Subject: Tax on 15 New Services to be effective from 16.7.2001- Instructions regarding.
Kindly refer to section 137 of the Finance Act, 2001 (14 of 2001) which, inter-alia, provides for the levy of service tax on 15 new services. 2. It has been decided that the levy and collection of service tax on the newly introduced shall be effective from the 16.7.2001. (Vide notification No. 4/2001-ST, dated 9.7.2001) 3. As you are aware, certain legislative amendments were made in sections 67, 69 to 74, 75, 77, 79, 82, 84 to 86 of the Finance Act, 1994 vide section 137 of the Finance Act, 2001. All these changes will be effective from 16.7.2001. The Service Tax Rules, 1994 have also been amended. Notification No. 5/2001-ST dated the 9th July, 2001 has been issued in this regard. These amendments are also effective from the 16.7.2001
4. Legislative changes:
4.1 The most significant legislative change made in the service tax provisions relates to the introduction of self-assessment procedure vide amendment of section 70 of the Finance Act 1994. Section 71 has also been amended to provide for verification by the Superintendent for correctness of the tax assessed by the assessee on self-assessment basis. Where service tax on any services provided has escaped assessment or has been under assessed, the Assistant Commissioner / Deputy Commissioner of Central Excise (AC/DC) is required to pass an order of assessment. In view of the amended provisions, the Superintendent of Central Excise is not required to pass any order of assessment. He should only refer the matter to AC/DC concerned along with his observation and report.
4.2 Section 67 of the Finance Act, 1994 has been amended to provide for a comprehensive definition of value of taxable service instead of separate definitions for each of the services. However, there is no change in the definitions relating to existing taxable services. Accordingly clarifications/circulars issued in this regard in the past will continue to hold good.
4.3 Section 69 has been amended to specify that application for registration shall be made to the "Superintendent of Central Excise".
4.4 Section 73 has been amended to provide for recovery of service tax in the case of erroneous refunds. Further, the power to initiate action for recovery of service tax has been specifically vested with the Assistant Commissioner / Deputy Commissioner of Central Excise. As such only the designated officer is to exercise the power under section 73.
4.5 Section 75 has been amended to provide for charging of interest at the rate of twenty four percent per annum (instead of the rate of one and half percent per month) for delayed payment of service tax.
4.6 A new section 75A has been inserted to provide for a fixed (non discretionary) amount of penalty of five hundred rupees for failure to apply for registration.
4.7 Section 77 has been amended to provide for a penalty not exceeding rupees one thousand for the failure to file the service tax return within the due date.
4.8 It may be noted that sections 69 to 74, 78, 79, 82, 84, 85 and 86 have also been amended specifying the authority (by designation) empowered to take action under these sections. As such powers under these section may be exercised only by the designated authority.
5. Amendments to Service Tax Rules, 1994
1. Consequential amendments in Service Tax Rules, 1994, have been made in view of introduction of self-assessment procedure and amendment in various sections of Chapter V of the Finance Act, 1994 to provide for specific reference to the designation of the authority empowered to take action. Notification No. 5/2001-ST refers.
2. In relation to "insurance auxiliary services" provided by the insurance agents, it has been prescribed that the service tax shall be paid by the Insurance Company (Insurer). Notification No. 5/2001-ST refers.
6. Amendment in Form ST-1: A new column has been inserted in ST-1 form for furnishing PAN number by the assesse. Wherever PAN number has not been allotted or not applied for, same may be indicated in the ST-1 form. Notification No. 5/2001- ST refers.
7. Extension of service tax to fifteen more services: In regard to the new services, which will be subject to service tax from 16th July, 2001, certain issues have been brought to notice during the course of discussion with the concerned Association. These have been discussed and clarified in the Annexures appended as per details below.
The section or clause nos. referred to hereinafter are the sections or clauses of the Finance Act, 1994 as amended by the Finance Act, 2001. 8. The Commissioners are requested to issue suitable trade notices for the benefit of the new assesses detailing the scope and coverage of the new services, gist of the service tax procedures and formalities to be complied with by the assessees, formats of the application for registration, service tax returns, etc., the manner of payment of service tax, the banks through which service tax payments can be made and other relevant aspects. 9. In case of any doubts or difficulties arising in the implementation of service tax on the new services, which require clarification at the Board's level, the Commissioners are requested to bring the same to the notice of the undersigned immediately along with their suggestions/views for resolving these difficulties.
