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Taxation of Services:An Education Guide
August, 22nd 2014
  Taxation of Services:
  An Education Guide




             June 20, 2012




          TAX RESEARCH UNIT
   Central Board of Excise & Customs,
Department of Revenue, Ministry of Finance
           Government of India
                New Delhi
                                             Hkkjr ljdkj
                                      GOVERNMENT OF INDIA
                                     foÙk ea=ky; @ jktLo foHkkx
                          MINISTRY OF FINANCE/DEPARTMENT OF REVENUE
                                  dsUæh; mRikn ,oa lhek 'kqYd cksMZ
                              CENTRAL BOARD OF EXCISE & CUSTOMS
                                      ukFkZ Cykd] ubZ fnYyh&110 001
 S.K. Goel                         NORTH BLOCK, NEW DELHI-110 001
Special Secretary         Tel. No. +91-11-23092849, Fax No.: +91-11-23092890
        &
   Chairman




                    iii
                                         Preface


       I write this on behalf of a number of persons collectively addressed as "We": the Team
TRU, other officials of the Department as well as elsewhere, academicians, innumerable tax-
payers, tax advisors, business entities and representatives from the chambers of trade and
industry and professional institutes.

       The comprehensive taxation of services, that appeared a pipedream less than a year
back, is now ready to be implemented.

        In perhaps the most transparent exercises in Indian budget making, the idea of the
Negative List originated in the first concept paper in August, 2011. This was fiercely debated
by all, some understandably cautious or even skeptical, a few ruthlessly opposed, while a
large majority displayed the foresight to look at the larger canvas; all making many valuable
suggestions.

       It was evident that we were measuring up to the challenge of remote budget-making
entrusted to us. But we knew we had to do some more work. Despite the Negative List being
operational in most parts of the world, we had to address our own uniqueness and in our way.

        With the level of confidence and trust that we had won, it was natural that we were kept
in the picture and informed which of our suggestions were accepted and which were not. The
revised concept paper followed in November. We realized that the government was serious
with this piece of progressive reform. We had to be likewise. Once again we tried our best to
critique and comment on various proposals.

        When the Budget announcements came in March, it was no shock or surprise. It was
largely an affirmation of what we had known all along. We could see our collective efforts bear
fruit.

       The Department was also becoming far more reliant in entrusting us the responsibility
of reading two rather lengthy draft guidance papers, trying to explain the whole concept and
seeking our inputs so that very little was left for experimentation through litigation on either
side.


                                               v
         Innumerable seminars organized by various chambers and professional institutes were
very illuminating with the CBEC also breaking tradition by holding its own seminar for business
in Delhi immediately after the budget followed by a well-attended seminar at its academy for
the officers. Not to rest on that laurel alone, CBEC further reinforced learning and doubt-
clearing with seminars in Delhi, Ahmedabad, Kolkata, and Chennai in June (Mumbai to follow
soon), collaborating with industry associations and professional bodies and making it grossly
interactive.

       And now the final packaged version is before us on June 20, 2012 ready to be
operationalised from July 1, 2012.

       The head of the family: the Hon'ble Finance Minister of India, who has personally
supported this entire initiative, guiding it intellectually and in all other possible ways, has very
readily and graciously agreed to find time, out of his most busy schedule, to release the final
version of this Educational Guide, indigenously produced and directed by We: The Team
Negative List.



                                                                                     (V. K. Garg)
                                                                            Joint Secretary(TRU)
                                                                           e-mail: garg.vk@nic.in



Dated: 20th June, 2012




                                                 vi
           TAXATION OF SERVICES: AN EDUCATION GUIDE
                                       INDEX

GUIDANCE      SUBJECT MATTER                                   PAGE NO.
NOTE

1.            Introduction                                            1

2.            What is Service?                                        5

3.            Taxability of Services                                 25

4.            Negative List of Services                              29

5.            Place of Provision of Service                          51

6.            Declared Services                                      79

7.            Exemptions                                             95

8.            Valuation                                             109

9.            Rules of Interpretation                               125

10.           Miscellaneous                                         129

Exhibits

A-1           Negative List of Services                             133

A-2           The Place of Provision of Services Rules, 2012        135

A-3           Exemptions under Mega Notification                    141




                                        vii
          INDEX OF CONTENTS UPTO TWO DIGIT HEADINGS


POINT                      SUBJECT MATTER                            PAGE NO.
HEADING

1.        Introduction                                                      1

1.1       Background                                                        1

1.2       What is the aim of this Guide?                                    1

1.3       What is the key to using this Guide?                              2

1.4       What is the broad scheme of new taxation?                         2

2.        What is Service?                                                  5

2.1       Activity.                                                         5

2.2       Consideration.                                                    5

2.3       Activity for a consideration.                                     8

2.4       By a person for another.                                         10

2.5       Activities specified in the declared list are services.          13

2.6       Activity to be taxable should not constitute only a              14
          transfer in title of goods or immovable property by
          way of sale, gift or in any other manner.

2.7       Activity to be taxable should not constitute merely              19
          a transfer, delivery or supply of goods which is deemed
          to be a sale of goods within the meaning of clause (29A)
          of article 366 of the Constitution.

2.8       Transactions only in money or actionable claims do not           21
          constitute service.

2.9       Provision of service by an employee to the employer              23
          is outside the ambit of service.

2.10      Explanations to the definition of `service'.                     24




                                          ix
POINT                         SUBJECT MATTER                             PAGE NO.
HEADING

3.        Taxability of services                                               25

3.1       Provided or agreed to be provided.                                   25

3.2       Provided in the taxable territory                                    26

3.3       Service should not be specified in the negative list.                26

3.4       Relevant Questions relating to taxability of services                26

4.        Negative List of Services                                            29

4.1       Services provided by Government or local authority.                  29

4.2       Services provided by Reserve Bank of India                           31

4.3       Services by a foreign diplomatic mission located in India.           31

4.4       Services relating to agriculture or agricultural produce.            31

4.5       Trading of goods.                                                    34

4.6       Processes amounting to manufacture or production of                  34
          goods.

4.7       Selling of space or time slots for advertisements other than         35
          advertisements broadcast by radio or television.

4.8       Access to a road or a bridge on payment of toll charges.             36

4.9       Betting, gambling or lottery.                                        37

4.10      Entry to entertainment events and access to                          37
          amusement facilities.

4.11      Transmission or distribution of electricity.                         38

4.12      Specified services relating to education.                            38

4.13      Services by way of renting of residential dwelling for use           41
          as residence.

4.14      Financial sector.                                                    43


                                          x
POINT                      SUBJECT MATTER                                PAGE NO.
HEADING

4.15      Service relating to transportation of passengers.                    46

4.16      Service relating to transportation of goods.                         48

4.17      Funeral, burial, crematorium or mortuary services                    49
          including transportation of the deceased.

5.        Place of Provision of Services.                                      51

5.1       Introduction                                                         51

5.2       Basic Framework                                                      52

5.3       Main Rule- Rule 3- Location of the Receiver                          56

5.4       Rule 4- Performance based Services                                   59

5.5       Rule 5- Location of Immovable Property                               61

5.6       Rule 6- Services relating to Events                                  63

5.7       Rule 7- Part performance of a service at different locations         64

5.8       Rule 8- Services where the Provider as well as Receiver              65
          are located in Taxable Territory

5.9       Rule 9- Specified services- Place of provision is                    65
          location of the service provider

5.10      Rule 10- Place of Provision of a service of transportation           69
          of goods

5.11      Rule 11- Passenger Transportation Services                           71

5.12      Rule 12- Services provided on board conveyances                      74

5.13      Rule 13- Power to notify services or circumstances                   74

5.14      Rule 14- Order of application of Rules                               74

6.        Declared Services.                                                   79

6.1       Renting of immovable property.                                       79


                                      xi
POINT                      SUBJECT MATTER                                PAGE NO.
HEADING

6.2       Construction of a complex, building, civil structure or a            81
          part thereof, including a complex or building intended for
          sale to a buyer, wholly or partly, except where the entire
          consideration is received after issuance of certificate
          of completion by a competent authority.

6.3       Temporary transfer or permitting the use or enjoyment                85
          of any intellectual property right.

6.4       Development, design, programming, customization,                     85
          adaptation, upgradation, enhancement, implementation
          of information technology software.

6.5       Activities in relation to delivery of goods on hire purchase         88
          or any system of payment by instalments.

6.6       Transfer of goods by way of hiring, leasing, licensing or            90
          any such manner without transfer of right to use such goods.

6.7       Agreeing to the obligation to refrain from an act, or to             92
          tolerate an act or a situation, or to do an act.

6.8       Service portion in execution of a works contract                     92

6.9       Service portion in an activity wherein goods, being food             94
          or any other article of human consumption or any drink
          (whether or not intoxicating) is supplied in any manner
          as part of the activity.

7.        Exemptions.                                                          95

7.1       Are services provided to all international organizations             95
          exempt from service tax?

7.2       Health Care Services                                                 96

7.3       Services provided to or by a governmental authority                  96

7.4       Charities                                                            98

7.5       Religious places/ceremonies                                          99

7.6       Advocates or arbitral tribunals                                      99


                                      xii
POINT                      SUBJECT MATTER                               PAGE NO.
HEADING

7.7       Recreational coaching or training                                  100

7.8       Sports                                                             100

7.9       Construction                                                       101

7.10      Copyright                                                          102

7.11      Miscellaneous                                                      103

8.        Valuation.                                                         109

8.1       Broad Scheme of Valuation.                                         109

8.2       Valuation of service portion in execution of a works               112
          contract.

8.3       Determination of value of service in relation to money             114
          changing.

8.4       Valuation of service portion involved in supply of food or         115
          any other article of human consumption or any drink in a
          restaurant or as outdoor catering.

8.5       Inclusion or exclusion from value of certain expenditure or        117
          costs borne by the service provider.

8.6       Cases in which commission, costs etc received by the               118
          service provider will be included or excluded.

8.7       Compounding schemes for determination of value under               120
          the Service Tax Rules, 1994.

8.8       Notified abatements for determining the taxable value.             122

8.9       Person responsible for determining the value of                    124
          taxable service.

9.        Rules of Interpretation.                                           125

9.1       Principles for interpretation of specified descriptions            125
          of services.

9.2       Taxability of `bundled services'.                                  126

                                      xiii
POINT                       SUBJECT MATTER                  PAGE NO.
HEADING

10         Miscellaneous                                         129

10.1       Partial Reverse Charge                                129

10.2       Export of Services                                    131

10.3       ISD : Input Service Distributor                       131

Exhibits

A-1        Negative List of services                             133

A-2        The Place of Provision of Services Rules, 2012        135

A-3        Exemptions under Mega Notification                    141




                                       xiv
                Taxation of Services: An Education Guide
                            TRU, Central Board of Excise & Customs,
                           Department of Revenue, Ministry of Finance
                                         June 20, 2012


  1.      Introduction

1.1 Background

The journey of taxation of services began by selective taxation of just three services on July 1,
1994. The first year collections now appear a very modest at Rs 407 crore.

After appearing largely as just-another-tax for the first 8 years, with collections touching
Rs 3,302 crore in 2001-02, service tax took some giant leaps in the next 7 years, both on the
back of wider coverage as well as increase in tax rate, reaching Rs 60,941 crore in 2008-09.
Next two years saw the growth somewhat moderating with collections reaching Rs 70,896
crore in 2010-11.

The buoyancy began once again on the back of some policy initiatives and Service Tax
contributed Rs 97, 444 crore during 2011-12, an increase of nearly 37% over the previous
year.

While the revenue expectations were often exceeded in all these years the administrative
challenge began to assume unmanageable proportions. The newer additions to the list of
services often raised issues of overlaps with the previously existing services, confounding
both sides as to whether some activities were taxed for the first time or were already covered
under an earlier, even if a little less specific head.

