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What the Union budget said on service tax
March, 03rd 2010

Alongside bringing 10 new services under the service tax net, the Union budget has expanded or altered the scope of 10 existing services. The changes are to come into force from a date to be notified after enactment of Finance Bill, 2010.

The 10 services are:
1. Port /airport service: The definition of airport services, port services and other port services is being amended with the result that all services provided entirely within the airport/port premises would be classified under these services. Following this, an authorisation from the airport/port authority would not be a pre-condition for taxing these services and any service provided within the port or airport by any person to any person shall be liable to service tax.

2. Auctioneers service: An explanation has been added to clarify that the phrase auction by government means an auction where government property is being auctioned and not when the government acts as an auctioneer for the private property or goods.

3. Management of investment under ULIP service: The definition of management of investment under Ulip service is being amended to provide that the value of the taxable service for any year of the operation of policy shall be the actual amount charged by the insurer for management of funds under an unit linked insurance plan (Ulip) or the maximum amount of fund management charges fixed by the Insurance Regulatory and Development Authority (Irda), whichever is higher.

4. Transport of passenger by air service: In 2006, tax was imposed on international air travel by a passenger embarking in India and travelling in higher (other than economy) classes. The taxable service is being suitably amended to extend this levy to cover all domestic and international air passengers embarking in India. The impact of this amendment will be that air travel gets costlier.

5. Information technology software service: The service tax was limited to cases where such IT software was to be used in the course or furtherance of business or commerce. The definition of this taxable service is being suitably amended to extend this levy to cover the aforesaid IT software services provided in all cases, i.e. whether or not used in the course or furtherance of business or commerce. Now, even individual use of IT software is liable to service tax.

6. Commercial training & coaching service: In the case of commercial training or coaching service, an explanation is being added to clarify that the term commercial in the context of this service would mean any training or coaching, which is provided for a consideration, whether or not for profit. This change is being given retrospective effect from July 1, 2003.

7. Sponsorship service: Sponsorship service was brought under tax net in Budget 2006. However, sponsorship of sports events was kept out of the purview of the taxation with a view to encourage sports activity and to provide an avenue for funding sports events. Now, the exclusion available for sponsorship pertaining to sports is being removed by suitable amendment. Suitable exemption to certain categories of sports events would be considered at the appropriate time. This amendment is done with a view to tax the sponsorship generated by IPL franchises.

8. Construction of complex service: An explanation is being inserted to provide that unless the entire payment for the property is paid by the prospective buyer or on his behalf after the completion of construction (including its certification by the local authorities), the activity of construction would be deemed to be a taxable service provided by the builder/ promoter/ developer to the prospective buyer and the service tax would be charged accordingly.

This would only expand the scope of the existing service, which otherwise remain unchanged. Now, selling of under construction properties by builders is liable to service tax. Builder receiving entire consideration for the property after the completion of the property is not liable to service taxed.

9. Renting of immovable property service: The definition of taxable service is amended to provide explicitly that the activity of renting itself is a taxable service. The change has been given retrospective effect from June 1, 2007.

This amendment is done specifically to overrule the judgment of the Delhi High Court in the case of Home Solutions Retail India Ltd & Others vs. UOI wherein the court had struck down the levy of service tax on renting with the observation that renting of immovable property for use in the course of furtherance of business or commerce does not involve any value addition and therefore cannot be regarded as service. Hence, service tax needs to be collected on property rented for commercial use.

10. Renting of immovable property service: Suitable amendment in the definition of taxable service relating to renting to immovable property is being made so as to provide that tax would be charged on rent of a vacant land if there is an agreement or contract between the lessor and lessee that a construction on such land is to be undertaken for furtherance of business or commerce during the tenure of the lease. Now CIDCO and MIDC, which give land on lease for construction of factory will be liable to collect service tax on the lease rent received by them.

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