Annexure I
Scientific and technical consultancy service
1. Section 65(60) defines "scientific and technical consultancy" as any advice, consultancy, or scientific or technical assistance, rendered in any manner, by a scientist or a technocrat, or any science or technology institution or organisation, to a client, in one or more discipline of science or technology. The taxable service has been defined in clause 72 (za) of section 65 as "any service provided, to a client, by a scientist or a technocrat, or any science and technology institution or organisation, in relation to scientific or technical consultancy".
2. The taxable service should be understood in the context of its commonly understood meaning and scope. For instance, it would cover consultation, advice or technical assistance provided by a scientist or a technocrat or a science or technology institution on any issue relating to any branch of science and technology. Such consultation may be in the nature of an expert opinion/advice in regard to scientific or technical feasibility or any other scientific or technical aspect of a project, process or design, recommending an apt technology, suggestion for improvement in existing technology or process, providing consultation on any technical problem or about new technology, etc. Some of the specific issues raised and clarifications thereon are given below.
3. Points for clarification:
Annexure II
Photography service:
1. As per section 65(47), the term "photography" includes still photography, motion picture photography, laser photography, aerial photography and fluorescent photography. The taxable service, as per section 65(72)(zb), is any service provided, to a customer, by a photography studio or agency in relation to photography, in any manner. Photography studio or agency has been defined as "any professional photographer or a commercial concern engaged in the business of rendering service relating to photography" vide section 65(48).
2. The services which will come within the purview of service tax are still photography such as photographing persons or other subjects in studios or other locations, passport or identification photographs, fashion photos; industrial photographs of machine and buildings etc; photographic service for advertising display, brochures, news paper advertisement, catalogues; photography of any live event such as weddings, receptions, conventions, fashion shows, sports and news events (excluding news agency services, that is, press photographers are excluded); aerial photography such as photographs of landscape, structures and other surfaces from aircraft or helicopters with the help of cameras mounted on such aircraft or helicopter; laser photography to create holograms; motion picture photography, also known as cinematography to make films, which involves the general composition of a scene; the lighting of the set or location; the choice of cameras, lenses, filters, and film stock; the camera angle and movements; and the integration of any special effects; fluorescence photography using ultraviolet rays to irradiate a surface or substance to identify dyes, stains, and markings, specific chemical substances, and fluorescent components in microscope specimens; and any other kind of special photography service. Also covered are the photography services such as restoration of old photographs, processing and developing of photographic films and printing of photographs etc.
3. The photography services are rendered by still photography studios, still film processing laboratories, cinematographic studios/labs who undertake motion picture photography and processing of cine films, holography studios (laser photography) who make holograms, aerial photographers, industrial photographers, etc.
4. The value of taxable service is the gross amount charged from the customer for the service rendered. However, the cost of unexposed photography films sold to the customer is excluded. The service provider claiming benefit of the cost of film should be advised to show them clearly on the invoices along with description and particulars of the film. Otherwise, the claim will not be considered as admissible. No other cost (such as photographic paper, chemicals, etc.) is excluded from the taxable value.
5. In regard to still photography, notification No. 6/2001-ST dated the 9th July, 2001, has been issued. Accordingly, service providers who are registered under various States/Municipal laws relating to Shops and Establishments or any other law of state which is in force for the time being, for carrying out commercial activity only are liable to service tax. Individual professional photographers and others providing still photography service, but who do not have fixed place of business as a shop or office and who are not registered under these enactments, will not be liable to pay service tax. In essence, service tax is payable by shops and studios, processing and developing labs, etc. and not by the individual photographers.
6. Point for clarification:
A point has been raised as to whether the x-ray or the CT scan done using fluorescence photography technique will fall in the category of taxable service. It is clarified that these are not photography studios or agencies in common parlance; so the service provided by them does not come within the ambit of tax.
Annexure III
Convention services:
1. As per section 65(19), "convention" has been defined to mean a formal meeting or assembly which is not open to the general public, and does not include a meeting or assembly the principal purpose of which is to provide any type of amusement, entertainment or recreation. As per section 65(72)(zc), the taxable service is any service provided, to a customer, by a commercial concern in relation to holding of a convention.
2. Any service provided for holding a conference, seminar, meetings etc by a commercial concern will come under the tax net. The service could be in the nature of providing of room/ hall for the convention. The services could also include providing other facilities such as video conferencing, equipment such as over head projectors, video-roma (LCD projector), speakers, microphones, technical staff for operating these equipments and stationery, etc apart from providing space for holding a convention. The charges for such facilities shall also be included in the value of taxable service. In some cases it may appear that it is same as the service rendered by a "mandap keeper". Apart from the fact that there is a subtle distinction between the type of events (official, social or business function in the case of mandap keeper as opposed to formal meeting in the case of convention services) it is clarified that the intention is not to charge the service tax twice on the same service. If a service provider is already registered as a mandap keeper and paying service tax, he is not liable to pay service tax again under the category of convention services. Similarly, a convention service is not liable to tax as mandap keeper service also.