There was also a near unanimity across a wide section of thinkers that potential of service tax
remained huge and largely untapped. Part of the problem identified was the lack of
comprehensive taxation of services, not so much in the lack of coverage but more on account
of lack of clarity and significant gaps in existing definitions, exposing the tax collection process
to avoidable leakages and litigation.

Budget 2012 has ushered a new system of taxation of services; popularly known as Negative
List. The new changes are a paradigm shift from the existing system where only services of
specified descriptions are subjected to tax. In the new system all services, except those
specified in the negative list, will be subject to taxation. For those who like to use modern-day
terminology one could call it taxation of service version 2.0.

1.2 What is the aim of this Guide?

This guide is aimed at educating the tax payers and the tax administrators on various aspects
of the new concept in order to assist them in gaining better understanding about the new
system of taxation.

                                                 1
    It is clarified at the outset that this guide is merely an educational aid based on a
    broad understanding of a team of officers of the issues. It is neither a
    "Departmental Circular" nor a manual of instructions issued by the Central Board
    of Excise and Customs. To that extent it does not command the required legal
    backing to be binding on either side in any manner. The guide is being released
    purely as a measure of facilitation so that all stakeholders obtain some preliminary
    understanding of the new issues for smooth transition to the new regime.



1.3 What is the key to using this Guide?
The guide consists of a number of Guidance Notes. Each of the notes deals with a specific
topic relating to the negative list. The list of these educational notes is as follows-

Guidance Note 1       Introduction

Guidance Note 2       What is `service'?

Guidance Note 3       Taxability of a `service'

Guidance Note 4       Negative List

Guidance Note 5       Place of Provision of Service

Guidance Note 6       Declared Services

Guidance Note 7       Exemptions

Guidance Note 8       Valuation

Guidance Note 9       Rules of Interpretation

Guidance Note 10 Miscellaneous

In addition, the Guide has the following three Exhibits:

    ·    Exhibit A1 - List of services specified in the negative list

    ·    Exhibit A2 ­ Place of Provision of Service Rules, 2012.

    ·    Exhibit A3- List of exemptions in mega notification

1.4 What is the broad scheme of new taxation?
The key features of the new system of taxation are as follows:

    ·    At the outset `service' has been defined in clause (44) of section65B of the Act.

    ·    Section 66B specifies the charge of service tax which is essentially that service tax


                                                  2
    shall be levied on all services provided or agreed to be provided in a taxable territory,
    other than services specified in the negative list.

·   The negative list of services is contained in section 66D of the Act.

·   Since provision of service in the taxable territory is an important ingredient of taxability,
    section 66C empowers the Central Government to make rules for determination of
    place of provision of service. Under these provisions the Place of Provision of
    Services Rules, 2012 have been made.

·   To remove some ambiguities certain activities have been specifically defined by
    description as services and are referred as Declared Services (listed in section
    66E).

·   In addition to the services specified in the negative list, certain exemptions have
    been given. Most of the exemptions have been consolidated in a single mega
    exemption for ease of reference.

·   Principles have been laid down in section 66F of the Act for interpretation wherever
    services have to be treated differentially for any reason and also for determining the
    taxability of bundled services.

·   The system of valuation of services for levy of service tax and of availment and
    utilization of Cenvat credits essentially remains the same with only incidental changes
    required for the new system of taxation



                                          *****




                                            3
  Guidance Note 2 ­What is Service?

`Service' has been defined in clause (44) of the new section 65B and means ­

     ·    any activity

     ·    for consideration

     ·    carried out by a person for another

     ·    and includes a declared service.

The said definition further provides that `Service' does not include ­

     ·    any activity that constitutes only a transfer in title of (i) goods or (ii) immovable
          property by way of sale, gift or in any other manner

     ·    (iii) a transfer, delivery or supply of goods which is deemed to be a sale of goods
          within the meaning of clause (29A) of article 366 of the Constitution

     ·    a transaction only in (iv) money or (v) actionable claim

     ·    a service provided by an employee to an employer in the course of the employment.

     ·    fees payable to a court or a tribunal set up under a law for the time being in force

There are four explanations appended to the definition of `service' which are dealt with in later
part of this Guidance Note. Each of the ingredients bulleted above have been explained in
the points below.

2.1 Activity
2.1.1 What does the word `activity' signify?

`Activity' has not been defined in the Act. In terms of the common understanding of the word
activity would include an act done, a work done, a deed done, an operation carried out,
execution of an act, provision of a facility etc. It is a term with very wide connotation.

Activity could be active or passive and would also include forbearance to act. Agreeing to an
obligation to refrain from an act or to tolerate an act or a situation has been specifically listed
as a declared service under section 66E of the Act.

2.2 Consideration
2.2.1 The phrase `consideration' has not been defined in the Act. What is, therefore,
the meaning of `consideration'?

As per Explanation (a) to section 67 of the Act "consideration" includes any amount that is
payable for the taxable services provided or to be provided.


                                                5
Since this definition is inclusive it will not be out of place to refer to the definition of
`consideration' as given in section 2 (d) of the Indian Contract Act, 1872 as follows-

"When, at the desire of the promisor, the promisee or any other person has done or abstained
from doing, or does or abstains from doing, or promises to do or to abstain from doing,
something, such act or abstinence or promise is called a consideration for the promise"

In simple terms, `consideration' means everything received or recoverable in return for a
provision of service which includes monetary payment and any consideration of non- monetary
nature or deferred consideration as well as recharges between establishments located in a
non-taxable territory on one hand and taxable territory on the other hand.

2.2.2 What are the implications of the condition that activity should be carried out for
a `consideration'?

     ·    To be taxable an activity should be carried out by a person for a `consideration'

     ·    Activity carried out without any consideration like donations, gifts or free charities
          are therefore outside the ambit of service. For example grants given for a research
          where the researcher is under no obligation to carry out a particular research would
          not be a consideration for such research.

     ·    An act by a charity for consideration would be a service and taxable unless otherwise
          exempted. ( for exemptions to charities please see Guidance Note 7)

     ·    Conditions in a grant stipulating merely proper usage of funds and furnishing of
          account also will not result in making it a provision of service.

     ·    Donations to a charitable organization are not consideration unless charity is
          obligated to provide something in return e.g. display or advertise the name of the
          donor in a specified manner or such that it gives a desired advantage to the donor.

2.2.3 What is the meaning of monetary consideration?

Monetary consideration means any consideration received in the form of money. `Money'
has been defined in section 65B and includes not only cash but also cheque, promissory
note, bill of exchange, letter of credit, draft, pay order, traveler's cheque, money order, postal
or electronic remittance or any such similar instrument.

2.2.4 What is non-monetary consideration?

Non-monetary consideration essentially means compensation in kind such as the following:

     ·    Supply of goods and services in return for provision of service

     ·    Refraining or forbearing to do an act in return for provision of service

     ·    Tolerating an act or a situation in return for provision of a service

     ·    Doing or agreeing to do an act in return for provision of service


                                                6
Illustrations

 If......                                      And in return...
 A agrees to dry clean B's clothes             B agrees to click A's photograph
 A agrees not to open dry clean shop in        B agrees not to open photography shop in
 B's neighborhood                              A's neighborhood
 A agrees to design B's house                  B agrees not to object to construction of
                                               A's house in his neighborhood
 A agrees to construct 3 flats for B on land   B agrees to provide one flat to A without any
 owned by B                                    monetary consideration



Then

For the services provided by A to B, the acts of B specified in 2nd column are non- monetary
consideration provided by B to A. Conversely, for services provided by B to A, similar reasoning
will be adopted.

2.2.5 Is the value of non-monetary consideration important?

Yes. The non-monetary consideration also needs to be valued for determining the tax payable
on the taxable service since service tax is levied on the value of consideration received which
includes both monetary consideration and money value of non-monetary consideration.

2.2.6 How is the money value of non-monetary consideration determined?

The value of non-monetary consideration is determined as per section 67 of the Act and the
Service Tax (Determination of Value) Rules 2006, which is equivalent money value of such
consideration and if not ascertainable, then as follows:-

     ·      On the basis of gross amount charged for similar service provided to other person
            in the ordinary course of trade;

     ·      Where value cannot be so determined, the equivalent money value of such
            consideration, not less than the cost of provision of service.

For details please refer to point no 8.1.8 and 8.1.9 of this Guide.

2.2.7 Are research grant with counter obligation on researcher to provide IPR rights
on outcome of a research a consideration?

In case research grant is given with counter obligation on the researcher to provide IPR rights
on the outcome of research or activity undertaken with the help of such grants then the grant is
a consideration for the provision of service of research. General grants for researches will not
amount to a consideration.



                                               7
2.3 Activity for a consideration

The concept `activity for a consideration' involves an element of contractual relationship wherein
the person doing an activity does so at the desire of the person for whom the activity is done
in exchange for a consideration. An activity done without such a relationship i.e. without the
express or implied contractual reciprocity of a consideration would not be an `activity for
consideration' even though such an activity may lead to accrual of gains to the person carrying
out the activity.

Thus an award received in consideration for contribution over a life time or even a singular
achievement carried out independently or without reciprocity to the amount to be received will
not comprise an activity for consideration.

There can be many activities without consideration. An artist performing on a street does an
activity without consideration even though passersby may drop some coins in his bowl kept
after feeling either rejoiced or merely out of compassion. They are, however, under no obligation
to pay any amount for listening to him nor have they engaged him for his services. On the
other hand if the same person is called to perform on payment of an amount of money then
the performance becomes an activity for a consideration.

Provisions of free tourism information, access to free channels on TV and a large number of
governmental activities for citizens are some of the examples of activities without consideration.

Similarly there could be cases of payments without an activity though they cannot be put in
words as being "consideration without an activity". Consideration itself pre-supposes a certain
level of reciprocity. Thus grant of pocket money, a gift or reward (which has not been given in
terms of reciprocity), amount paid as alimony for divorce would be examples in this category.
However a reward given for an activity performed explicitly on the understanding that the
winner will receive the specified amount in reciprocity for a service to be rendered by the
winner would be a consideration for such service. Thus amount paid in cases where people
at large are invited to contribute to open software development (e.g. Linux) and getting an
amount if their contribution is finally accepted will be examples of activities for consideration.

2.3.1 Would imposition of a fine or a penalty for violation of a provision of law be a
consideration for the activity of breaking the law making such activity a `service'?

No. To be a service an activity has to be carried out for a consideration. Therefore fines and
penalties which are legal consequences of a person's actions are not in the nature of
consideration for an activity.




                                                8
2.3.2 Would the payments in the nature as explained in column A of the table below
constitute a consideration for provision of service?




                                        9
2.3.3 Can a consideration for service be paid by a person other than the person
receiving the benefit of the service?

Yes. The consideration for a service may be provided by a person other than the person
receiving the benefit of service as long as there is a link between the provision of service and
the consideration. For example, holding company may pay for services that are provided to
its associated companies.

2.4 By a person for another

2.4.1 What is the significance of the phrase `carried out by a person for another'?

The phrase `provided by one person to another' signifies that services provided by a person
to self are outside the ambit of taxable service. Example of such service would include a
service provided by one branch of a company to another or to its head office or vice-versa.

2.4.2 Are there any exceptions wherein services provided by a person to oneself are
taxable?

Yes. Two exceptions have been carved out to the general rule that only services provided by
a person to another are taxable. These exceptions, contained in Explanation 2 of clause (44)
of section 65B, are:

    ·    an establishment of a person located in taxable territory and another establishment
         of such person located in non-taxable territory are treated as establishments of
         distinct persons. [Similar provision exists presently in section 66A (2)].

