or • goods where gross amount charged for transportation of all such goods for a single consignee in the goods carriage does not exceed rupees seven hundred fifty.• Courier services – Express cargo service, angadia – taxable to be contd …….
  51. 51. Nature of service relating to Whether covered in the negativetransportation of Goods list entryBy railways NoBy air within the country or abroad NoBy a vessel in the coastal waters NoBy a vessel on a national waterway YesServices provided by a GTA No
  52. 52. • Funeral• Burial• Crematorium• Mortuary• Transportation of deceased