3. A doubt has been raised whether holding of conventions by Chambers of Commerce and Industry for their members would be liable to service tax. In this regard, it is clarified that service tax, in the case of convention services, is applicable only when the service is provided by a commercial concern. If the Chamber of Commerce and Industry is not a commercial concern, then the tax does not apply. The memorandum and articles of association of a Chamber of Commerce & Industry would indicate whether it is a commercial concern or not. It is informed by the Chambers that generally they are not commercial concerns.
Annexure IV
On-line information and database access and/or retrieval:
1. As per section 65(19), 1994, the term "On-line information and data base access or retrieval" means providing data or information, retrievable or otherwise, to a customer in electronic form through a computer network. The words "Data", "information", "electronic form" and "computer network" have the same meanings assigned to them in the Information Technology Act, 2000. As per section 65(72)(zh), taxable service means any service provided to a customer, by a commercial concern, in relation to on-line information and database access or retrieval or both in electronic form.
2. The definitions given in the Information Technology Act, 2000 are as follows:-
"Data" means a representation of information, knowledge, facts, concepts or instructions which are being prepared or have been prepared in a formalised manner, and is intended to be processed, is being processed or has been processed in a computer system or computer network, and may be in any form (including computer printouts, magnetic or optical storage media, punched cards, punched tapes) or stored internally in the memory of a computer.
"Information" includes data, text, images, sound voice, codes, computer programmes, software and data bases or micro film or computer generated micro fiche.
"Electronic form" with reference to information means any information generated, sent, received or stored in media, magnetic, optical computer memory, microfilm, computer generated microfiche or similar device.
"Computer network" means the interconnection of one or more computers through- the use of satellite, microwave, terrestrial line or other communication media; and terminals or a complex consisting of two or more interconnected computers whether or nor the interconnection is continuously maintained.
3. In the context of this service, it may be relevant to point out the manner in which on-line information and database access/retrieval is generally made available. First, the function of what is commonly known as Internet Service Providers (ISPs). The ISPs provide telecommunication network or gateways necessary to access messages and databases and other information holdings of content providers. The second element is on-line information provision services which includes database services, provision of information on web-sites, provision of on-line data retrieval services from data bases and other information, to all or limited number of users and provision of on-line information by content providers.
4. Internet service providers (ISPs) provide access to the web-sites through the computer network and the web-sites. Web-sites, in turn, provide the database or information. Some of the well-known ISPs operating in India are VSNL, MTNL, Satyam online, Bharti, Tata, RPG, HCL, Wipro, BPL, Mantra online, Dishnet. They normally charge the customers on the basis of usage of time (hours). They also provide dedicated lease lines on lump-sump payment basis. Clearly ISPs provide service in relation to on-line information and database access or retrieval. They are an integral part of the internet operations and without their service, the data or information can neither be accessed nor retrieved. They are, therefore, liable to pay service tax on the amount charged from the customers whether on usage time basis or on lease line basis.
5. As regards paid web-sites, a few examples of Indian dot companies are, Indiainformer.com, CIIonline.com, who charge the customer for certain specific information contained in their website either in advance or credit basis. They shall be also liable to pay service tax on the paid services provided by them. It is obvious that where the information is supplied free of charge, no service tax is payable.
A question has been raised as to whether e-commerce transactions (other than providing online information and data) are covered in the ambit of service tax. It is clarified that in e-commerce transactions, no service of online information and database access/retrieval is involved. Therefore, e-commerce transactions will not ordinarily be covered under the service tax net. Normally, the web sites do not charge the surfers for information on sale of goods or services offered by them. If at all they do, service tax will be payable on the amount charged for providing the information.
Another point raised relates to applicability of service tax on inter-connectivity services provided by one ISP to another and the charges recovered for such services. It is understood that this is done to inter connect various networks so as to reach the server where the information is stored. It is informed that interconnection of one ISP to another is a commercial and technical arrangement under which service providers connect their equipment, networks and services to enable their customers to have access to the data or information. Through this arrangement, it is the customer of an ISP who ultimately receives on-line information and database access and/or retrieval service. Service tax on the amount charged from him is payable. Therefore, interconnection charges paid by one ISP to another ISP are not liable to service tax.