    ·    an unincorporated association or body of persons and members thereof are also
         treated as distinct persons. [Also exists presently in part as explanation to section
         65].

Implications of these deeming provisions are that inter-se provision of services between
such persons, deemed to be separate persons, would be taxable. For example, services
provided by a club to its members and services provided by the branch office of a multi-
national company to the headquarters of the multi-national company located outside India
would be taxable provided other conditions relating to taxability of service are satisfied.


                                              10
2.4.3 Are services provided by persons who have formed unincorporated joint
ventures or profit-sharing arrangements liable to be taxed?

The services provided, both by the so constituted JV or profit sharing association of persons
(AOP), as well as by each of the individual persons constituting the JV/AOP will be liable to
be taxed separately, subject of course to the availability of the credit of the tax paid by
independent persons to the JV/AOP and as otherwise admissible under Cenvat Rules..

2.4.4 Who is a `person'? Is it only a natural person or includes an artificial or a juridical
person?

`Person' is not restricted to natural person. `Person' has been defined Section 65 B of the
Act. The following shall be considered as persons for the purposes of the Act:

    ·    an individual
    ·    a Hindu undivided family
    ·     a company
    ·    a society
    ·    a limited liability partnership
    ·    a firm
    ·    an association or body of individuals, whether incorporated or not
    ·    Government
    ·    a local authority, or
    ·    every artificial juridical person, not falling within any of the preceding sub-clauses.

2.4.5 Are Government and local authorities also liable to pay tax?

Yes. However, most of the services provided by the Government or local authorities are in the
negative list.

2.4.6 What is the rationale behind taxing certain activities of the Government or local
authorities?

Only those activities of Government or local authorities are taxed where similar or substitutable
services are provided by private entities. The rationale is as follows-

·  to provide a level playing field to private entities in these areas as exemption to
Government in such activities would lead to competitive inequities; and

·   to avoid break in Cenvat chain as the support services provided by Government are
normally in the nature of intermediary services.

2.4.7 What is the meaning of `Government'?

The phrase `Government' has not been defined in the Act. As per clause (23) of section 3 of
the General Clauses Act, 1897 `Government' includes both Central Government and any State


                                               11
Government. As per clause (8) of section 3 of the said Act `Central Government', in relation to
anything done or to be done after the commencement of the Constitution, mean the President.
As per article 53 of the Constitution the executive power of the Union shall be vested in the
President and shall be exercised by him either directly or indirectly through officers subordinate
to him in accordance with the Constitution. Further, in terms of article 77 of the Constitution all
executive actions of the Government of India shall be expressed to be taken in the name of
the President. Therefore, the Central Government means the President and the officers
subordinate to him while exercising the executive powers of the Union vested in the President
and in the name of the President.

Similarly as per clause (60) of section 3 of the General Clauses Act,1897 `State Government',
as respects anything done after the commencement of the Constitution, shall be in a State the
Governor, and in Union Territory the Central Government. Further as per article 154 of the
Constitution the executive power of the State shall be vested in the Governor and shall be
exercised by him either directly or indirectly through officers subordinate to him in accordance
with the Constitution. Further, as per article 166 of the Constitution all executive actions of the
Government of State shall be expressed to be taken in the name of Governor. Therefore,
State Government means the Governor or the officers subordinate to him who exercise the
executive power of the State vested in the Governor and in the name of the Governor.

2.4.8 What is a local authority?

Local authority is defined in clause (31) of section 65B and means the following:-

     ·    A Panchayat as referred to in clause (d) of article 243 of the Constitution
     ·    A Municipality as referred to in clause (e) of article 243P of the Constitution
     ·    A Municipal Committee and a District Board, legally entitled to, or entrusted by the
          Government with, the control or management of a municipal or local fund
     ·    A Cantonment Board as defined in section 3 of the Cantonments Act, 2006
     ·    A regional council or a district council constituted under the Sixth Schedule to the
          Constitution
     ·    A development board constituted under article 371 of the Constitution, or
     ·    A regional council constituted under article 371A of the Constitution.

2.4.9 Are all local bodies constituted by a State or Central Law local authorities?

No. The definition of `local authority' is very specific as explained in point no 2.4.8 above and
only those bodies which fall in the definition comprise `local authorities'. It would not include
other bodies which are merely described as a local body by virtue of a local law.

However it may be noted that services by a governmental authority by way of any activity in
relation to any function entrusted to a municipality under article 243W of the Constitution are
specifically exempt under the mega exemption. `Governmental authority' has been defined in
the said mega exemption as a board, or an authority or any other body established with 90%
or more participation by way of equity or control by Government and set up by an Act of the
Parliament or a State Legislature to carry out any function entrusted to a municipality under


                                                12
article 243W of the Constitution. Thus some of these local bodies may comprise governmental
authorities.

2.4.10 Would various entities like a statutory body, corporation or an authority
constituted under an Act passed by the Parliament or any of the State Legislatures
be `Government' or "local authority"?

A statutory body, corporation or an authority created by the Parliament or a State Legislature
is neither `Government' nor a `local authority' as would be evident from the meaning of these
terms explained in point nos. 2.4.7 and 2.4.8 above respectively. Such statutory body,
corporation or an authority are normally created by the Parliament or a State Legislature in
exercise of the powers conferred under article 53(3)(b) and article 154(2)(b) of the Constitution
respectively. It is a settled position of law Government (Agarwal Vs. Hindustan Steel AIR
1970 Supreme Court 1150) that the manpower of such statutory authorities or bodies do not
become officers subordinate to the President under article 53(1) of the Constitution and
similarly to the Governer under article 154(1). Such a statutory body, corporation or an authority
as a juristic entity is separate from the state and cannot be regarded as Central or State
Government and also do not fall in the definition of `local authority'.

Thus regulatory bodies and other autonomous entities which attain their entity under an act
would not comprise either government or local authority.

2.4.11 Would services provided by one department of the Government to another
Department of the Government be taxable?

If services are provided by one department of the Central Government to another department
of the Central Government or by a department of a State Government to another department
of the same State Government then such service would not be taxable as it would amount to
self-service. To be taxable a service has to be provided to another person.

On the other hand if a service is provided by a Central Government department to a State
Government department or vice versa or a by a State to another State Government or by a
Government to an autonomous body, the same would be taxable if such service does not fall
in the negative list. It is another matter that most of the services provided by the Government
are in the negative list. For details please refer to point no. 4.1 of this Guide.




2.4.12 Would taxable services provided by Government or local authorities still be
liable to tax if they are covered under any other head of the negative list or are
otherwise exempted?

No. For example, transport services provided by Government to passengers by way of a
stage carriage would not be taxable as transport of passengers by stage carriage has
separately been specified in the negative list of services. The specified services provided by
the Government or local authorities are taxable only to the extent they are not covered
elsewhere i.e. either in the negative list or in the exemptions.

2.5 Activities specified in the declared list are services.
Declared Services are activities that have been specified in Section 66 E of the Act. When
such activities are carried out by one person for another in the taxable territory for a

                                               13
consideration then such activities are taxable services. For guidance on the declared services
please refer to Guidance Note 6.

2.6 Activity to be taxable should not constitute only a transfer in title
of goods or immovable property by way of sale, gift or in any other
manner

     ·    Mere transfer of title in goods or immovable property by way of sale, gift or in any
          other manner for a consideration does not constitute service.

     ·    Goods has been defined in section 65B of the Act as `every kind of moveable
          property other than actionable claims and money; and includes securities, growing
          crops, grass and things attached to or forming part of the land which are agreed to
          be severed before sale or under contract of sale'.

     ·    Immovable property has not been defined in the Act. Therefore the definition of
          immovable property in the General Clauses Act, 1897 will be applicable which defines
          immovable property to include land, benefits to arise out of land, and things attached
          to the earth, or permanently fastened to anything attached to the earth.

2.6.1What is the significance of the phrase `transfer of title'?

`Transfer of title' means change in ownership. Mere transfer of custody or possession over
goods or immovable property where ownership is not transferred does not amount to transfer
of title. For example giving the property on rent or goods for use on hire would not involve a
transfer of title.

2.6.2 What is the significance of the word `only' in the said exclusion clause in the
definition of `service'?

The word `only' signifies that activities which constitute only:

     ·    transfer of title in goods or immovable property; or

     ·    transfer , supply or delivery which is deemed to be a deemed sale of goods or
          constitute; or

     ·    a transaction in money or an actionable claim-are outside the definition of service.

A transaction which in addition to a transfer of title in goods or immovable property involves
an element of another activity carried out or to be carried out by the person transferring the
title would not be outrightly excluded from the definition of service. Such transactions are
liable to be treated as follows-

     ·    If two transactions, although associated, are two discernibly separate transactions
          then each of the separate transactions would be assessed independently. In other
          words the discernible portion of the transaction which constitutes, let's say, a transfer
          of title in goods, would be excluded from the definition of service by operation of the
          said exclusion clause while the service portion would be included in the definition of

                                                14
          service. For example a builder carrying out an activity for a client wherein a flat is
          constructed by the builder for the client for which payments are received in instalments
          and on completion of the construction the title in the flat is transferred to the client
          involves two elements namely provision of construction service and transfer of title
          in immovable property. The two activities are discernibly separate. The activity of
          construction carried out by the builder would, therefore, be a service and the activity
          of transfer of title in the flat would be outside the ambit of service.

     ·     In cases of composite transactions, i.e. transactions involving an element of provision
          of service and an element of transfer of title in goods in which various elements are
          so inextricably linked that they essentially form one composite transaction then the
          nature of such transaction would be determined by the application of the dominant
          nature test laid down by the Supreme Court in BSNL's case. The judgement has
          been explained in detail in point no 2.6.3. Although the judgement was given in the
          context of composite transactions involving an element of transfer in title of goods
          by way of sale and an element of provision of service, the ratio would equally apply
          to other kind of composite transactions involving a provision of service and transfer
          in title in immovable property or actionable claim.

2.6.3 What is the manner of dealing with composite transactions which in addition to
a transfer of title in goods involve an element of provision of service?

The manner of treatment of such composite transactions for the purpose of taxation, i.e. are
they to be treated as sale of goods or provision of service, has been laid down by the Honorable
Supreme Court in the case of Bharat Sanchar Nigam Limited vs Union of India
[2006(2)STR161(SC)]. The relevant paras 42 and 43 of the said judgment are reproduced
below -

"42. Of all the different kinds of composite transactions the drafters of the 46th Amendment
chose three specific situations, a works contract, a hire purchase contract and a catering
contract to bring within the fiction of a deemed sale. Of these three, the first and third involve
a kind of service and sale at the same time. Apart from these two cases where splitting of the
service and supply has been Constitutionally permitted in Clauses (b) and (g) of Clause 29A
of Art. 366, there is no other service which has been permitted to be so split. For example the
clauses of Article 366(29A) do not cover hospital services. Therefore, if during the treatment
of a patient in a hospital, he or she is given a pill, can the sales tax authorities tax the transaction
as a sale? Doctors, lawyers and other professionals render service in the course of which
can it be said that there is a sale of goods when a doctor writes out and hands over a prescription
or a lawyer drafts a document and delivers it to his/her client? Strictly speaking with the payment
of fees, consideration does pass from the patient or client to the doctor or lawyer for the
documents in both cases.

43. The reason why these services do not involve a sale for the purposes of Entry 54 of List II
is, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon
Dunkerley's case, namely, if there is an instrument of contract which may be composite in
form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth
represents two distinct and separate contracts and is discernible as such, then the State
would not have the power to separate the agreement to sell from the agreement to render
service, and impose tax on the sale. The test therefore for composite contracts other than

                                                  15
those mentioned in Article 366 (29A) continues to be - did the parties have in mind or intend
separate rights arising out of the sale of goods. If there was no such intention there is no sale
even if the contract could be disintegrated. The test for deciding whether a contract falls into
one category or the other is to as what is the substance of the contract. We will, for the want of
a better phrase, call this the dominant nature test."

