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Guidance Note 4 Negative List of Services
January, 05th 2013

In terms of Section 66B of the Act, service tax will be leviable on all services provided in the
taxable territory by a person to another for a consideration other than the services specified
in the negative list. The services specified in the negative list therefore go out of the ambit of
chargeability of service tax. The negative list of service is specified in the Act itself in Section
66 D. For ease of reference the negative list of services is given in Exhibit A1. In all, there
are seventeen heads of services that have been specified in the negative list. The scope and
ambit of these is explained in paras below.
4.1 Services provided by Government or local authority
4.1.1 Are all services provided by Government or local authority covered in the
negative list?
No. Most services provided by the Central or State Government or local authorities are in the
negative list except the following:
a) services provided by the Department of Posts by way of speed post, express parcel
post, life insurance, and agency services carried out on payment of commission on
non government business;
b) services in relation to a vessel or an aircraft inside or outside the precincts of a port
or an airport;
c) transport of goods and/or passengers;
d) support services, other than those covered by clauses (a) to (c) above, to business
entities.


4.1.2 Would the taxable services provided by the Government be charged to tax if
they are otherwise exempt or specified elsewhere in the negative list?
No. If the services provided by the government or local authorities that have been excluded
from the negative list entry are otherwise specified in the negative list then such services
would also not be taxable.
4.1.3 ‘Government’ has not been defined in the Act. What is the meaning of
Government?
Please refer to point no. 2.4.7.
4.1.4 Are various corporations formed under Central Acts or State Acts or various
government companies registered under the Companies Act, 1956 or autonomous
institutions set up by a special Acts covered under the definition of ‘Government’?
No. For detailed analysis please refer to point no. 2.4.10.
30
4.1.5 What entities are then covered under ‘Government’?
‘Government’ would include various departments and offices of the Central or State
Government or the U.T. Administrations which carry out their functions in the name and by
order of the President of India or the Governor of a State.
4.1.6 Would a department of the Government need to get itself registered for each of
the services listed in answer to Q. No.4.1.1 above?
For the support services provided by the Government, other than where such support services
are by way of renting of immovable property, to business entities government departments
will not have to get registered because service tax will be payable on such services by the
service receiver i.e. the business entities receiving the service under reverse charge
mechanism in terms of the provisions of section 68 of the Act and the notification issued
under the said section as well Service Tax Rules, 1994. For services mentioned at (a) to (c)
of the list (point 4.1.1 above refers) and renting of immovable properties the tax will be payable
by the concerned department.
4.1.7 What is the meaning of “support services” which appears to be a phrase of
wide ambit?
Support services have been defined in section 65B of the Act as ‘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 and shall include advertisement and
promotion, construction or works contract, renting of movable or immovable property, security,
testing and analysis.
Thus services which are provided by government in terms of their sovereign right to business
entities, and which are not substitutable in any manner by any private entity, are not support
services e.g. grant of mining or licensing rights or audit of government entities established by
a special law, which are required to be audited by CAG under section 18 of the Comptroller
and Auditor-General’s (Duties, Powers and Conditions of Service) Act, 1971 (such services
are performed by CAG under the statue and cannot be performed by the business entity
themselves and thus do not constitute support services.)
4.1.8 Will the services provided by Police or security agencies to PSUs or corporate
entities or sports events held by private entities be taxable?
Yes. Services provided by government security agencies are covered by the main portion of
the definition of support service as similar services can be provided by private entities. In any
case it is also covered by the inclusive portion of the definition. However the tax will be actually
payable on reverse charge by the recipient.
4.1.9 What is the meaning of local authority?
Please refer to point no 2.4.8 and 2.4.9.
31
4.1.10 Department of Posts provides a number of services. What is the status of
those services for the purpose of levy of service tax?
As per sub-clause (i) of clause (a) of section 66D services provided by the Department of
Posts by way of speed post, express parcel post, life insurance, and agency services carried
out on payment of commission on non government business are excluded from the negative
list. Therefore, the following services provided by Department of Posts are not liable to service
tax.
• Basic mail services known as postal services such as post card, inland letter, book
post, registered post provided exclusively by the Department of Posts to meet the
universal postal obligations.
• Transfer of money through money orders, operation of savings accounts, issue of
postal orders, pension payments and other such services.
4.1.11 Would agency or intermediary services on commission basis (distribution of
mutual funds, bonds, passport applications, collection of telephone and electricity
bills), which are provided by the Department of Posts to non-government entities be
liable to service tax?
Yes. Agency services carried out on payment of commission on non government business
are excluded from the negative list entry relating to services provided by Government or a
local authority.
4.2 Services provided by Reserve Bank of India
4.2.1 Are all services provided by the Reserve Bank of India in the negative list?
Yes. All services provided by the Reserve Bank of India are in the negative list.
4.2.2 What about services provided to the Reserve Bank of India?
Services provided to the Reserve Bank of India are not in the negative list and would be
taxable unless otherwise covered in any other entry in the negative list.