A question has also been raised whether the cyber cafés will be subject to service tax. It is clarified that the cyber cafés provide only the infrastructure such as computer terminals and internet connection. It is the ISP or web-sites who provide on-line access or retrieval of information, Therefore, cyber cafés are not liable to pay service tax. Services provided by ISP to cyber café are taxable and the ISP will pay the tax on charges realised from the cyber café.
Annexure V
Broadcasting service :
1. As per section 65(13), 1994, "broadcasting" has been defined to have the meaning assigned to it in clause (c) of section 2 of the Prasar Bharati (Broadcasting Corporation of India) Act, 1990. As per this definition "broadcasting" means the dissemination of any form of communication like sign, signals, writing, pictures, images and sound of all kind by transmission of electro-magnetic waves through space or through cables intended to be received by the general public either directly or indirectly through the medium of relay stations and all is grammatical variations and cognate expressions shall be construed accordingly. The taxable service is any service provided to a client, by a broadcasting agency or organisation in relation to broadcasting, in any manner.
2. The service covers both radio broadcasting and television broadcasting. While radio broadcasting is done by the All India Radio or any private radio channel, television broadcasting is done by Doordarshan, Indian TV Channels and Foreign TV channels. The broadcasting may be of advertisements, serials/programmes or live events. The client is the person who wants an advertisement to be broadcast or the sponsor of a serial or programme or event who wants the serial or programme or event to be broadcast. The service provider, that is, broadcasting agency or organisation is the AIR, Doordarshan, other Indian TV Channels and foreign TV channels who broadcast the programme in India.
3. Broadcasting is done either terrestrially or through satellite links. Most of the private TV channels are using satellite links for broadcasting their programmes. The uplinking of the programme to the satellite is done through VSNL or other earth stations located in India or through other agencies located abroad. The up-linking agencies are not broadcasting agencies and are not liable to service tax in respect of such service. The signals beamed by satellite are received either by Multi System Operators (MSO) or directly by cable operators. In the latter case the cable operator further retransmits the signals to the public (viewers). However, in the case of MSO, they first retransmit signals to the cable operator who in turn retransmits the same to the viewers. The cable TV operator who merely retransmits the programme is not a broadcasting agency or organisation with respect to such retransmitted programmes. The MSO also is not a broadcasting agency to the extent he merely retransmits signals. However in case the MSO operates a local cable channel such as Spectranet, Siticable, Incable, Sumangali, etc. and broadcasts a programme or serial or advertisement on his own, he would be liable to pay service tax on the amount he charges for the service rendered to his clients in relation to broadcasting of such programmes. It may be noted that there may be instances when cableTV operators themselves undertake to broadcast advertisements. Cable television operators have, however, been exempted from the levy of service tax vide notification No. 8/2001-ST.
4. Broadcasting service is provided by selling time slots. In the case of advertisements, service charges are recovered based on the duration and frequency of advertisement and the time slot (prime time, non-prime time etc.) provided for the advertisement. In the case of serials/programmes/ events, service charges are made on the basis of factors such as duration, time slot, etc. However, some free commercial time is provided to the sponsor, which he can sell the same to others. In the case of broadcasting service, the advertisement charges or the sponsorship charges received by the braodcasting agency or organisation are the consideration for the services rendered and service tax is payable on these charges.
5. In case of foreign satellite TV channels, their head office may be located outside India. However, they have their branch offices or subsidiary companies located in India. In some cases, they have appointed agents. These branch offices/ subsidiary companies/agents act on behalf of these channels, selling time slots and recovering service charges and remitting the same to their head office/holding company/principals as the case may be. In such cases, these branch offices/subsidiary companies/ agents are rendering the service in relation to broadcasting and therefore, they are liable to pay the service tax and comply with all other procedural formalities relating to service tax.
6. In the case of AIR and Doordarshan, the billing for the service rendered is done by the Regional Stations of AIR or Regional Doordarshan Kendras. These Regional Offices will have to be, therefore, registered for payment of service tax and for complying with other procedural formalities.
7. A doubt has been raised whether Prasar Bharati (AIR and Doordarshan) is liable to pay service tax since under section 22 of the Prashar Bharati Act 1990, they are exempt from any income tax or any other tax in respect of any income, profit or gains, accruing or arising out of the Fund of the corporation or any amount received by them. In this regard, it is clarified that the said section 22 applies only in respect of taxes on income or profit or gains. The exemption is only in respect of direct tax and not in respect of indirect tax. As such the argument that AIR or Doordarshan are not liable to pay service tax is not correct.