The following principles emerge from the said judgment for ascertaining the taxability of
composite transactions-

     ·    Except in cases of works contracts or catering contracts [exact words in article
          366(29A) being ­ `service wherein goods, being food or any other article of human
          consumption or any drink (whether or not intoxicating) is supplied in any manner as
          part of the service'] composite transactions cannot be split into contracts of sale
          and contracts of service.

     ·    The test whether a transaction is a `composite transaction' is that did the parties
          intend or have in mind that separate rights arise out of the constituent contract of
          sale and contract of service. If no then such transaction is a composite transaction
          even if the contracts could be disintegrated.

     ·    The nature of a composite transaction, except in case of two exceptions carved out
          by the Constitution, would be determined by the element which determines the
          `dominant nature' of the transaction.

               If the dominant nature of such a transaction is sale of goods or immovable
               property then such transaction would be treated as such.

               If the dominant nature of such a transaction is provision of a service then such
               transaction would be treated as a service and taxed as such even if the
               transaction involves an element of sale of goods.

     ·    In case of works contracts and `service wherein goods, being food or any other
          article of human consumption or any drink (whether or not intoxicating) is supplied in
          any manner as part of the service' the `dominant nature test' does not apply and
          service portion is taxable as a `service' This has also been declared as a service
          under section 66E of the Act. For guidance on these two types of composite
          transactions and the manner of determining the value portion of service portion of
          such composite transactions please refer to point nos. 5.8 and 5.9 of this Guidance
          Paper.

     ·    If the transaction represents two distinct and separate contracts and is discernible
          as such then contract of service in such transaction would be segregated and
          chargeable to service tax if other elements of taxability are present. This would
          apply even if a single invoice is issued.

The principles explained above would, mutatis mutandis, apply to composite transactions
involving an element of transfer of title in immovable property or transaction in money or an
actionable claim.



                                               16
2.6.4 Why has notification 12/2003-ST been deleted?

Notification 12/2003 ­ ST exempted so much of the value of all taxable services as was
equal to the value of goods and materials sold (emphasis supplied) by the service provider
to the service recipient subject to condition that there is documentary proof of such value of
goods and materials. This was necessary under the regime of taxation of services based on
specified descriptions as some of the specified descriptions could include an element of
transfer of title in goods.

On the other hand, under the negative list scheme, specified descriptions of taxable services
have been done away with and transactions that involve transfer of title in goods or are `deemed
to be sale of goods' under the Constitution are excluded from the ambit of service by the very
definition of service. Therefore if, in the course of providing a service, goods are also being
sold by a service provider for which there is such documentary proof as to make the sale a
distinct and a separate transaction then the activity of sale of such goods gets excluded from
the definition of service itself. The essence and intent of notification no 12/2003 has, therefore,
been fully captured in the definition of service itself.

2.6.5 Will the goods portion in transactions like annual maintenance contracts or
erection and commissioning or construction be includible in the value of services
consequent to the deletion of Notification 12/2003-ST?

All the examples given in the question now comprise "works contracts" and only the service
portion of such contracts comprise service. By the express provisions contained in the definition
of service (which is mandated by constitutional provisions) it is not possible to tax the goods
portion of works contracts. However the principles of segregation of the value of goods are
provided in Rule 2A of the Valuation Rules. Thus there is no basis for the taxation of goods in
such contracts even after the deletion of the stated notification.

Even for the sale of any equipment for which a separate contract for warranty or after sales
services or maintenance is entered the discernible sales portion is not to be included in the
discernible portion of the value of service. For all practical purposes these will be two separate
contracts. However for artificial segregation of value between goods and services, to save
either of the taxes on goods or services, the benefit was neither available earlier under the
stated notification and the position continues to be the same under the new regime.

2.6.6 "Securities" have been included as goods. What are securities?

Securities have been defined in section 65B of the Act as having the same meaning assigned
to it in clause (h) of section 2 of the Securities Contract (Regulation) Act, 1956 (42 0f 1956) in
terms of which `securities' includes ­

     ·    Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable
          securities of a like nature in or of any incorporated company or other body corporate.

     ·    Derivative.

     ·    Security receipt as defined in clause (zg) of section 2 of the Securitisation and
          Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.


                                                17
     ·    Units or any other such instrument issued to the investors under any         mutual fund
          scheme.

     ·    Any certificate or instrument (by whichever name called), issued to any investor by
          any issuer being a special purpose distinct entity which possesses any debt or
          receivable, including mortgage debt, assigned to such entity, and acknowledging
          beneficial interest of such investor in such debt or receivable, including mortgage
          debt, as the case may be;

     ·    Government securities;

     ·    Such other instruments as may be declared by the Central Government to be
          securities.

     ·    Rights or interest in securities.

2.6.7 What are the implications of inclusion of `securities' as `goods'?

The definition of `goods' has essentially been borrowed from the Sale of Goods Act, 1930
with the only variation that in the inclusion clause of the said definition the phrase `stocks and
shares' been replaced with `securities'. In effect, therefore, activities that are in the nature of
only transfer of title by way of sale, redemption, purchase or acquisition of securities on
principal-to-principal basis, excluding services of dealers, brokers or agents in relation to
such transactions, are outside the ambit of `services. However activities which are not in the
nature of transfer of title in securities (for example a person agreeing not to exercise his right
in a security for a given period of time for a consideration) would not be included in this
exclusion clause to the definition of `service.

2.6.8 What is a derivative?

As per in clause (ac) of section 2 of the Securities Contract (Regulation) Act, 1956 (42 0f
1956) "derivative" includes--

(A) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk
instrument or contract for differences or any other form of security;

(B) a contract which derives its value from the prices, or index of prices, of underlying securities.

The definition of `derivatives' in the said Act is an inclusive definition. Moreover, it may be
noticed that as per the said definition `derivative' includes security derived from a `contract of
difference' which is of a very wide ambit.

It would thus be prudent to keep in mind definition of derivatives as contained in Clause (a) of
Section 45U of the RBI Act, 1935 as per which a `derivates' means an instrument, to be
settled at a future date, whose value is derived from change in interest rate, foreign exchange
rate, credit rating from credit index, price of securities (also called "underlying") , or a
combination of a more than one of them and includes interest rates swaps, forward rate
agreements, foreign currency swaps, foreign currency-rupee swaps, foreign currency options,
foreign currency­rupee options or such other instruments as may be specified by the Bank


                                                 18
from time-to- time. Transactions, including over the counter transactions, in such securities
would therefore be out of the ambit of definition of `service'.

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.

2.6.9 Would buying or selling of mutual funds or debentures be a `service'?

No. buying or selling of mutual funds or debentures would not be a service as the same would
be a transaction in securities.

2.6.10 Whether the service tax would be chargeable on the `entry and exit load' amount
charged by a mutual fund to the investor?

As per the definition of `service' only activities which are in the nature of transfer of title in
goods (which includes securities) are excluded. As a consideration for the transfer of title in
mutual funds the investors pay amounts equal to NAV of the mutual fund. Entry or exit loads
are in the nature of consideration for documentation, covering initial expenses, asset
management etc. Hence service tax would be leviable on such entry and exit loads.

Service tax would also be leviable on fund management activity undertaken by an asset
management company (AMC) for which an AMC charges the mutual fund an `investment and
advisory fee', in accordance with provisions contained in the SEBI regulation.

2.6.11 What is the meaning of `immoveable property'?

`Immoveable property' has not been defined in the Act. Therefore, the definition of `immoveable
property as given in clause (26) of the General Clauses Act, 1897 has to be taken as per
which "immovable property" shall include land, benefits to arise out of land, and things attached
to the earth, or permanently fastened to anything attached to the earth.

2.7 Activity to be taxable should not constitute merely a transfer,
delivery or supply of goods which is deemed to be a sale of goods
within the meaning of clause (29A) of article 366 of the Constitution.
2.7.1 What are `deemed sales' defined in article 366(29A)?

The six categories of deemed sales as defined in article 366(29A) of the Constitution are ­

     ·    transfer, otherwise than in pursuance of a contract, of property in any goods for
          cash, deferred payment or other valuable consideration

     ·    transfer of property in goods (whether as goods or in some other form) involved in
          the execution of a works contract

     ·    delivery of goods on hire-purchase or any system of payment by installments

     ·    transfer of the right to use any goods for any purpose (whether or not for a specified
          period) for cash, deferred payment or other valuable consideration

                                               19
    ·    supply of goods by any unincorporated association or body of persons to a member
         thereof for cash, deferred payment or other valuable consideration

    ·    supply, by way of or as part of any service or in any other manner whatsoever, of
         goods, being food or any other article for human consumption or any drink (whether
         or not intoxicating), where such supply or service, is for cash, deferred payment or
         other valuable consideration.

2.7.2 Once transfer of title by way of sale of goods is specifically excluded, what is
the need to exclude deemed sales specifically?

Some categories of deemed sales do not involve transfer of title in goods like transfer of
goods on hire-purchase or transfer of right to use goods. Accordingly, deemed sales have
been specifically excluded.

2.7.3 Is there a possible conflict between exclusion of transactions covered under
Article 366 (29A) and activities that have been declared as services under section
66E?

No. Activities specified under section 66E, which are related to transactions that are deemed
as sales under article 366 (29A), have been carefully specified to ensure that there is no
conflict. This would be evident from the following illustrations-

    ·    Transfer of property in goods (whether as goods or in some other form) involved in
         the execution of a works contract is a category of deemed sales. On the other hand
         the declared list entry is limited to the service portion in execution of a works contract.

    ·    Delivery of goods on hire-purchase or any system of payment by installments is
         deemed to be a sale under article 366 (29A), while the related declared service list
         entry is limited to activities related to delivery of goods on hire-purchase or any
         system of payment by installments

    ·    Transfer of the right to use any goods for any purpose (whether or not for a specified
         period) for cash, deferred payment or other valuable consideration is again a
         specified category of deemed sales. The declared list entry in clause (f) of section
         66E specifies transfer of goods by way of hiring, leasing or licensing or in any such
         manner without involving transfer of right to use goods as a declared service.

    ·    Supply, by way of or as part of any service or in any other manner whatsoever, of
         goods, being food or any other article for human consumption or any drink (whether
         or not intoxicating), where such supply or service, is for cash, deferred payment or
         other valuable consideration is a deemed sale of goods. Such supply takes place
         in restaurants or in catering. On the other hand clause (i) of section 66E restricts the
         declared service to service portion in an activity where such supply of food or drinks
         takes place.

It is thus evident that the activities specified as declared services in section 66E do not
encroach upon the area of deemed sales. In fact most of the declared services have been
specified with the intent of clarifying the distinction between deemed sales and activities
related thereto which are outside the realm of deemed sales but qualify as a service.

                                                20
2.8 Transactions only in money or actionable claims do not constitute
service
2.8.1 What kind of activities would come under `transaction only in money'?

     ·    The principal amount of deposits in or withdrawals from a bank account.

     ·    Advancing or repayment of principal sum on loan to someone.

     ·    Conversion of Rs 1,000 currency note into one rupee coins to the extent amount is
          received in money form.

2.8.2 Would a business chit fund comes under `transaction only in money'?

In business chit fund since certain commission received from members is retained by the
promoters as consideration for providing services in relation to the chit fund it is not a transaction
only in money. The consideration received for such services is therefore chargeable to service
tax.