4.2.3 Would services provided by banks to RBI be also taxable?
Yes. Services provided by banks to RBI would be taxable as these are neither in the negative
list nor covered in any of the exemptions.
4.3 Services by a foreign diplomatic mission located in India
Any service that is provided by a diplomatic mission of any country located in India is in the
negative list. This entry does not cover services, if any, provided by any office or establishment
of an international organization.
4.4 Services relating to agriculture or agricultural produce.
The services relating to agriculture or agricultural produce that are specified in the negative
list are services relating to –
32
• 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;
• renting of agro machinery or vacant land with or without a structure incidental to its
use;
• loading, unloading, packing, storage and warehousing of agricultural produce;
• agricultural extension services;
• services provided by any Agricultural Produce Marketing Committee or Board or
services provided by commission agent for sale or purchase of agricultural produce;
4.4.1 What is the meaning of ‘agriculture’?
‘Agriculture’ has been defined in the Act as cultivation of plants and rearing or breeding of
animals and other species of life forms for foods, fibre, fuel, raw materials or other similar
products but does not include rearing of horses.
4.4.2 Are activities like breeding of fish (pisciculture), rearing of silk worms
(sericulture), cultivation of ornamental flowers (floriculture) and horticulture, forestry
included in the definition of agriculture?
Yes. These activities are included in the definition of agriculture.
4.4.3 What is the meaning of agricultural produce?
Agricultural produce has also been defined in section 65B of the Act which means any produce
of agriculture on which either no 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. It also includes specified processes in the definition like
tending, pruning, grading, sorting etc. which may be carried out at the farm or elsewhere as
long as they do not alter the essential characteristics.
4.4.4 Would plantation crops like rubber, tea or coffee be also covered under
agricultural produce?
Yes. Such plantation crops are also covered under agricultural produce.
4.4.5 Would potato chips or tomato ketchup qualify as agricultural produce?
No. In terms of the definition of agricultural produce, only such processing should be carried
out as is usually done by cultivator producers which does not alter its essential characteristics
33
but makes it marketable for primary market. Potato chips of tomato ketchup are manufactured
through processes which alter the essential characteristic of farm produce (potatoes and
tomatoes in this case).
4.4.6 Would operations like shelling of paddy or cleaning of wheat carried out outside
the farm be covered in the negative list entry relating to agriculture as sub-clause (iii)
of clause (d) of section 66D relating to services by way of processes carried out at
an agricultural farm?
The said sub-clause (iii) also includes ‘such like operations which do not alter the essential
characteristic of agricultural produce’. Therefore, activities like the processes carried out in
agricultural farm would also be covered if the same are performed outside the agricultural
farm provided such processes do not alter the essential characteristics of agricultural produce
but only make it marketable in the primary market. Therefore, cleaning of wheat would be
covered in the negative list entry even if the same is done outside the farm. Shelling of paddy
would not be covered in the negative list entry relating to agriculture as this process is never
done on a farm but in a rice sheller normally located away from the farm.
However, if shelling is done by way of a service i.e. on job work then the same would be
covered under the exemption relating to ‘carrying out of intermediate production process as
job work in relation to agriculture’.
4.4.7 Would agricultural products like cereals, pulses, copra and jaggery be covered
in the ambit of ‘agricultural produce’ since on these products certain amount of
processing may be done by a person other than a cultivator or producer?
‘Agricultural produce’ has been defined in clause (5) of section 65B as ‘any produce resulting
from cultivation or rearing of plants, animals including all life- forms, on which either no further
processing is done or such processing is done as is usually done by the cultivator or producer
which does not alter essential characteristics of agricultural produce but make it marketable
for primary market’. The processes contemplated in the said definition are those as are
‘usually done by the cultivator or producer’
4.4.8 Would the processes of grinding, sterilizing, extraction packaging in retail packs
of agricultural products, which make the agricultural products marketable in retail
market, be covered in the negative list?
No. Only such processes are covered in the negative list which make agricultural produce
marketable in the primary market.
4.4.9 Would leasing of vacant land with a green house or a storage shed meant for
agricultural produce be covered in the negative list?
Yes. In terms of the specified services relating to agriculture ‘leasing’ of vacant land with or
without structure incidental to its use’ is covered in the negative list. Therefore, if vacant land
has a structure like storage shed or a green house built on it which is incidental to its use for
agriculture then its lease would be covered under the negative list entry.
4.4.10 What is the meaning of agricultural extension services?
Agricultural extension services have been defined in section 65B of the Act as application of
scientific research and knowledge to agricultural practices through farmer education or training.
34
4.4.11 What are the services referred to in the negative list entry pertaining to
Agricultural Produce Marketing Committee or Board?