Annexure VI
Insurance auxiliary service:
1. As per section 65(31), "insurance auxiliary service" means any service provided by an actuary, an intermediary or insurance intermediary or an insurance agent in relation to general insurance business and includes risk assessment, claim settlement, survey and loss assessment. As per section 65(72)(zl), the taxable service is any service provided to a policy holder or insurer by an actuary or intermediary or insurance intermediary or insurance agent, in relation to insurance auxiliary service.
2. Services covered in this category are the services provided by the insurance agents to the insurance company in relation to marketing of insurance policies. They also provide service to the policy holder by providing information/advice on the types of insurance policies, processing of documentation, remitting of insurance premium, etc. Actuarial services are provided by the actuaries to the insurance companies. They cover diverse fields such as calculating insurance risks and premia, insurance claims adjustment services such as services of investigating claims, determining the amount of loss or damages covered by the insurance policies and negotiating settlements, services of examining claims which have been investigated and authorisation of payments and damage assessment services, administration of insurance including salvage administration and insurance consultancy services. It may be emphasized that only such services are taxable which are in relation to general insurance business such as motor vehicle insurance, insurance of buildings and other properties, marine insurance, fire insurance and other miscellaneous insurance. Services provided in relation to life insurance are not taxable.
3. The service providers are insurance agents, insurance surveyors and loss adjusters, actuaries and insurance consultants. In the case of insurance surveyors and loss adjusters, actuaries and insurance consultants, the service is provided mainly to the insurance companies (insurer) while in the case of insurance agents, the service is provided to both the insurer and the policy holder. Service tax is liable to be paid by the insurance auxiliary service provider except in case of insurance agents. Insurance agents normally do not charge the policy holder. However, the insurance company pays the agent a commission (usually as a percentage of the insurance premium) on a periodic basis. In the case of an insurance agent, it has been provided in the Service Tax Rules that the person liable to pay service tax will be the concerned insurance company who has appointed the agent. Notification no. 5/2001-ST refers.
4. The service tax is applicable to services provided on or after16th July 2001 and any payment made for the services provided prior to this date will not liable to tax even though payment is made on or after the 16th July 2001.
5. A point has been raised that the service provider, namely, an actuary, an intermediary or insurance intermediary or an insurance agent is reimbursed certain out of pocket expenses such as travelling expenses, boarding and lodging charges on actual basis. These expenses are reimbursed in addition to the prescribed fee. Whether such reimbursements will be included in the taxable value? In this regard it is clarified that the amount billed to the client on account of out of pocket expenses which are reimbursable on actual basis, such as travelling, boarding and lodging expenses, the same are not subject to service tax. In this respect, the assessee may be required to provide documentary evidence substantiating his claim.
6. Another point raised is to whether in cases where the bills raised by the service provider are revised, the service tax is payable on the billed amount or on the actual amount received. In this regard it is clarified that Rule 6 of the Service Tax Rules, 1994, provides for payment of service tax only on the amount received and not on the amount raised for the services provided. As such service tax is payable on the amount actually received.
Annexure VII
Banking and other financial services;
1. As per section 65(10) of the Finance Act, 1994, "banking and financial services" means the following services provided by a banking company or a financial institution including a non banking financial company, namely:- (i) financial leasing services including equipment leasing and hire-purchase by a body corporate; (ii) credit card services; (iii) merchant banking services; (iv) securities and foreign exchange (forex) broking; (v) asset management including portfolio management, all forms of fund management, pension fund management, custodial depository and trust services, but does not include cash management; (vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisition and advice on corporate restructuring and strategy; and (vii) provision and transfer of information and data processing.
1.1 The taxable service, as per section 65(72)(zm) means any service provided, to a customer, by a banking company or a financial institution including a non banking financial company, in relation to banking and other financial services. 1.2 The definitions of 'banking', 'banking company', 'financial institution' and 'nob-banking financial company' as per the Banking Regulation Act, 1949 and Reserve Bank of India Act, 1934 are given below:-
" banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise.
"banking company" means any company which transacts the business of banking in India.
"financial institution" means any non-banking institution which carries on as its business or part of its business any of the following activities, namely-
(i) the financing, whether by way of making loans or advances or otherwise, of any activity other than its own:
(ii) the acquisition of shares, stock, bonds, debentures or securities issued by a government or local authority or other marketable securities of like nature:
(iii) letting or delivering of any goods to a hirer under a hire-purchase agreement as defined in clause (c) of section 2 of the Hire Purchase Act. 1972 (26 of 1972):
(iv) the carrying of any class of insurance business:
(v) managing, conducting or supervising, as foreman, agent or in any other capacity, of chits or kuries as defined in any law which is for the time being in force in any State, or any business, which is similar thereto; (vi) collecting, for any purpose or under any scheme or arrangement by whatever name called, monies in lumpsump or otherwise, by way of subscription or by sale of units, or other instruments or in any other manner and awarding prizes or gifts whether in cash or kind, or disbursing monies in any other way, to persons from whom monies are collected or to any other person, but does not include any institution, which carries on as its principal business- agricultural operations; or (aa) industrial activity; or purchase or sale of any goods (other than securities) or providing of any service, or the purchase, construction or sale of immovable property, so, however, that no portion of the income of the institution is derived from the financing of purchases, construction or sales of immovable property by other persons. "non-banking financial company " means- a financial institution which is a company; a non banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner; such other non-banking institution or class of such institutions, as the Bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify. Financial services covered under the tax net are specifically mentioned in the definition itself.