2.8.3 Would the making of a draft or a pay order by a bank be a transaction only in
money?

No. Since the bank charges a commission for preparation of a bank draft or a pay order it is
not a transaction only in money. However, for a draft or a pay order made by bank the service
provided would be only to the extent of commission charged for the bank draft or pay order.
The money received for the face value of such instrument would not be consideration for a
service since to the extent of face value of the instrument it is only a transaction in money.

2.8.4 Would an investment be transaction only in money?

Investment of funds by a person with another for which the return on such investment is returned
or repatriated to the investors without retaining any portion of the return on such investment of
funds is a transaction only in money. Thus a partner being admitted in a partnership against
his share will be a transaction in money. However, if a commission is charged or a portion of
the return is retained as service charges, then such commission or portion of return is out of
the purview of transaction only in money and hence taxable. Also, if a service is received in
lieu of an investment it would cease to be a transaction only in money to the extent the
investment represents the consideration for the service received.

2.8.5 What is the significance of Explanation 2 to the definition of service in clause
(44) of section 65B of the Act?

The said Explanation 2 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

                                                 21
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. For example a foreign
exchange dealer while exchanging one currency for another also charges a commission (often
inbuilt in the difference between the purchase price and selling price of forex). The activity of
exchange of currency, per-se, would be a transaction only in money, the related activity of
providing the services of conversion of forex, documentation and other services for which a
commission is charged separately or built in the margins would be very much a `service'.

2.8.6 Would debt collection services or credit control services be considered to be
transaction only in money?

No. Such services provided for consideration are taxable.

2.8.7 What are actionable claims?

As per section 3 of the Transfer of Property Act, 1893 actionable claims means a claim to any
debt, other than a debt secured by mortgage of immovable property or by hypothecation or
pledge of movable property or to any beneficial interest in movable property not in the
possession, either actual or constructive, of the claimant, which the Civil Courts recognize as
affording grounds for relief, whether such debt or beneficial interest be existent, accruing,
conditional or contingent.

Illustrations of actionable claims are -
     ·    Unsecured debts
     ·    Right to participate in the draw to be held in a lottery.
2.8.8 If an unsecured debt is transferred to a third person for a consideration would
this activity be treated as service?

No. Since unsecured debt is an actionable claim, a transaction only in such actionable claim
is outside the ambit of service. However if a service fee or processing fee or any other charge
is collected in the course of transfer or assignment of a debt then the same would be
chargeable to service tax.

2.8.9 Would sale, purchase, acquisition or assignment of a secured debt like a
mortgage also constitute a transaction in money?

Yes. However if a service fee or processing fee or any other charge is collected in the
course of transfer or assignment of a debt then the same would be chargeable to service
tax.

2.8.10 What is the scope of `beneficial interest in moveable property' in the definition
of actionable claim?

Black's Law Dictionary defines `beneficial interest' as follows-

"A right or expectancy in something (such as a trust or an estate), as opposed to legal title to
that thing. For example, a person with a beneficial interest in a trust receives income from the
trust but does not hold legal title to the trust property"

                                                22
Therefore `beneficial interest in moveable property' is a right or expectancy in a moveable
property like right to receive income accruing from a moveable property. It may be noted that
accrual of income from a moveable property could be in the nature of a consideration for a
taxable service, e.g. a hiring fees or a license fee accruing on hiring or licensing of a moveable
property. In such a situation the service being provided in relation to such moveable property
would not be covered in the exclusion clause. It is only if the beneficial interest in such property
is transferred to another person for a consideration that the activity of transferring the beneficial
interest would be covered.

2.8.11 Would vouchers that entitle a person to enjoy a service, for example a health
club, be an actionable claim?

No. Such a voucher does not create a `beneficial interest' in a moveable property but only
entitles a person to enjoy a particular service for a single or specified number of times.

2.8.12 Would recharge vouchers issued by service companies for enabling clients/
consumers to avail services like mobile phone communication, satellite TV
broadcasts, DTH broadcasts etc be `actionable claims?

No. Such recharge vouchers do not create a `beneficial interest' in a moveable property but
only enable a person to enjoy a particular service.

2.9 Provision of service by an employee to the employer is outside
the ambit of service
2.9.1 Are all services provided by an employer to the employee outside the ambit of
services?

No. Only services that are provided by the employee to the employer in the course of
employment are outside the ambit of services. Services provided outside the ambit of
employment for a consideration would be a service. For example, if an employee provides
his services on contract basis to an associate company of the employer, then this would be
treated as provision of service.

2.9.2 Would services provided on contract basis by a person to another be treated
as services in the course of employment?

No. Services provided on contract basis i.e. principal-to-principal basis are not services
provided in the course of employment.

2.9.3 Would amounts received by an employee from the employer on premature
termination of contract of employment be chargeable to service tax?

No. Such amounts paid by the employer to the employee for premature termination of a
contract of employment are treatable as amounts paid in relation to services provided by the
employee to the employer in the course of employment. Hence, amounts so paid would not
be chargeable to service tax. However any amount paid for not joining a competing business
would be liable to be taxed being paid for providing the service of forbearance to act.



                                                 23
2.9.4 What is the status of services provided by casual workers or contract labour?




2.10 Explanations to the definition of `service'

    ·   Explanation 1 clarifies that `service' does not cover functions or duties performed
        by Members of Parliament, State Legislatures, Panchayat, Municipalities or any
        other local authority, any person who holds any post in pursuance of the provisions
        of the Constitution or any person as a Chairperson or a Member or a Director in a
        body established by the Central or State Governments or local authority and who is
        not deemed as an employee.

    ·   Explanation 2 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.'(please refer to point no 2.8.5 for further
        guidance on this)

    ·   Explanation 3 creates two exceptions, by way of a deeming provision, to the general
        rule that only services provided by a person to another are taxable. As per these
        deeming provisions establishment of a person located in taxable territory and
        establishment of such person located in non-taxable territory are deemed to be
        establishments of distinct persons. Further an unincorporated association or body
        of persons and members thereof are also deemed as separate persons. For
        implications please see point no 2.4.2 of this Guide.

    ·  Explanation 4 explains that a branch or an agency of a person through which the
       person carries out business is also an establishment of such person.
______________________________________________________________________

                                           *****

                                             24
  Guidance Note 3 ­ Taxability of Services

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.


                                                25
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




                                                26
 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?

                                                27
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.

_____________________________________________________________________

                                              *****




                                               28
  Guidance Note 4 ­ Negative List of Services

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.



                                                29
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.

                                                30
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 ­
                                               31
     ·    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

                                               32
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.

                                                33
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


                                                34
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


                                              35
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.
                                              36
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.


                                                37
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


                                               38
     ·    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.

                                                 39
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.

                                               40
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'.



                                               41
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, camp­site, 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.




                                             42
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.



                                               43
     ·    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




                                                  44
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
                                                45
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.
                                                46
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
                                                 47
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.

                                               48
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.

______________________________________________________________________




                                                49
  Guidance Note 5
  Place of Provision of Services Rules, 2012

5.1 Introduction
5.1.1 What is the relevance of the `Place of Provision of Services Rules, 2012'?

The `Place of Provision of Services Rules, 2012' specify the manner to determine the taxing
jurisdiction for a service. Hitherto, the task of identifying the taxing jurisdiction was largely
limited in the context of import or export of services. For this purpose rules were formulated
which handled the subject of place of provision of services somewhat indirectly, confining to
define the circumstances in which a provision of service would constitute import or export.

The new rules will, on the other hand, determine the place where a service shall be deemed to
be provided, in terms of section 66C of the Finance Act, 2012, read with section 94 (hhh) of
Chapter V of the Finance Act, 1994. Under Section 66B, a service is taxable only when, inter
alia, it is "provided (or agreed to be provided) in the taxable territory". Thus, the taxability of a
service will be determined based on the "place of its provision". The `Place of Provision of
Services Rules, 2012' will replace the `Export of Services, Rules, 2005' and `Taxation of
Services (Provided from outside India and received in India) Rules, 2006.

5.1.2 For whom are these rules meant?

These rules are primarily meant for persons who deal in cross-border services. They will also
be equally applicable for those who have operations with suppliers or customers in the state
of Jammu and Kashmir.

Additionally service providers operating within India from multiple locations, without having
centralized registration will find them useful in determining the precise taxable jurisdiction
applicable to their operations. The rules will be equally relevant for determining services that
are wholly consumed within a SEZ, to avail the outright exemption.

5.1.3 What is the basic philosophy of these rules?

The essence of indirect taxation is that a service should be taxed in the jurisdiction of its
consumption. This principle is more or less universally applied. In terms of this principle,
exports are not charged to tax, as the consumption is elsewhere, and services are taxed on
their importation into the taxable territory.

However, this determination is not easy. Services could be provided by a person located at
one location, actually performed at another while being delivered to a person located at a
third location, and occasionally actually consumed at a third location or over a larger
geographical territory, falling in more than one taxable jurisdiction. For example a person
located in Mumbai may buy a ticket on internet from a service provider located outside India
for a journey from Delhi to London. On other occasions the exact location of service recipient
itself may not be available e.g. services supplied electronically. As a result it is necessary to
lay down rules determining the exact place of provision, while ensuring a certain level of


                                                 51
harmonization with international practices in order to avoid both the double taxation as well
as double non-taxation of services.

It is also a common practice to largely tax services provided by business to other business
entities, based on the location of the customers and other services from business to consumers
based on the location of the service provider. Since the determination in terms of above
principle is not easy, or sometimes not practicable, nearest proxies are adopted to provide
specificity in the interpretation as well as application of the law.

5.2 Basic Framework
5.2.1 How will a person determine the taxability of a service in terms of these rules?

As stated earlier, in terms of section 66B, a service is taxable only when, inter alia, it is
"provided (or agreed to be provided) in the taxable territory". Thus, the taxability of a service
will be determined based on the place of its provision. For determining the taxability of a
service, therefore, one needs to ask the following questions sequentially:-

    1.   Which rule applies to the service provided specifically? In case more than one rules
         apply equally, which of these come later in the order given in the rules?

    2.   What is the place of provision of the service in terms of the above rule?

    3.   Is the place of provision in taxable territory? If yes, tax will be payable. If not, tax will
         not be payable.

    4.   Is the provider `located' in the taxable territory? If yes, he will pay the tax.

    5.   If not, is the service receiver located in taxable territory? If yes, he may be liable to
         pay tax on reverse charge basis.

    6.   Is the service receiver an individual or government receiving services for a non-
         business purpose, or a charity receiving services for a charitable activity? If yes, the
         same is exempted.

    7.   If not, he is liable to pay tax.

5.2.2 What is "taxable territory"? What is its significance?

Taxable territory has been defined in sub-section 52 of section 65B. It means the territory to
which the provisions of Chapter V of the Finance Act, 1994 apply i.e. whole of India excluding
the state of Jammu and Kashmir. "Non-taxable territory" is defined in sub-section 35 ibid
accordingly as the territory other than the taxable territory.

"India" is defined in sub-section 27 of section 65 B, as follows:

"India" means--

    (a) the territory of the Union of India as referred to in clauses (2) and (3) of article 1 of
        the Constitution;


                                                 52
     (b) 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;

     (c) the sea-bed and the subsoil underlying the territorial waters;

     (d) the air space above its territory and territorial waters; and

     (e) 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;

The new charging section, section 66B, enables taxation of only such services as are provided
in taxable territory. Thus services that are provided in a non-taxable territory are not chargeable
to service tax.

5.2.3 What is the significance of "Location" of a Service Provider or Receiver for
determining taxing jurisdiction?

In terms of explanation (2) to sub-section 44 of section 65B, an establishment of a person
outside the taxable territory is a person distinct from an establishment in a taxable territory.
Thus, services provided from overseas are to be carefully judged whether they are being
rendered by the establishment outside the taxable territory or within.