Agricultural Produce Marketing Committees or Boards are set up under a State Law for
purpose of regulating the marketing of agricultural produce. Such marketing committees or
boards have been set up in most of the States and provide a variety of support services for
facilitating the marketing of agricultural produce by provision of facilities and amenities like,
sheds, water, light, electricity, grading facilities etc. They also take measures for prevention
of sale or purchase of agricultural produce below the minimum support price. APMCs collect
market fees, license fees, rents etc. Services provided by such Agricultural Produce Marketing
Committee or Board are covered in the negative list. However any service provided by such
bodies which is not directly related to agriculture or agricultural produce will be liable to tax
e.g. renting of shops or other property.
4.5 Trading of goods
4.5.1 Would activities of a commission agent or a clearing and forwarding agent who
sells goods on behalf of another for a commission be included in trading of goods?
No. The services provided by commission agent or a clearing and forwarding agent are not
in the nature of trading of goods. These are auxiliary for trading of goods. In terms of the
provision of clause (1) of section 66F reference to a service does not include reference to a
service used for providing such service. (For guidance on clause (1) of section 66F please
refer to Guidance Note 9) Moreover the title in the goods never passes on to such agents to
come within the ambit of trading of goods.
4.5.2 Would forward contracts in commodities be covered under trading of goods?
Yes. Forward contracts would be covered under trading of goods as these are contracts
which involve transfer of title in goods on a future date at a pre-determined price.
4.5.3 Would commodity futures be covered under trading of goods?
In commodity futures actual delivery of goods does not normally take place and the purchaser
under a futures contract normally offset all obligations or closes out by selling an equal quantity
of goods of the same description under another contract for delivery on the same date. These
are in the nature of derivatives which have been dealt with in point no. 4.14.9.


4.5.4 Would auxiliary services relating to future contracts or commodity futures be
covered in the negative list entry relating to trading of goods?
No. Such services provided by commodity exchanges clearing houses or agents would not
be covered in the negative list entry relating to trading of goods.
4.6 Processes amounting to manufacture or production of goods
The phrase ‘processes amounting to manufacture or production of goods’ has been defined
in section 65B of the Act as a process on which duties of excise are leviable under section 3
of the Central Excise Act, 1944 (1 of 1944) or any process amounting to manufacture of
35
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. This entry, therefore,
covers manufacturing activity carried out on contract or job work basis, which does not involve
transfer of title in goods, provided duties of excise are leviable on such processes under the
Central Excise Act, 1944 or any of the State Acts.
4.6.1 Would service tax be leviable on processes which do not amount to manufacture
or production of goods?
Yes. Service tax would be levied on processes, unless otherwise specified in the negative
list, not amounting to manufacture or production of goods carried out by a person for another
for consideration. Some of such services relating to processes not amounting to manufacture
are exempt as specified in entry no. 30 of Exhibit A3.
4.6.2 Would service tax be leviable on processes on which Central Excise Duty is
leviable under the Central Excise Act, 1944 but are otherwise exempted?
No. If Central Excise duty is leviable on a particular process, as the same amounts to
manufacture, then such process would be covered in the negative list even if there is a central
excise duty exemption for such process. However if central excise duty is wrongly paid on a
certain process which does not amount to manufacture, with or without an intended benefit, it
will not save the process on this ground.
4.7 Selling of space or time slots for advertisements other than
advertisements broadcast by radio or television
‘Advertisement’ has been defined in section 65 B of the Act as “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.”
4.7.1 Sale of space of time for advertisements not including sale of space for
advertisement in print media and sale of time by a broadcasting agency or
organization is currently taxed under clause (zzzm) of sub-section (105) of the
Finance Act,1944. So what kind of sale of space or time would become taxable and
what would be not taxable?
Taxable Non-taxable
Sale of space or time for advertisement Sale of space for advertisement in print
to be broadcast on radio or television media
Sale of time slot by a broadcasting Sale of space for advertisement in bill boards,
organization. public places (including stadia), buildings,
conveyances, cell phones, automated teller
machines, internet
Aerial advertising
36
4.7.2 Would services provided by advertisement agencies relating to preparation of
advertisements be covered in the negative list entry relating to sale of space for
advertisements?
No. Services provided by advertisement agencies relating to making or preparation of
advertisements would not be covered in this entry and would thus be taxable. This would also
not cover commissions received by advertisement agencies from the broadcasting or
publishing companies for facilitating business, which may also include some portion for the
preparation of advertisement.
4.7.3 In case a person provides a composite service of providing space for
advertisement that is covered in the negative list entry coupled with taxable service
relating to design and preparation of the advertisement how will its taxability be
determined?
• This would be a case of bundled services taxability of which has to be determined in
terms of the principles laid down in section 66F of the Act.
• Bundled services have been defined in the said section as provision of one type of
service with another type or types of services.
• If such services are bundled in the ordinary course of business then the bundle of
services will be treated as consisting entirely of such service which determines the
dominant nature of such a bundle.
• If such services are not bundled in the ordinary course of business then the bundle
of services will be treated as consisting entirely of such service which attracts the
highest liability of service tax.
For guidance on how to determine whether or not a combination of services is bundled in the
ordinary course of business please refer to Guidance Note 9 of this Guide.