2.1 Financial leasing including equipment leasing and hire purchase:
2.1.1 In case of financial leasing including equipment leasing and hire-purchase, the service is taxable only if it is rendered by a body corporate. The term 'body corporate' has the meaning assigned to it in clause (7) of section 2 of the Companies Act, 1956. Briefly, body corporate means a private limited, public limited company or a Government company. Such companies should be either a banking company or a financial institution or non-banking financial company to come under the tax net. In other words individuals, proprietorship or partnership firms will not come under the tax net. The leasing or hire-purchase may be of motor vehicles, machinery and equipment or other goods.
2.1.2 In the case of leasing or hire purchase, it is understood that the general business practice is as follows: The service provider enters into a leasing or hire-purchase agreement with the lessee or hire-purchaser. At the time of entering into the agreement, they collect a charge called lease management fee or processing fee or documentation charges or by any other name, which is usually a percentage of the transaction value. The lease rental or hire purchase amount is recovered in equated monthly instalments (EMI) over the period of lease or hire-purchase as indicated in the agreement through post dated cheques and no separate bills are raised for the monthly recovery. Every agreement bears a unique number.
2.1.3 The EMIs consist of recovery of principal amount (towards the original cost of the equipment) and finance /interest charges. The allocation between the principal and the finance/interest charges are known to and agreed upon by both the parties. The customer repayment schedule contains the details of the EMIs with the break up for the principal and the interest. In respect of leasing and hire-purchase, the amount recovered as principal is not the consideration for services rendered but is credited to the capital account of the lessor/hire purchase service provider. The interest/finance charges is the revenue or income and is credited to the revenue account. Such interest or finance charges together with the lease management fee/ processing fee/documentation charges is the consideration for the services rendered and, therefore, they constitute the value of taxable service and service tax is payable on this value. Accordingly it is clarified that service tax in the case of financial leasing including equipment leasing and hire purchase will be leviable only on the lease management fee/processing fee/documentation charges (recovered at the time of entering into the agreement) and on the finance/interest charges (recovered in equated monthly installments) and not on the principal amount.
2.1.4 A question has been raised whether lease or hire-purchase agreements entered into prior to the imposition of levy (prior to 16-7-2001) would be leviable to service tax. In this regard, it is clarified that such agreements entered into prior to 16-7-2001 will not be liable to service tax, provided the property/goods has also been received by the lessee prior to 16.7.2001.
2.2 Credit card services
2.2.1 This is a service where the customer is provided with credit facility for purchase of goods and services in shops, restaurants, hotels, railway bookings, petrol pumps, utility bill payments, etc. Cash advances are also permitted upto specified limits in most of the cases. This service is provided by nationalised banks, multi-national banks and private banks.
2.2.2 For rendering the service, the service provider collects joining fee, additional card fee, annual fee, replacement card fee, cash advance fee, charge slip/statement retrieval fee, surcharge/service charges on railway fare, fuel charges, and utility bill payments, charges on over limit accounts and late payment fee, interest on delayed payment, interest on revolving credit, etc. The fees may vary based on the type of card and from bank to bank. All these charges, including interest charges are made for the services rendered. Hence they all form part of the value of the taxable service in this case.
2.2.3 The service tax is leviable only in respect of transactions which are done using a credit card on or after 16th of July 2001. Any amount paid by a customer to credit card service provider in respect of transaction done prior to 16th July, 2001 is not liable to service tax even though such amount is paid on or after the 16th July, 2001.
2.3 Merchant banking services Banks and Financial institutions including NBFCs providing merchant banking services are governed by the SEBI (Merchant Bankers) Rules, 1992 and SEBI (Merchant Bankers) Regulations, 1992. As per these rules and regulations, merchant banking service is any service provided in relation to issue management either by making arrangements regarding selling, buying or subscribing securities as manager, consultant, advisor or rendering corporate advisory service in relation to such issue management. This, inter-alia, consists of preparation of prospectus and other information relating to the issue, determining financial structure, tie up of financiers and final allotment and refund of the subscription for debt/ equity issue management and acting as advisor, consultant, co-manager, underwriter and portfolio manager. In addition, merchant banking services also include advisory services on corporate restructuring, debt or equity restructuring, loan restructuring, etc. The fee charged by the merchant banker for rendering these services will be the taxable value in respect of this service.