Similarly, from the taxpayer's perspective the jurisdiction of the field formation, which is relevant
for compliance with registration formalities, filing of returns, refund claims etc. by the person
liable to pay tax (provider or receiver as the case may be), will be the "location" as determined
in terms of these rules.

5.2.4 How will such "location" be determined?

The location of a service provider or receiver (as the case may be) is to be determined by
applying the following steps sequentially:

    A. where the service provider or receiver has obtained only one registration, whether
centralized or otherwise, the premises for which such registration has been obtained;

     B.   where the service provider or receiver is not covered by A above:

          i.    the location of his business establishment; or

          ii.   where services are provided or received at a place other than the business
                establishment i.e. a fixed establishment elsewhere, the location of such
                establishment;

          iii. where services are provided or received at more than one establishment,
               whether business or fixed, the establishment most directly concerned with the
               provision or use of the service; and

          iv.   in the absence of such places, the usual place of residence of the service
                provider or receiver.

                                                 53
It is important to note that in the case of a service receiver, the place relevant for determining
location is the place where the service is "used" or "consumed".

Flow Diagram F1 at the end of this section illustrates the manner of determination of location.

5.2.5 What is the meaning of "business establishment"?

`Business establishment' is the place where the essential decisions concerning the general
management of the business are adopted, and where the functions of its central administration
are carried out. This could be the head office, or a factory, or a workshop, or shop/ retail
outlet. Most significantly, there is only one business establishment that a service provider or
receiver can have.

5.2.6 What is the meaning of a "fixed establishment"?

A "fixed establishment" is a place (other than the business establishment) which is characterized
by a sufficient degree of permanence and suitable structure in terms of human and technical
resources to provide the services that are to be supplied by it, or to enable it to receive and
use the services supplied to it for its own needs.

Temporary presence of staff by way of a short visit at a place cannot be called a fixed
establishment. Also, the number of staff at a location is not important. What is relevant is the
adequacy of the arrangement (of human and technical resources), to carry out an activity for
a consideration, or to receive and use a service supplied. Similarly, it will be important to
evaluate the permanence of the arrangement i.e. whether it is capable of executing the task.

For further guidance on when a fixed establishment of a service receiver would be treated as
"location", please see para 5.3.4.

5.2.7 How will the establishment "most directly concerned with the supply" be
determined?

This will depend on the facts and supporting documentation, specific to each case. The
documentation will include the following:-

     ·    the contract(s) between the service provider and receiver;

     ·    where there are no written contracts, any written account (documents,
          correspondence/e-mail etc) between parties which sets out in detail their
          understanding of the oral contract;

     ·    in particular, for suppliers, from which establishment the services are actually
          provided;

     ·    in particular, for receivers, at which establishment the services are actually consumed,
          effectively used or enjoyed;

     ·    details of how the business fits into any larger corporate structure;

     ·    the establishment whose staff is actually involved in the execution of the job;


                                               54
     ·    performance agreements (which may be indicative both of the substance and actual
          nature of work performed at a particular establishment);

Thus , normally in the case of multiple establishments of a person, it will be the establishment
that actually provides, or receives (i. e. uses or consumes), a service that would be treated as
`directly concerned' with the provision of service, notwithstanding the contractual position, or
invoicing or payment. For further guidance in this regard, please see section 5.3.4.

Illustration 1

  A business has its headquarters in India, and branches in London, Dubai, Singapore
  and New York. Its business establishment is in India.

Illustration 2

  An overseas business house sets up offices with staff in India to provide services to
  Indian customers. Its fixed establishment is in India.

Illustration 3

  A company with a business establishment abroad buys a property in India which it
  leases to a tenant. The property by itself does not create a fixed establishment. If the
  company sets up an office in India to carry on its business by managing the property,
  this will create a fixed establishment in India.

Illustration 4

  A company is incorporated in India, but provides its services entirely from Singapore.
  The location of this service provider is Singapore, being the place where the
  establishment most directly concerned with the supply is located.


5.2.8 What does "usual place of residence" mean?

The usual place of residence, in case of a body corporate, has been specified as the place
where it is incorporated or otherwise legally constituted.

The usual place of residence of an individual is the place (country, state etc) where the individual
spends most of his time for the period in question. It is likely to be the place where the individual
has set up his home, or where he lives with his family or is in full time employment. Individuals
are not treated as belonging in a country if they are short term, transitory visitors (for example
if they are visiting as tourists, or to receive medical treatment or for a short term educational
course). An individual cannot have more than one usual place of residence.

In addition, in the case of telecommunication services, it has been prescribed that the usual
place of residence of the receiver shall be the billing address. This in effect means the address
that is available in the records of the service provider for billing the receiver of the

                                                 55
telecommunication service. This provision will be applicable to individual customers (generally
referred to as subscribers) of a telecommunication service, who are provided a subscriber
identification module (commonly referred to as SIM card, which may be post-paid or pre-
paid) and a unique identification number (10-digit or 8-digit, as the case may be) by the
service provider.

5.3 Main Rule- Rule 3- Location of the Receiver
5.3.1 What is the implication of this Rule?
The main rule or the default rule provides that a service shall be deemed to be provided
where the receiver is located.
The main rule is applied when none of the other later rules apply (by virtue of rule 14 governing
the order of application of rules- see para 5.14 of this guidance paper). In other words, if a
service is not covered by an exception under one of the later rules, and is consequently covered
under this default rule, then the receiver's location will determine whether the service is leviable
to tax in the taxable territory.
The principal effect of the Main Rule is that:-
     A.   Where the location of receiver of a service is in the taxable territory, such service will
          be deemed to be provided in the taxable territory and service tax will be payable.
     B.   However if the receiver is located outside the taxable territory, no service tax will be
          payable on the said service.
5.3.2    If the place of provision of a taxable service is the location of service receiver,
who is the person liable to pay tax on the transaction?
Service tax is normally required to be paid by the provider of a service, except where he is
located outside the taxable territory and the place of provision of service is in the taxable
territory.
Where the provider of a service is located outside the taxable territory, the person liable to
pay service tax is the receiver of the service in the taxable territory, unless of course, the
service is otherwise exempted.
Following illustration will make this clear:-




                                                  56
A company ABC provides a service to a receiver PQR, both located in the taxable territory.
Since the location of the receiver is in the taxable territory, the service is taxable. Service tax
liability will be discharged by ABC, being the service provider and being located in taxable
territory.

However, if ABC were to supply the same service to a recipient DEF located in non-taxable
territory, the provision of such service is not taxable, since the receiver is located outside the
taxable territory.

If the same service were to be provided to PQR (located in taxable territory) by an overseas
provider XYZ (located in non-taxable territory), the service would be taxable, since the recipient
is located in the taxable territory. However, since the service provider is located in a non-
taxable territory, the tax liability would be discharged by the receiver, under the reverse charge
principle (also referred to as "tax shift").

5.3.3 Who is the service receiver?

Normally, the person who is legally entitled to receive a service and, therefore, obliged to
make payment, is the receiver of a service, whether or not he actually makes the payment or
someone else makes the payment on his behalf.

Illustration

  A lady leaves her car at a service station for the purpose of servicing. She asks her
  chauffer to collect the car from the service station later in the day, after the servicing is
  over. The chauffer makes the payment on behalf of the lady owner and collects the car.
  Here the lady is the `person obliged to make the payment' towards servicing charges,
  and therefore, she is the receiver of the service.



5.3.4 What would be the situation where the payment for a service is made at one
location (say by the headquarters of a business) but the actual rendering of the service
is elsewhere (i.e. a fixed establishment)?

Occasionally, a person may be the person liable to make payment for the service provided on
his behalf to another person. For instance, the provision of a service may be negotiated at the
headquarters of an entity by way of centralized sourcing of services whereas the actual
provision is made at various locations in different taxing jurisdictions (in the case of what is
commonly referred to as a multi-locational entity or MLE). Here, the central office may act only
as a facilitator to negotiate the contract on behalf of various geographical establishments.
Each of the geographical establishments receives the service and is obligated to make the
payment either through headquarters or sometimes directly. When the payment is made directly,
there is no confusion. In other situations, where the payment is settled either by cash or through
debit and credit note between the business and fixed establishments, it is clear that the payment
is being made by a geographical location. Wherever a fixed establishment bears the cost of
acquiring, or using or consuming a service through any internal arrangement (normally referred
to as a "recharge", "reallocation", or a "settlement"), these are generally made in accordance
with corporate tax or other statutory requirements. These accounting arrangements also
invariably aid the MLE's management in budgeting and financial performance measurement.

                                                57
Various accounting and business management systems are generally employed to manage,
monitor and document the entire purchasing cycle of goods and services (such as the ERP-
Enterprise Resource Planning System). These systems support and document the company
processes, including the financial and accounting process, and purchasing process. Normally,
these systems will provide the required information and audit trail to identify the establishment
that uses or consumes a service.

It should be noted that in terms of proviso to section 66B, the establishments in a taxable and
non-taxable territory are to be treated as distinct persons. Moreover, the definition of "location
of the receiver" clearly states that "where the services are "used" at more than one
establishment, whether business or fixed, the establishment most directly concerned with
the use of the service" will be the location. Thus, the taxing jurisdiction of service, which is
provided under a `global framework agreement' between two multinational companies with
the business establishment located outside the taxable territory, but which is used or consumed
by a fixed establishment located in the taxable territory, will be the taxable territory.

Illustration

The following example illustrates the above, by comparing the place of provision of services
rendered under a Global Agreement1 vis-à-vis a Global Framework Agreement2.

AAA is a firm with its manufacturing unit and business establishment located in the taxable
territory A. It has got two other manufacturing plants located in countries X and Y (say, AAA-X
and AAA-Y respectively). AAA wishes to obtain IT services for a new production process for
its three manufacturing plants in the region.

BBB is an IT firm located in the taxable territory (location of business establishment). BBB
Ltd also has fixed establishments (subsidiaries) located in country X (say BBB-X) and in
country Y (say, BBB- Y).

AAA engages BBB for meeting its IT service requirement.

Scenario 1 [See Flow Diagram F 2 at the end of this section]

AAA enters into a Global (centralized purchasing) agreement with BBB for provision of
IT services for the whole group. Following are the different transactions under which services
are provided:-

      a)     Under the global agreement, some component of IT service is provided by BBB to
             AAA in country A (say, Transaction 1).

      b)     To meet the requirements of providing IT solutions specific to the plants AAA-X and
             AAA-Y in countries X and Y, BBB enters into agreements with its subsidiaries BBB-
             X (in country X) and BBB-Y (in country Y), under which they provide IT services to

1
 A `Global Contract or Agreement' is between two parent companies for provision of services from one to the other, where actual
provision of services is to be made to subordinate offices of the recipient company in different tax jurisdictions.

2
  A `Global Framework Agreement' is between two parent companies for provision of services, but here, the `framework
agreement' only specifies the broad terms of the agreement i.e. fees, terms and conditions, the list of recipient branches/offices
or even the details of provision of services to be made. The subsidiaries in different locations then enter into separate and
independent business agreements, for provision of services and payments.


                                                               58
          BBB (say, Transaction 2 and Transaction 3). Though these services are provided
          by BBB-X and BBB-Y to BBB, these are rendered as under:-
          ·    By BBB-X to AAA-X (in country X)- under transaction 2, and
          ·    By BBB-Y to AAA-Y (in country-Y) ­ under transaction 3.
     c)   AAA enters into separate agreements with AAA-X and AAA-Y, under which AAA
          Ltd provides IT services to them (transaction 4 and transaction 5).

The transactions and provision of service under each are illustrated in the Flow diagram F2
titled `Scenario1' at the end of this section.