4.7.4 Whether merely canvassing advertisement for publishing on a commission
basis by persons/agencies is taxable?
Yes. These services are not covered in the negative list entry.
4.8 Access to a road or a bridge on payment of toll charges
4.8.1 Is access to national highways or state highways also covered in this entry?
Yes. National highways or state highways are also roads and hence covered in this entry.
4.8.2 Are collection charges or service charges paid to any toll collecting agency
also covered?
No. The negative list entry only covers access to a road or a bridge on payment of toll charges.
Services of toll collection on behalf of an agency authorized to levy toll are in the nature of
services used for providing the negative list services. As per the principle laid down in sub
section (1) of section 66F of the Act the reference to a service by nature or description in the
Act will not include reference to a service used for providing such service.
37
4.9 Betting, gambling or lottery
“Betting or gambling’ has been defined in section 65B of the Act as ‘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’.
4.9.1 Are auxiliary services that are used for organizing or promoting betting or
gambling events also covered in this entry?
No. These services are in the nature of services used for providing the negative list services
of betting or gambling. As per the principle laid down in sub section (1) of section 66F of the
Act the reference to a service by nature or description in the Act will not include reference to
a service used for providing such service.
4.10 Entry to Entertainment Events and Access to Amusement
Facilities.
‘Entertainment event’ has been defined in section 65B of the Act ‘as an event or a performance
which is intended to provide recreation, pastime, fun or enjoyment, such as exhibition of
cinematographic films, circus, concerts, sporting events, fairs, pageants, award functions,
dance performances, musical performances, theatrical performances including cultural
programs, drama, ballets or any such event or programme’.
‘Amusement facility’ has been defined in the Act as ‘a facility where fun or recreation is provided
by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades,
water parks, theme parks or such other places but does not include a place within such
facility where other services are provided’.
4.10.1 If a cultural programme, drama or a ballet is held in an open garden and not in
a theatre would it qualify as an entertainment event?
Yes. The words used in the definition are ‘theatrical performances’ and not ‘performances in
theatres’. A cultural programme, drama or a ballet preformed in the open does not cease to
be a theatrical performance provided it is performed in the manner it is performed in a theatre,
i.e. before an audience.
4.10.2 Would a standalone ride set up in a mall qualify as an amusement facility?
Yes. A standalone amusement ride in a mall is also a facility in which fun or recreation is
provided by means of a ride. Access to such amusement ride on payment of charges would
be covered in the negative list.
4.10.3 Would entry to video parlors exhibiting movies played on a DVD player and
displayed through a TV screen be covered in the entry?
Yes. Such exhibition is an exhibition of cinematographic film.
38
4.10.4 Would membership of a club qualify as access to an amusement facility?
No. A club does not fall in the definition of an amusement facility.
4.10.5 Would auxiliary services provided by a person, like an event manager, for
organizing an entertainment event or by an entertainer for providing the entertainment
to an entertainment event organizer be covered in this entry?
No. Such services are in the nature of services used for providing the service specified in this
negative list entry and would not be covered in the ambit of such specified service by operation
of the rule of interpretation contained in clause (1) of section 66F of the Act. For guidance on
the rules of interpretation please refer to Guidance Note 9.
4.11 Transmission or distribution of electricity
4.11.1 What is the meaning of electricity transmission or distribution utility?
An ‘electricity transmission or distribution utility’ has also been defined in section 65B of the
Act. It includes the following –
• the Central Electricity Authority
• a State Electricity Board
• the Central Transmission Utility (CTU)
• a State Transmission Utility (STU) notified under the Electricity Act, 2003 (36 of
2003)
• a distribution or transmission licensee licensed under the said Act
• any other entity entrusted with such function by the Central or State Government
4.11.2 If charges are collected by a developer or a housing society for distribution of
electricity within a residential complex then are such services covered under this
entry?
No. The developer or the housing society would be covered under this entry only if it is entrusted
with such function by the Central or a State government or if it is, for such distribution, a
distribution licensee licensed under the Electricity Act, 2003.
4.11.3 If the services provided by way installation of gensets or similar equipment by
private contractors for distribution of electricity covered by this entry?
No. the entry does not cover services provided by private contractors. Moreover the services
provided are not by way of transmission or distribution of electricity.
4.12 Specified services relating to education
The following services relating to education are specified in the negative list –
• pre-school education and education up to higher secondary school or equivalent
39
• education as a part of a prescribed curriculum for obtaining a qualification
recognized by law for the time being in force;
• education as a part of an approved vocational education course
4.12.1 What is the meaning of ‘education as a part of curriculum for obtaining a
qualification recognized by law’?
It means that only such educational services are in the negative list as are related to delivery
of education as ‘a part’ of the curriculum that has been prescribed for obtaining a qualification
prescribed by law. It is important to understand that to be in the negative list the service
should be delivered as part of curriculum. Conduct of degree courses by colleges, universities
or institutions which lead grant of qualifications recognized by law would be covered. Training
given by private coaching institutes would not be covered as such training does not lead to
grant of a recognized qualification.
