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Taxability of services
January, 05th 2013

The taxability of services or the charge of service tax has been specified in section 66B of the
Act. To be a taxable a service should be –
• provided or agreed to be provided by a person to another
• in the taxable territory
• and should not be specified in the negative list.
3.1 Provided or agreed to be provided
3.1.1 What is the significance of the phrase ‘agreed to be provided’?
The phrase “agreed to be provided” has been retained from the definition of taxable service
as contained in the erstwhile clause (105) of section 65 of the Act. The implications of this
phrase are –


• Services which have only been agreed to be provided but are yet to be provided
are taxable
• Receipt of advances for services agreed to be provided become taxable before
the actual provision of service
• Advances that are retained by the service provider in the event of cancellation of
contract of service by the service receiver become taxable as these represent
consideration for a service that was agreed to be provided.
3.1.2 Does the liability to pay the service tax on a taxable service arise the moment
it is agreed to be provided without actual provision of service?
No. The point of taxation is determined in terms of the Point of Taxation Rules, 2011. As per
these Rules point of taxation is –
• the time when the invoice for the service provided or agreed to be provided is issued;
• if invoice is not issued within prescribed time period( 30 days except for specified
financial sector where it is 45 days) of completion of provision of service then the
date of completion of service;
• the date of receipt of payment where payment is received before issuance of invoice
or completion of service.
Therefore agreements to provide taxable services will become liable to pay tax only on issuance
of invoice or date of completion of service if invoice is not issued within prescribed period of
completion or on receipt of payment. For specific cases covered under the said Rules,
including continuous supply of service, please refer to the Point of Taxation Rules, 2011.
26
3.2 Provided in the taxable territory
• Taxable territory has been defined in section 65B of the Act as the territory to which
the Act applies i.e. the whole of territory of India other than the State of Jammu and
Kashmir.
• “India” includes not only the land mass but its territorial waters, continental shelf,
exclusive economic zone or any other maritime zone as defined in the Territorial
Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones
Act, 1976(- of 1976); the sea-bed and the subsoil underlying the territorial waters;
the air space above its territory and territorial waters; and the installations structures
and vessels located in the continental shelf of India and the exclusive economic
zone of India, for the purposes of prospecting or extraction or production of mineral
oil and natural gas and supply thereof.
• Detailed rules called the Place of Provision of Services Rules, 2012 have been
made which determine the place of provision of service depending on the nature
and description of service.
• Please refer to Guidance Note 5 relating to the Place of Provision of Services Rules,
2012
3.3 Service should not be specified in the negative list
As per section 66B, to be taxable a service should not be specified in the negative list. The
negative list of services has been specified in section 66D of the Act. For the sake of simplicity
the negative list of services has been reproduced in Exhibit AI to this Guidance Paper. For
guidance on the negative list please refer to Guidance Note 4.
3.4 Relevant Questions relating to taxability of services
3.4.1 How do I know that I am performing a taxable service in the absence of a positive
list?
The drill to identify whether you are providing taxable service is very simple. Pose the questions
listed in Step 1 and Step 2 below-
Step 1
To determine whether you are providing a ‘Service’
Pose the following questions to yourself
27
S.NO. QUESTION ANSWER
1 2
1 Am I doing an activity (including, but not limited to, an activity Yes
specified in section 66E of the Act) for another person*?
2 Am I doing such activity for a consideration? Yes
3 Does this activity consist only of transfer of title in goods or No
immovable property by way of sale, gift or in any other manner?
4. Does this activity constitute only a transfer, delivery or supply No
of goods which is deemed to be a sale of goods within the
meaning of clause (29A) of article 366 of the Constitution
5 Does this activity consist only of a transaction in money or No
actionable claim?
6 Is the consideration for the activity in the nature of court fees No
for a court or a tribunal?
7 Is such an activity in the nature of a service provided by an No
employee of such person in the course of employment?
8 Is the activity covered in any of the categories specified No
in Explanation 1 or Explanation 2 to clause (44) of
section 65B of the Act (para 2.10)
[*if you are a person doing business through an establishment located in the taxable territory
and another establishment located in non taxable territory OR an association or body of persons
or a member thereof then please see Explanation 3 to clause (44) of section 65B of the Act
(para 2.10) before answering this question]
If the answer to the above questions is as per the answers indicated in column 3 of the table
above THEN you are providing a service.


Step 2
To determine whether service provided by you is taxable
If you are providing a ‘service’ (Step 1) and then pose the following questions to yourself-
S.NO. QUESTION ANSWER
1 2
1 Have I provided or agreed to provide the service? Yes
2 Have I provided or agreed to provide the service in the taxable Yes
territory?
3 Is this activity entirely covered in any of the services described No
in the negative list of services specified in section 66D of the Act?
28
If the answer to the above questions is also as per the answers given in column 3 of the table
above THEN you are providing a ‘taxable service’
3.4.2 Will I have to pay service tax for all taxable services provided in the taxable
territory?
No. You will not have to pay service tax on taxable services provided by you in the following
cases:
• if in the previous financial year the aggregate value of taxable services provided by
you was less than Rs.10 lakh and in the present financial year the aggregate value
of taxable services provided by you is also less than Rs.10 lakh. (you start paying
service tax after crossing the threshold of Rs 10 lakh)
• If the taxable service provided by you is covered under any one of the exemptions
issued under section 93 of the Act.
3.4.3 How do I know that the service provided by me is an exempt service?
There are certain exemption notifications that have been issued under section 93 of the Act
of which the main exemption no 25/2012-ST dated 20/6/12 has 39 heads (mega notification).
If the service provided by you fits into the nature and description of services specified in these
notifications then the service being provided by you is an exempted service. For the sake of
convenience the proposed mega exemption has been reproduced at Exhibits A3 of this
Guide.
3.4.4 Are declared services also covered by exemptions?
Yes.
3.4.5 Are services other than declared services taxable?
Yes. All services, whether declared or not, which are covered under Section 66B of the Act
are taxable if elements of taxability are present. The only purpose behind declaring activities
as service is to bring uniformity in assessment of such activities across the country.

 
 
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