2.4 Asset management including portfolio management and all forms of fund management, pension fund mangement, custodial depository and trust services.
2.4.1 Asset management and portfolio managers are also governed by the SEBI (Portfolio Managers) Rules, 1993 and SEBI (Portfolio Managers) Regulations, 1993. As per these rules and regulations, the "portfolio manager" means any person who pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of the client (whether as discretionary manager or otherwise) the management or the administration of portfolio of securities or the funds of the client, as the case may be. They enter in agreement with the client and charge an agreed fee for providing the service. The tax will be leviable on the fee charged for providing these services. Similiarly in the case of other types of fund management such as pension fund management, service tax will be leviable on the fee charged for providing the service.
2.4.2 With respect to mutual funds, a question has been raised whether the asset management company is liable to pay service tax as it may not fall in the category of NBFC. It is clarified that such asset management companies are not NBFC. Hence they will not come under the purview of service tax.
2.4.3 Custodial depository services means safe keeping of securities of a client and providing services incidental thereto, and includes- maintaining accounts of securities of a client; collecting the benefit of rights accruing to the client in respect of the securities; keeping the client informed of the action taken or to be taken by the issuer of securities, having a bearing on the benefits or rights accruing to the client; and maintaining & reconciling records of the services referred to in sub-clause (a) to (c). Taxable value is the fee charged for providing custodial services. However, service tax will not be leviable on NSDL or CSDL fees paid to the depositories and recovered from the customers on actuals basis.
2.5 Other auxiliary financial services
2.5.1 Some examples of other auxiliary financial services are investment and portfolio research and advice, advice given on mergers and acquisition, advice on corporate restructuring and strategy, market analysis and intelligence.
2.6 In the case of banks and financial institutions including NBFCs, while some services may be done in a centralised way (that is centralised billing and accounting) either at the head office or regional office, in respect of other services such as financial leasing including equipment leasing, specified branches may be providing the service with separate billing and accounting. In respect of a taxable service, where the billing and accounting is centralised in an office of the bank, only such office needs to be registered and made liable to pay service tax in respect of such service. Where the billing and accounting is not centralised and is undertaken by different branches of a bank or a financial institution including NBFCs, each such branch office will have to be registered and made responsible for payment of service tax and compliance with other procedural formalities.
Annexure VIII
Port services:
1. As per the section 65(51), the "port services" means any service rendered by a port or any person authorized by the port, in any manner, in relation to a vessel or goods. As per section 65 (72)(zn), taxable service is any service provided to any person by a port or any person authorized by the port, in relation to port services, in any manner.
2. Port services generally consist of port and dock services (these are for services rendered in relation to vessels), cargo handling and storage services, railway haulage services, and container handling services(these are for services rendered in relation to goods). The Dock Labour Board of the Port provides service of labour for handling of goods. The port or the person authorised by the port rendering these services is the service provider.
2.1 Some of the specific charges for the services rendered in respect of port services are as follows.
(i) Port and dock charges consisting of berthing and mooring charges, port dues, pilotage and towage, water supply charges, salvage and diver charges, anchorage fee;
(ii) Cargo handling and storage charges consisting of wharfage for general cargo, warehousing charges, cranage charges, ore handling charges, wharfage on petroleum products, weighment charges for lorries, traffic appliance charges, weighment charges for goods;
(iii) Railway haulage charges for rail-borne goods, local haulage and storage;
(iv) Container handling charges consisting of import, export and transhipment wharfage on containers, equipment charges for handling of containers, container storage charges;
(v) Labour charges.
2.2 All these charges form part of taxable value of port services. Demurrage charges are recovered by port authority as a rental for storage of goods. The fact that these charges apply only if the goods overstay a prescribed free period, does not detract from their being in the nature of a charge for providing aservice in relation to goods. Accordingly they would form part of taxable value. The Dock Labour Board is liable to pay service tax on the labour charges recovered by them. However, estate rentals of the port which is charged for renting of accommodation provided to outsiders and port users, lease rental for land, etc. will not be liable to service tax as these are not services rendered in relation to goods or vessels. For any other charge not mentioned above, the Commissioner may decide the inclusion/exclusion in the value of taxable service on merits.