4.12.2 What are the courses which would qualify as an approved vocational education
courses?
Approved vocational education courses have been specified in section 65B of the Act. These
are –
• 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(52 of 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.
4.12.3 Are services provided by international schools giving certifications like IB also
covered in this entry?
Yes. Services by way of education up to higher secondary school or equivalent are covered in
this entry.
4.12.4 Are services provided by boarding schools covered in this entry?
Boarding schools provide service of education coupled with other services like providing
dwelling units for residence and food. This may be a case of bundled services if the charges
for education and lodging and boarding are inseparable. Their taxability will be determined in
terms of the principles laid down in section 66F of the Act. Such services in the case of
boarding schools are bundled in the ordinary course of business. Therefore the bundle of
services will be treated as consisting entirely of such service which determines the dominant
nature of such a bundle. In this case since dominant nature is determined by the service of
education other dominant service of providing residential dwelling is also covered in a
separate entry of the negative list, the entire bundle would be treated as a negative list service.
40
4.12.5 Are services provided to educational institutions also covered in this entry?
No. Such services are not covered under the negative list entry. However certain services
provided to or by educational institutions are separately exempted under the mega–
notification. These are services provided to or by an educational institution in respect of
education exempted from service tax, by way of,-
(a) auxiliary educational services; or
(b) renting of immovable property
4.12.6 What are auxiliary educational services?
‘Auxiliary educational services’ are defined in the mega notification. In term of the definition,
the following activities are auxiliary educational services:
• any services relating to imparting any skill, knowledge or education, or
• development of course content, or
• any other knowledge – enhancement activity, whether for the students or the faculty,
or
• any other services which educational institutions ordinarily carry out themselves but
may obtain as outsourced services from any other person, including following services
relating to:
 admission to such institution
 conduct of examination
 catering for the students under any mid-day meals scheme sponsored by
Government
 transportation of students, faculty or staff of such institution.
4.12.7 Are the auxiliary educational services for all educational institutions exempt?
No. Exemption is available for services to or by educational institutions in respect of education
exempted from service tax. Therefore, service tax is chargeable on such auxiliary educational
services which are in respect of education chargeable to service tax.
4.12.8 Are private tuitions covered in the entry relating to education?
No. However, private tutors can avail the benefit of threshold exemption.
4.12.9 Are services provided by way of education as a part of a prescribed curriculum
for obtaining a qualification recognized by a law of a foreign country covered in the
negative list entry?
No. To be covered in the negative list a course should be recognized by an Indian law.
41
4.12.10 If a course in a college leads to dual qualification only one of which is
recognized by law would the service provided by the college by way of such
education be covered in this entry?
Provision of dual qualifications is in the nature of two separate services as the curriculum and
fees for each of such qualifications are prescribed separately. Service in respect of each
qualification would, therefore, be assessed separately. If an artificial bundle of service is
created by clubbing two courses together, only one of which leads to a qualification recognized
by law, then by application of the rule of determination of taxability of a service which is not
bundled in the ordinary course of business contained in section 66F of the Act it is liable to be
treated as a course which attracts the highest liability of service tax. However incidental
auxiliary courses provided by way of hobby classes or extra-curricular activities in furtherance
of overall well being will be an example of naturally bundled course. One relevant consideration
in such cases will be the amount of extra billing being done for the unrecognized component
viz-a-viz the recognized course. (For guidance on ‘bundled services’ please refer to Guidance
Note 9).
4.12.11 Are placement services provided to educational institutions for securing job
placements for the students covered in this negative list entry?
No. Such services do not fall in the category of exempt services provided to educational
institutions (please refer to point no 4.12.5 above).
4.12.12 Educational institutes such as IITs, IIMs charge a fee from prospective
employers like corporate houses/ MNCs, who come to the institutes for recruiting
candidates through campus interviews. Whether services provided by such
institutions are taxable?
Yes. Service tax is liable on services provided by such institutions in relation to campus
recruitment as such services are not covered in the negative list.
4.12.13 Are services of conducting admission tests for admission to colleges exempt?
Yes in case the educational institutions are providing qualification recognized by law for the
time being in force (please refer to point no 4.12.3 above).
4.12.14 In addition to the services specified in the negative list, which educational
services are exempt if provided by a charitable organization?
Please refer to point no 7.4.1.
4.13 Services by way of renting of residential dwelling for use as
residence
‘Renting’ has been defined in section 65B as ‘‘allowing, permitting or granting access, entry,
occupation, usageor any such facility, wholly or partly, in an immovable property, with or without
the transfer of possession or control of the said immovable property and includes letting,
leasing, licensing or other similar arrangements in respect of immovable property’.
42
4.13.1 What is a ‘residential dwelling’?
The phrase ‘residential dwelling’ has not been defined in the Act. It has therefore to be
interpreted in terms of the normal trade parlance as per which it is any residential
accommodation, but does not include hotel, motel, inn, guest house, camp–site, lodge, house
boat, or like places meant for temporary stay.