Scenario 2 [See Flow Diagram F 3 at the end of this section]

AAA enters into a Framework Agreement with BBB for provision of IT services for the
whole group. The Framework agreement covers the broad contours of supply between the
two parties, payment milestones, obligations relating to confidentiality, penalty for default,
limitations of liability and warranties etc, which would apply as and when group companies
enter into separate agreements, in accordance with the terms envisaged in the framework
agreement. BBB-X and BBB-Y could then enter into separate and independent business
agreements with AAA-X and AAA-Y, in countries X and Y respectively, for provision of IT
services. There are four agreements, but only three transactions involving provision of services,
as indicated in the Flow diagram F3- Scenario 2 at the end of this section.

5.3.5 What is the place of provision where the location of receiver is not ascertainable
in the ordinary course of business?

Generally, in case of a service provided to a person who is in business, the provider of the
service will have the location of the recipient's registered location, or his business
establishment, or his fixed establishment etc, as the case may be. However, in case of certain
services (which are not covered by the exceptions to the main rule), the service provider may
not have the location of the service receiver, in the ordinary course of his business. This will
also be the case where a service is provided to an individual customer who comes to the
premises of the service provider for availing the service and the provider has to, more often
than not, rely on the declared location of the customer. In such cases the place of provision will
be the location of the service provider. It may be noted that the service provider is not required
to make any extraordinary efforts to trace the address of the service receiver. The address
should be available in the ordinary course of business.

In case of certain specified categories of services, the place of provision shall be the place
where the services are actually performed. These are discussed in the following paragraphs.

5.4 Rule 4- Performance based Services
5.4.1 What are the services that are provided "in respect of goods that are made
physically available, by the receiver to the service provider, in order to provide the
service"?- sub-rule (1):

Services that are related to goods, and which require such goods to be made available to the
service provider or a person acting on behalf of the service provider so that the service can

                                               59
be rendered, are covered here. The essential characteristic of a service to be covered under
this rule is that the goods temporarily come into the physical possession or control of the
service provider, and without this happening, the service cannot be rendered. Thus, the service
involves movable objects or things that can be touched, felt or possessed. Examples of such
services are repair, reconditioning, or any other work on goods (not amounting to manufacture),
storage and warehousing, courier service, cargo handling service (loading, unloading, packing
or unpacking of cargo), technical testing/inspection/certification/ analysis of goods, dry cleaning
etc. It will not cover services where the supply of goods by the receiver is not material to the
rendering of the service e.g. where a consultancy report commissioned by a person is given
on a pen drive belonging to the customer. Similarly, provision of a market research service to
a manufacturing firm for a consumer product (say, a new detergent) will not fall in this category,
even if the market research firm is given say, 1000 nos. of 1 kilogram packets of the product
by the manufacturer, to carry for door-to-door surveys.

5.4.2 What is the implication of the proviso to sub-rule (1)?

The proviso to this rule states as follows:-

  "Provided further that where such services are provided from a remote location by way
  of electronic means, the place of provision shall be the location where goods are situated
  at the time of provision of service."

In the field of information technology, it is not uncommon to provide services in relation to
tangible goods located distantly from a remote location. Thus the actual place of performance
of the service could be quite different from the actual location of the tangible goods. This
proviso requires that the place of provision shall be the actual location of the goods and not
the place of performance, which in normal situations is one and the same.

5.4.3 What are the services that are provided "to an individual ... which require the
physical presence of the receiver ... with the provider for provision of the service."?-
sub-rule (2)

Certain services like cosmetic or plastic surgery, beauty treatment services, personal security
service, health and fitness services, photography service (to individuals), internet café service,
classroom teaching, are examples of services that require the presence of the individual
receiver for their provision. As would be evident from these examples, the nature of services
covered here is such as are rendered in person and in the receiver's physical presence.
Though these are generally rendered at the service provider's premises (at a cosmetic or
plastic surgery clinic, or beauty parlor, or health and fitness centre, or internet café), they
could also be provided at the customer's premises, or occasionally while the receiver is on
the move (say, a personal security service; or a beauty treatment on board an aircraft).

5.4.4 What is the significance of "..in the physical presence of an individual, whether
represented either as the service receiver or a person acting on behalf of the receiver"
in this rule?

This implies that while a service in this category is capable of being rendered only in the
presence of an individual, it will not matter if, in terms of the contractual arrangement between
the provider and the receiver (formal or informal, written or oral), the service is actually rendered
by the provider to a person other than the receiver, who is acting on behalf of the receiver.
                                                 60
Illustration

  A modelling agency contracts with a beauty parlour for beauty treatment of say, 20
  models. Here again is a situation where the modelling agency is the receiver of the
  service, but the service is rendered to the models, who are receiving the beauty
  treatment service on behalf of the modelling agency. Hence, notwithstanding that the
  modelling agency does not qualify as the individual receiver in whose presence the
  service is rendered, the nature of the service is such as can be rendered only to an
  individual, thereby qualifying to be covered under this rule.


5.5 Rule 5- Location of Immovable Property
In the case of a service that is `directly in relation to immovable property', the place of provision
is where the immovable property (land or building) is located, irrespective of where the provider
or receiver is located.

5.5.1 What is "immovable property"?

"Immovable Property" has not been defined in the Finance Act, 1994. However, in terms of
section 4 of the General Clauses Act, 1897, the definition of immovable property provided in
sub-section 3 (26) of the General Clauses Act will apply, which states as under:

"Immovable Property" shall include land, benefits to arise out of land, and things attached to
the earth, or permanently fastened to anything attached to the earth."

It may be noted that the definition is inclusive and thus properties such as buildings and fixed
structures on land would be covered by the definition of immovable property. The property
must be attached to some part of earth even if underwater.

5.5.2 What are the criteria to determine if a service is `directly in relation to' immovable
property located in taxable territory?

Generally, the following criteria will be used to determine if a service is in respect of immovable
property located in the taxable territory:

     i)    The service consists of lease, or a right of use, occupation, enjoyment or exploitation
           of an immovable property;

     ii)   the service is physically performed or agreed to be performed on an immovable
           property (e.g. maintenance) or property to come into existence (e.g. construction);

     iii) the direct object of the service is the immovable property in the sense that the service
          enhances the value of the property, affects the nature of the property, relates to
          preparing the property for development or redevelopment or the environment within
          the limits of the property (e.g. engineering, architectural services, surveying and
          sub-dividing, management services, security services etc);

     iv) the purpose of the service is:



                                                 61
           a)   the transfer or conveyance of the property or the proposed transfer or
                conveyance of the property (e.g., real estate services in relation to the actual or
                proposed acquisition, lease or rental of property, legal services rendered to
                the owner or beneficiary or potential owner or beneficiary of property as a result
                of a will or testament);

           b)   the determination of the title to the property.

There must be more than a mere indirect or incidental connection between a service provided
in relation to an immovable property, and the underlying immovable property. For example, a
legal firm's general opinion with respect to the capital gains tax liability arising from the sale
of a commercial property in India is basically advice on taxation legislation in general even
though it relates to the subject of an immovable property. This will not be treated as a service
in respect of the immovable property.

5.5.3 Examples of land-related services

     i)    Services supplied in the course of construction, reconstruction, alteration, demolition,
           repair or maintenance (including painting and decorating) of any building or civil
           engineering work;

     ii)   Renting of immovable property;

     iii) Services of real estate agents, auctioneers, architects, engineers and similar experts
          or professional people, relating to land, buildings or civil engineering works. This
          includes the management, survey or valuation of property by a solicitor, surveyor or
          loss adjuster.

     iv) Services connected with oil/gas/mineral exploration or exploitation relating to specific
         sites of land or the seabed.

     v)    The surveying (such as seismic, geological or geomagnetic) of land or seabed.

     vi) Legal services such as dealing with applications for planning permission.

     vii) Packages of property management services which may include rent collection,
          arranging repairs and the maintenance of financial accounts.

     viii) The supply of hotel accommodation or warehouse space.

5.5.4 What if a service is not directly related to immovable property?

The place of provision of services rule applies only to services which relate directly to specific
sites of land or property. In other words, the immovable property must be clearly identifiable to
be the one from where, or in respect of which, a service is being provided. Thus, there needs
to be a very close link or association between the service and the immovable property.
Needless to say, this rule does not apply if a provision of service has only an indirect connection
with the immovable property, or if the service is only an incidental component of a more
comprehensive supply of services.



                                                 62
For example, the services of an architect contracted to design the landscaping of a particular
resort hotel in Goa would be land-related. However, if an interior decorator is engaged by a
retail chain to design a common décor for all its stores in India, this service would not be land-
related. The default rule i.e. Rule 3 will apply in this case.

5.5.5 Examples of services which are not land-related

     i)    Repair and maintenance of machinery which is not permanently installed. This is a
           service related to goods.

     ii)   Advice or information relating to land prices or property markets because they do
           not relate to specific sites.

     iii) Land or Real Estate Feasibility studies, say in respect of the investment potential of
          a developing suburb, since this service does not relate to a specific property or site.

     iv) Services of a Tax Return Preparer in simply calculating a tax return from figures
         provided by a business in respect of rental income from commercial property.

     v)    Services of an agent who arranges finance for the purchase of a property.

5.6 Rule 6- Services relating to Events
5.6.1 What is the place of provision of services relating to events?

Place of provision of services provided by way of admission to, or organization of a cultural,
artistic, sporting, scientific, educational, entertainment event, or a celebration, conference,
fair, exhibition, or any other similar event and of services ancillary to such admission, shall be
the place where the event is held.

5.6.2 What are the services that will be covered in this category?

Services in relation to admission as well as organization of events such as conventions,
conferences, exhibitions, fairs, seminars, workshops, weddings, sports and cultural events
are covered under this Rule.

Illustration 1

  A management school located in USA intends to organize a road show in Mumbai
  and New Delhi for prospective students. Any service provided by an event manager,
  or the right to entry (participation fee for prospective students, say) will be taxable in
  India.

Illustration 2

  An Indian fashion design firm hosts a show at Toronto, Canada. The firm receives the
  services of a Canadian event organizer. The place of provision of this service is the
  location of the event, which is outside the taxable territory. Any service provided in
  relation to this event, including the right to entry, will be non-taxable.

                                               63
5.6.3 What is a service ancillary organization or admission to an event?

Provision of sound engineering for an artistic event is a prerequisite for staging of that event
and should be regarded as a service ancillary to its organization. A service of hiring a specific
equipment to enjoy the event at the venue (against a charge that is not included in the price of
entry ticket) is an example of a service that is ancillary to admission.

5.6.4 What are event-related services that would be treated as not ancillary to
admission to an event?

A service of courier agency used for distribution of entry tickets for an event is a service that
is not ancillary to admission to the event.

5.7 Rule 7- Part performance of a service at different locations
5.7.1 What does this Rule imply?

This Rule covers situations where the actual performance of a service is at more than one
location, and occasionally one (or more) such locations may be outside the taxable territory.

This Rule states as follows:-

"Where any service stated in rules 4, 5, or 6 is provided at more than one location, including
a location in the taxable territory, its place of provision shall be the location in the taxable
territory where the greatest proportion of the service is provided".

The following example illustrates the application of this Rule:-

Illustration 1

  An Indian firm provides a `technical inspection and certification service' for a newly
  developed product of an overseas firm (say, for a newly launched motorbike which has
  to meet emission standards in different states or countries). Say, the testing is carried
  out in Maharashtra (20%), Kerala (25%), and an international location (say, Colombo
  55%).

  Notwithstanding the fact that the greatest proportion of service is outside the taxable
  territory, the place of provision will be the place in the taxable territory where the greatest
  proportion of service is provided, in this case Kerala.

This rule is, however, not intended to capture insignificant portion of a service rendered in any
part of the taxable territory like mere issue of invoice, processing of purchase order or recovery,
which are not by way of service actually performed on goods.