Annexure IX
Authorised service station for service or repair of motor cars and two wheeled motor vehicles
1. As per section 65(8), "authorised service station" means any service station, or center, authorized by automobile manufacturer to carry out any service or repair of any motor car or two wheeled motor vehicle manufactured by such manufacturer. The taxable service, as per section 65(72)(zo) is any service provided to a customer by an authorized service station, in relation to any service or repair of motor cars or two wheeled motor vehicles.
2. Any service or repair provided by an authorized service station in relation to motor cars and two wheeled motor vehicles, will be covered in the ambit of service tax. Examples of taxable services include services provided during warranty period, subsequent services such as routine check of performance of engine and vehicle, engine tuning, engine oil check, gear oil check, wheel alignment, wheel balancing, clutch and brake adjustment, wheel rotation, cleaning/washing and any repairs undertaken. However cost of parts and accessories supplied during course of repair and servicing of vehicle will not be includible in the taxable value. Such cost should be shown separately in the bill/ invoice.
3. Authorised service station provides free service in respect of new vehicles during the warranty period on behalf of the manufacturer and they are reimbursed for the same by the manufacture of such vehicle. In this regard a point has been raised as to whether service tax is leviable on the amount reimbursed to them for carrying out free services. It is clarified that though the authorized service stations are providing free service to the customer during the warranty period, they are being reimbursed service charges for the same by the manufacturer of motor vehicles. The definition for value of taxable service specifically provides that the reimbursement received from the manufacturer of motor vehicles for free service rendered to the customer is includible in the taxable value.
Annexure X
Videotape production service:
1 As per section 65(83), "video tape production" means the process of any recording of any programme, event or function on a magnetic tape and includes editing thereof, in any manner. As per section 65(72)(zi), taxable service is any service provided to a client by any video-tape production agency in relation to video tape production in any manner.
2. It may be seen that the taxable service covers the service of recording of any programme, event or function and includes recording of serials, telefilms or any other programme meant for broadcasting. Also, the scope of taxable service covers any service in relation to video tape production in any manner. Thus facilitation activities, such as providing studio, other facility as lights, gadgets, instruments, devices, providing technical persons for operating the recording devices or for any other activity in relation to video tape production are taxable. Similarly, editing, colouring, dubbing, printing titles and special effects, film processing etc by a video production agency will all come within the scope of this service. It is clarified that reproduction of original master to make further copies of a video-tape will not come within the purview of service tax.
2.1 Services provided by individual videographers has, however, been exempted vide notication No. 7/2001-ST, dated the 9th July, 2001. As such, the tax is payable by studios, shops and other establishments carrying on business of rendering of services in the field of videography.
Annexure XI
Sound recording service:
1. As per section 65(66), "sound recording" means recording of sound on a magnetic storage device and editing thereof, in any manner. As per section 65(72)(zj), taxable service is any service provided to a client by a sound recording studio or agency in relation to any kind of sound recording.
2. Any service provided by sound recording studio or agency in relation to recording of sound will be covered under the tax net. The activities which fall under the category of service are providing the facility of studio, technical persons, musical instruments and other devices or any other facility or all the facilities in a consolidated manner, required for recording of sound, editing thereof, providing different kinds of sounds from the sound library for use in theater, films and radio etc. services for mixing of sounds, etc. The service charges that are paid for the use of these facilities and it is usually in terms of hours of usage. It is clarified that reproduction of original master to make further copies of the audio tape or CDs etc. will not come within the purview of service tax.
Annexure XII
Leased circuits / telegraph service / telex service /facsimile service:
1. As per section 65(72) (zd),(ze), (zf) and (zg), taxable service in relation to these services is any service provided, to a subscriber, by the telegraph authority in relation to leased circuits, telegraph, telex and facsimile communication.
2. As regards facsimile services, at present the telegraph authorities are providing it in two ways. One is "bureau fax" where the charges are based on a flat rate per page depending upon paper size and the other is "ordinary fax" where charges are equivalent to the number of calls consumed in faxing the paper. In case of "bureau fax", this is provided by the Dept. of Telecom through post and telegraph offices. In the second type of facsimile service, the service charges are equal to the telephone calls consumed and it is already covered in the ambit of service tax under the category of telephone connections. Therefore, service tax will not be payable in respect of those facsimile services where service charges are based on the number of telephone calls consumed. Private fax operators are providing the second kind of facsimile service and therefore, they are not liable to service tax again.
3. In respect of telegraph, telex and leased services, any service provided by the telegraph authority in this regard is the taxable service and service tax on such services shall be collected in the same manner as applicable to telephone services.