4.13.2 Would renting of a residential dwelling which is for use partly as a residence
and partly for non residential purpose like an office of a lawyer or the clinic of a
doctor be covered under this entry?
This would also be a case of bundled services as renting service is being provided both for
residential use and for non residential use. Taxability of such bundled services has to be
determined in terms of the principles laid down in section 66F of the Act. (Please refer to
Guidance Note 9).
4.13.3 Would the nature of renting transactions explained in column 1 of the table
below be covered in this negative list entry?
1 2
If….. Then……
(i) a residential house taken on rent is the renting transaction is not covered in this
used only or predominantly for negative list entry.
commercial or non-residential use.
(ii) if a house is given on rent and the the renting transaction is not covered in this
same is used as a hotel or a lodge negative list entry because the person taking
it on rent is using it for a commercial purpose.
(iii) rooms in a hotel or a lodge are let the renting transaction is not covered in this
out whether or not for temporary stay negative list entry because a hotel or a lodge
is not a residential dwelling.
(iv) government department allots such service would be covered in the negative
houses to its employees and charges list entry relating to services provided by
a license fee government and hence non- taxable.
(v) furnished flats given on rent for such renting as residential dwelling for the
temporary stay (a few days) bonafide use of a person or his family for a
reasonable period shall be residential use;
but if the same is given for a short stay for
different persons over a period of time the
same would be liable to tax.
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4.14 Financial sector
4.14.1 What is the manner of dealing with various services provided by banks and
other financial institutions?
Banks and financial institutions provide a bouquet of financial services relating to lending or
borrowing of money or investments in money. For such services invariably a variety of
instruments, often complex in nature, are used in the financial markets. Transactions in such
instruments have to be examined on the touchstone of definition of ‘service’ given in clause
(44) of section 65B and the list of services specified in the negative list to see whether such
transactions would be chargeable to service tax. Broadly, the following legal provisions would
have a bearing on determining the taxability of such transactions.
• The definition of ‘service’ excludes activities that constitute only transactions in money
or actionable claims. ‘Money’ has been defined in clause (33) of section 65B to
include instruments like cheques, drafts, pay orders, promissory notes, letters of
credit etc. Therefore activities that are only transactions in such instruments would
be outside the definition of service. This would include transactions in Commercial
Paper (‘CP’) and Certificate of Deposit (‘CD’) (on the understanding of being in the
nature of promissory notes), issuance of drafts or letters of credit etc.
• Explanation 2 to clause (44) of section 65B has to be kept in mind which clarifies
that transaction in money does not include any activity in relation to 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 for which a separate
consideration is charged. The implications of this explanation are that while mere
transactions in money are 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. While the transaction in money, per-se, would be outside the
ambit of service the related activity, for which a separate consideration is charged,
would not be treated as a transaction of money and would be chargeable to service
tax if other elements of taxability are present therefore service tax would be levied
on service charges normally charged for various transactions in money including
charges for making drafts, letter of credit issuance charges, service charges relating
to issuance of CDs/CPs etc.
• Activities that constitute only transactions in ‘goods’ are also excluded from the
definition of service. ‘Goods’ have been defined in clause (25) of section 65 B to
include ‘securities’. Definition of ‘securities include ‘derivatives’. These two
instruments have been discussed in detail in point no. 2.6.6 to 2.6.8. Transactions
in instruments like interest rate swaps and foreign exchange swaps would be
excluded from the definition of ‘service’ as such instruments are derivatives, being
securities, based on contracts of difference. Since only transfer of title in securities
is excluded from the definition of ‘service’ any attendant service charges or fees
would be chargeable to service tax.
44
• Further services by way of extending deposits, loans or advances in so far as the
consideration is represented by way of interest or discount. This has been explained
in point nos. 14.2 to 14.4 below.
4.14.2 What are the “services by way of extending deposits, loans or advances in so
far as the consideration is represented by way of interest or discount”?
The negative list entry covers any such service wherein moneys due are allowed to be used
or retained on payment of interest or on a discount. The words used are ‘deposits, loans or
advances and have to be taken in the generic sense. They would cover any facility by which
an amount of money is lent or allowed to be used or retained on payment of what is commonly
called the time value of money which could be in the form of an interest or a discount. This
entry would not cover investments by way of equity or any other manner where the investor is
entitled to a share of profit.
Illustrations of such services are -
• Fixed deposits or saving deposits or any other such deposits in a bank or a financial
institution for which return is received by way of interest.
• Providing a loan or overdraft facility or a credit limit facility 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.
4.14.3 If any service charges or administrative charges or entry charges are recovered
in addition to interest on a loan, advance or a deposit would such charges be also a
part of this negative list entry?
No. The services of loans, advances or deposits are exempt in so far as the consideration is
represented by way of interest or discount. Any charges or amounts collected over and above
the interest or discount amounts would represent taxable consideration.
4.14.4 To what extent is invoice discounting or cheque discounting or any other
similar form of discounting covered in the negative list entry?
Such discounting is covered only to the extent consideration is represented by way of discount
as such discounting is nothing else but a manner of extending a credit facility or a loan.
4.14.5 Would services provided by banks or authorized dealers of foreign exchange
by way of sale of foreign exchange to general public be covered in this entry?
No. This entry only covers sale and purchase of foreign exchange between banks or authorized
dealers of foreign exchange or between banks and such dealers
45
4.14.6 Would transactions entered into by banks in instruments like repos and reverse
repos be covered in this negative list entry?
Section 45U(c) of the RBI Act, 1934 defines ‘repos’ as an instrument for borrowing funds by
selling securities with an agreement to repurchase the securities on a mutually agreed future
date at an agreed price which includes interest for the funds borrowed’.
Section 45U (d) of the RBI Act, 1934 defines ‘reverse repos’ as an instrument for lending
funds by buying securities with an agreement to resell the securities on a mutually agreed
future date at an agreed price which includes interest for the funds lent’.
Repos and reverse repos are financial instruments of short term call money market that are
normally used by banks to borrow from or lend money to RBI. The margins, called the repo
rate or reverse repo rate in such transactions are nothing but interest charged for lending or
borrowing of money. Thus they have the characteristics of loans and deposits for interest.
However they are more appropriately excluded from the definition of service itself being the
sale and purchase of securities, which are goods.
4.14.7 Would subscription to or trading in Commercial Paper (CP) or Certificates of
Deposit (CD) be taxable?
Commercial Paper (‘CP’) and Certificate of Deposit (‘CD’) are understood as unsecured
money market instruments which may be issued in the form of a promissory note or in a
dematerialized form through any of the depositories approved by and registered with SEBI.
CPs are normally issued by highly rated companies, primary dealers and financial institutions
at a discount to the face value. CDs can be issued by Scheduled Commercial Banks (excluding
RRBs and Local Area Banks) and All – India Financial Institutions (FIs) permitted by RBI.
Since these are instruments for lending or borrowing money where in consideration is
represented by way of a discount issue or subscription to CPs or CDs would be covered in
the negative list entry relating to ‘serivces by way of extending deposits, loans or advances in
so far as consideration is represented by way of interest or discount’. It may also be borne in
mind that promissory note is included in the definition of money in the Act as given in clause
(33) of section 65B.
However if some service charges or service fees or documentation fees or broking charges
or such like fees or charges are charged, the same would be considerations for provision of
service and chargeable to service tax.
4.14.8 Would forward contracts in commodities or currencies be within the ambit of
definition of ‘service’?
A forward contract is an agreement, executed, to purchase or sell a pre-determined amount
of a commodity or currency at a pre-determined future date at a pre-determined price. The
settlement could be by way of actual delivery of underlying commodity/currency or by way of
net settlement of differential of the forward rate over the prevailing market rate on the settlement
date.
In a forward contract effectively two contracts are entered into, one for purchase and other for
sale at a future date at a pre-determined price. These contracts would be in the nature of
46
transfer in title in goods (in case the forward contract relates to a commodity) or transaction
only money (in case the forward contract relates to transaction and money). Therefore,
forward contracts in commodities or currencies would not fall in the ambit of definition of
‘service’. For transactions in money Explanation 2 to clause (44) of section 65B should also
be kept in mind.
However if some service charges or service fees or documentation fees or broking charges
or such like fees or charges are charged, the same would be considerations for provision of
service and chargeable to service tax.
4.14.9 Would ‘future contracts’ be chargeable to Service tax?
Future contracts are in the nature of financial derivatives price of which is depended on the
value of underlying stocks or index of stocks or certain approved currencies and the settlement
happens normally by way of net settlement with no actual delivery.
Since future contracts are in the nature of contracts of difference based on the prices of
underlying stocks or index of stocks or approved currencies, they would be outside to the
ambit of definition of ‘service’ as being transactions only in transfer of title in derivatives. For
details please refer to point no. 2.6.8.
4.14.10 Would charges for late payment of dues on credit card outstandings be
chargeable to service tax?
In case of a credit card, issuing entity allows the facility of payment of the purchases made by
the card holder within a specified period failing which some charges are levied. The question
that arises is whether the credit so extended for this payment is in the nature of a loan or
advance for interest.
Interest for delayed payment of any consideration for the sale of goods or provision of service
has been specifically excluded from value by rule 6 of valuation rules. Thus ordinarily any
interest charged for delayed payment of consideration would have been outside the gambit
of service tax. However in the case of credit cards the credit extended is not for the delayed
payment of consideration for the provision of services. The services in the case of the credit
card are by way of levy of issuing charges or the commission charged from merchants etc.
The interest in this case is not for the consideration for the use of the card. Thus the benefit
under the valuation rules will not be available to credit card companies.
The other question is whether such credit extended will amount to loans or advances. Loans
and advances are meant to signify amounts contractually negotiated as such (loan or advance)
and not merely failure to pay an amount at the due date. The exorbitant charges have also no
relationship with the prevailing interest for the same class of creditworthiness and are in the
nature of consideration for the services rendered for using the convenience of using the services
by way of a credit card and hence taxable.
4.15 Services relating to transportation of passengers
The following services relating to transportation of passengers, with or without accompanied
belongings, have been specified in the negative list.
47
Services by:
• a stage carriage;
• railways in a class other than (i) first class; or (ii) an AC coach;
• 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.
Following terms have also been defined in section 65B of the Act –
• stage carriage
• inland waterways
• metered cab
4.15.1 Are services by way of giving on hire of motor vehicles to state transport
undertakings covered in this negative list entry?
No. However such services provided by way of hire of a motor vehicle meant to carry more
than 12 passengers to a State transport undertaking is exempt (refer entry no. 22 of Exhibit
A3).
4.15.2 In some cases contract carriages get permission or temporary permits to ply
as stage carriages. Would such services be taxable?
Specific exemption is available to services of transport passengers by a contract carriage for
transportation of passengers, excluding tourism, conducted tours, charter or hire. (Refer entry
No. 23 of Exhibit A3).
4.15.3 Are national waterways covered in the definition of inland waterways?
Yes.
4.15.4 Would services by way of transportation of passengers on a vessel, from say
Chennai to Port Blair (mainland – island) or Port Blair to Havelock (inter island), be
covered in the negative list entry?
Yes in case the transportation is not predominantly for tourism purpose. Such transportation
by a vessel (of any size) is covered in negative list since such transportation is between two
places located in India.
4.15.5 What is the scope of the phrase ‘predominantly for tourism purpose’ which
qualifies the negative list entry relating to public transportation of passengers by a
vessel in sub-clause (v) of clause (o) of section 66D?
The words ‘other than predominantly for tourism purpose’ qualify the preceding words “public
transport”. This implies that the public transport by a vessel should not be predominantly for
48
tourism purposes. Normal public ships or other vessels that sail between places located in
India would be covered in the negative list entry even if some of the passengers on board are
using the service for tourism as predominantly such service is not for tourism purpose. However
services provided by leisure or charter vessels or a cruise ship, predominant purpose of
which is tourism, would not be covered in the negative list even if some of the passengers in
such vessels are not tourists.
4.16 Service relating to transportation of goods
The following services provided in relation to transportation of goods are specified in the
negative list of services:-
• 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.
4.16.1 Are all services provided by goods transport agency excluded from the
negative list?
Yes. However, there are separate exemptions available to the services provided by the goods
transport agency. These are services by way of transportation of –
• 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.
4.16.2 Are goods transport agencies liable to pay tax in all cases or are provisions
relating to reverse charge also applicable after introduction of negative list?
The provisions relating to reverse charge, i.e. service tax is liable to be paid by the consigner
or consignee in specified cases, are applicable even after the introduction of negative list.
4.16.3 Some transporters under-take door-to-door transportation of goods or articles
and they have made special arrangements for speedy transportation and timely
delivery of such goods or articles. Such services are known as ‘Express Cargo
Service’ with assurance of timely delivery. Whether such ‘Express cargo service’ is
excluded as courier agency service under this negative list entry?
“Courier” has been defined in section 65B as any person engaged in door-to-door delivery of
time sensitive documents, goods or articles utilizing the services of a person, either directly
or indirectly, to carry or accompany such documents, goods or articles. The nature of service
provided by ‘Express Cargo Service’ falls within the scope and definition of the courier agency.
49
Hence, the said service is excluded from the negative list entry relating to transportation of
goods by road.
4.16.4 Whether services provided by ‘angadia’ are liable to service tax as a courier
service?
‘Angadia’ undertakes delivery of documents, goods or articles received from a customer to
another person for a consideration. Therefore, ‘angadias’ are covered within the definition of
a ‘courier’ and services provided by angadia are liable to service tax.
4.16.5 Are the following services of transportation of goods covered in the negative
list entry?
Nature of service relating to transportation Whether covered in the negative
of goods list entry?
By railways No
By air within the country or abroad No
By a vessel in the coastal waters No
By a vessel on a national waterway Yes
Services provided by a GTA No
4.16.6 Are services provided as agents for inland waterways covered by this entry?
No. these are in the nature of services used for providing the negative list entry service of
transport of goods on inland waterways and would not be covered by application of the rule
for interpretation where services are specified by way of description contained in clause (1)
of section 66F of the Act. (for guidance on this rule please refer to Guidance Note 9)
4.16.7 If transportation of goods takes place from Delhi to Jammu by road then how
would the taxability of such transportation be determined considering that Jammu
is located in at a place outside taxable territory?
Please refer to Guidance note 5 relating to Place of Provision of Services.
4.17 Funeral, burial, crematorium or mortuary services including
transportation of the deceased
This negative list entry is self-explanatory.

 
 
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