It is clarified that this rule is applicable in performance-based services or location-specific
services (immovable property related or event-linked). Normally, such services when provided
in a non-taxable territory would require the presence of separate establishments in such
territories. By virtue of an explanation of sub-clause (44) of section 65B, they would constitute
distinct persons and thus it would be legitimate to invoice the services rendered individually
in the two territories.

                                                64
5.8 Rule 8- Services where the Provider as well as Receiver is located
in Taxable Territory
5.8.1 What is the place of provision of a service where the location of the service
provider and that of the service receiver is in the taxable territory?

The place of provision of a service, which is provided by a provider located in the taxable
territory to a receiver who is also in the taxable territory, will be the location of the receiver.

5.8.2 What is the implication of this Rule?

This Rule covers situations where the place of provision of a service provided in the taxable
territory may be determinable to be outside the taxable territory, in terms of the application of
one of the earlier Rules i.e. Rule 4 to 6, but the service provider, as well as the service receiver,
are located in the taxable territory.

The implication of this Rule is that in all such cases, the place of provision will be deemed to
be in the taxable territory, notwithstanding the earlier rules. The presence of both the service
provider and the service receiver in the taxable territory indicates that the place of consumption
of the service is in the taxable territory. Services rendered, where both the provider and receiver
of the service are located outside the taxable territory, are now covered by the mega exemption.

Illustration

  A helicopter of Pawan Hans Ltd (India based) develops a technical snag in Nepal.
  Say, engineers are deputed by Hindustan Aeronautics Ltd, Bangalore, to undertake
  repairs at the site in Nepal. But for this rule, Rule 4, sub-rule (1) would apply in this
  case, and the place of provision would be Nepal i.e. outside the taxable territory.
  However, by application of Rule 7, since the service provider, as well as the receiver,
  are located in the taxable territory, the place of provision of this service will be within
  the taxable territory.

5.9 Rule 9- Specified services- Place of provision is location of the
service provider
5.9.1 What are the specified services where the place of provision is the location of
the service provider?

Following are the specified services where the place of provision is the location of the service
provider:-

     i)    Services provided by a banking company, or a financial company, or a non-banking
           financial company to account holders;

     ii)   Online information and database access or retrieval services;

     iii) Intermediary services;

     iv) Service consisting of hiring of means of transport, up to a period of one month.


                                                 65
5.9.2 What is the meaning of "account holder"? Which accounts are not covered by
this rule?

"Account" has been defined in the rules to mean an account which bears an interest to the
depositor. Services provided to holders of demand deposits, term deposits, NRE (non-resident
external) accounts and NRO (non-resident ordinary) accounts will be covered under this rule.
Banking services provided to persons other than account holders will be covered under the
main rule (Rule 3- location of receiver).

5.9.3 What are the services that are provided by a banking company to an account
holder (holder of an account bearing interest to the depositor)?

Following are examples of services that are provided by a banking company or financial
institution to an "account holder", in the ordinary course of business:-

     i)    services linked to or requiring opening and operation of bank accounts such as
           lending, deposits, safe deposit locker etc;

     ii)   transfer of money including telegraphic transfer, mail transfer, electronic transfer
           etc.

5.9.4 What are the services that are not provided by a banking company or financial
institution to an account holder, in the ordinary course of business, and will
consequently be covered under another Rule?

Following are examples of services that are generally NOT provided by a banking company
or financial institution to an account holder (holder of a deposit account bearing interest), in
the ordinary course of business:-

     i)    financial leasing services including equipment leasing and hire-purchase;

     ii)   merchant banking services;

     iii) Securities and foreign exchange (forex) broking, and purchase or sale of foreign
          currency, including money changing;

     iv) asset management including portfolio management, all forms of fund management,
         pension fund management, custodial, depository and trust services;

     v)    advisory and other auxiliary financial services including investment and portfolio
           research and advice, advice on mergers and acquisitions and advice on corporate
           restructuring and strategy;

     vi) banker to an issue service.

In the case of any service which does not qualify as a service provided to an account holder,
the place of provision will be determined under the default rule i.e. the Main Rule 3. Thus, it will
be the location of the service receiver where it is known (ascertainable in the ordinary course
of business), and the location of the service provider otherwise.



                                                66
5.9.5 What are "Online information and database access or retrieval services"?

"Online information and database access or retrieval services" are services in relation to on-
line information and database access or retrieval or both, in electronic form through computer
network, in any manner. Thus, these services are essentially delivered over the internet or an
electronic network which relies on the internet or similar network for their provision. The other
important feature of these services is that they are completely automated, and require minimal
human intervention.

Examples of such services are:-

    i)    online information generated automatically by software from specific data input by
          the customer, such as web-based services providing trade statistics, legal and
          financial data, matrimonial services, social networking sites;

    ii)   digitized content of books and other electronic publications, subscription of online
          newspapers and journals, online news, flight information and weather reports;

    iii) Web-based services providing access or download of digital content.

The following services will not be treated as "online information and database access or
retrieval services":-

    i)    Sale or purchase of goods, articles etc over the internet;
    ii)   Telecommunication services provided over the internet, including fax, telephony,
          audio conferencing, and videoconferencing;
    iii) A service which is rendered over the internet, such as an architectural drawing, or
         management consultancy through e-mail;
    iv) Repair of software, or of hardware, through the internet, from a remote location;
    v)    Internet backbone services and internet access services.

5.9.6 What are "Intermediary Services"?

Generally, an "intermediary" is a person who arranges or facilitates a supply of goods, or a
provision of service, or both, between two persons, without material alteration or further
processing. Thus, an intermediary is involved with two supplies at any one time:

    i)    the supply between the principal and the third party; and
    ii)   the supply of his own service (agency service) to his principal, for which a fee or
          commission is usually charged.

For the purpose of this rule, an intermediary in respect of goods (such as a commission
agent i.e. a buying or selling agent, or a stockbroker) is excluded by definition.

Also excluded from this sub-rule is a person who arranges or facilitates a provision of a
service (referred to in the rules as "the main service"), but provides the main service on his
own account.


                                               67
In order to determine whether a person is acting as an intermediary or not, the following
factors need to be considered:-

Nature and value: An intermediary cannot alter the nature or value of the service, the supply
of which he facilitates on behalf of his principal, although the principal may authorize the
intermediary to negotiate a different price. Also, the principal must know the exact value at
which the service is supplied (or obtained) on his behalf, and any discounts that the intermediary
obtains must be passed back to the principal.

Separation of value: The value of an intermediary's service is invariably identifiable from
the main supply of service that he is arranging. It can be based on an agreed percentage of
the sale or purchase price. Generally, the amount charged by an agent from his principal is
referred to as "commission".

Identity and title: The service provided by the intermediary on behalf of the principal is
clearly identifiable.

In accordance with the above guiding principles, services provided by the following persons
will qualify as `intermediary services':-

     i)    Travel Agent (any mode of travel)

     ii)   Tour Operator

     iii) Commission agent for a service [an agent for buying or selling of goods is excluded]

     iv) Recovery Agent

Even in other cases, wherever a provider of any service acts as an intermediary for another
person, as identified by the guiding principles outlined above, this rule will apply. Normally, it
is expected that the intermediary or agent would have documentary evidence authorizing him
to act on behalf of the provider of the `main service'.

Illustration

  A freight forwarder arranges for export and import shipments. There could be two possible
  situations here- one when he acts on his own account, and the other, when he acts as an
  intermediary.

When the freight forwarder acts on his own account (say, for an export shipment)

A freight forwarder provides domestic transportation within taxable territory (say, from the
exporter's factory located in Pune to Mumbai port) as well as international freight service
(say, from Mumbai port to the international destination), under a single contract, on his own
account (i.e. he buys-in and sells fright transport as a principal), and charges a consolidated
amount to the exporter. This is a service of transportation of goods for which the place of
supply is the destination of goods. Since the destination of goods is outside taxable territory,
this service will not attract service tax. Here, it is presumed that ancillary freight services (i.e.
services ancillary to transportation- loading, unloading, handling etc) are "bundled" with the
principal service owing to a single contract or a single price (consideration).

                                                 68
On an import shipment with similar conditions, the place of supply will be in the taxable territory,
and so the service tax will be attracted.

When the freight forwarder acts as an intermediary

Where the freight forwarder acts as an intermediary, the place of provision will be his location.
Service tax will be payable on the services provided by him. However, when he provides a
service to an exporter of goods, the exporter can claim refund of service tax paid under
notification for this purpose.

Similarly, persons such as call centres, who provide services to their clients by dealing with
the customers of the client on the client's behalf, but actually provided these services on their
own account, will not be categorized as intermediaries.

5.9.7 What is the service of "hiring of means of transport"?

The services of providing a hire or lease, without the transfer of right to use (explained in
guide at point 6.6), is covered by this rule. Normally the following will constitute means of
transport:-

     i)     Land vehicles such as motorcars, buses, trucks;
     ii)    Vessels;
     iii)   Aircraft;
     iv)    Vehicles designed specifically for the transport of sick or injured persons;
     v)     Mechanically or electronically propelled invalid carriages;
     vi)    Trailers, semi-trailers and railway wagons.

The following are not `means of transport':-

     i) Racing cars;
     ii) Containers used to store or carry goods while being transported;
     iii) Dredgers, or the like.

5.9.8 What if I provide a service of hiring of a fleet of cars to a company on an annual
contract? What will be place of provision of my service if my business establishment
is located in New Delhi, and the company is located in Faridabad (Haryana)?

This Rule covers situations where the hiring is for a period of upto one month. Since hiring
period is more than one month, this sub-rule cannot be applied to the situation. The place of
provision of your service will be determined in terms of Rule 3 i.e. receiver location, which in
this case is Faridabad (Haryana).

5.10 Rule 10- Place of Provision of a service of transportation of goods
5.10.1 What are the services covered under this Rule?

Any service of transportation of goods, by any mode of transport (air, vessel, rail or by a
goods transportation agency), is covered here. However, transportation of goods by courier
or mail is not covered here.


                                                69
5.10.2 What is the place of provision of a service of transportation of goods?

Place of provision of a service of transportation of goods is the place of destination of goods,
except in the case of services provided by a Goods Transportation Agency in respect of
transportation of goods by road, in which case the place of provision is the location of the
person liable to pay tax (as determined in terms of rule 2(1)(d) of Service Tax Rules, 1994
(since amended).

Illustration

  A consignment of cut flowers is consigned from Chennai to Amsterdam. The place of
  provision of goods transportation service will be Amsterdam (outside India, hence not
  liable to service tax). Conversely, if a consignment of crystal ware is consigned from
  Paris to New Delhi, the place of provision will be New Delhi.



5.10.3   What does the proviso to this Rule imply?

The proviso to this Rule states as under:-

"Provided that the place of provision of services of transportation of goods by goods
transportation agency shall be the location of the person liable to pay tax."

Sub-rule 2(1)(d) of Service Tax Rules, 1994 provides that where a service of transportation of
goods is provided by a `goods transportation agency', and the consignor or consignee is
covered under any of the specified categories prescribed therein , the person liable to tax is
the person who pays, or is liable to pay freight (either himself or through his agent) for the
transportation of goods by road in a goods carriage. If such person is located in non-taxable
territory, then the person liable to pay tax shall be the service provider.

Illustration 1

  A goods transportation agency ABC located in Delhi transports a consignment of new
  motorcycles from the factory of XYZ in Gurgaon (Haryana), to the premises of a dealer
  in Bhopal, Madhya Pradesh. Say, XYZ is a registered assessee and is also the person
  liable to pay freight and hence person liable to pay tax, in this case. Here, the place of
  provision of the service of transportation of goods will be the location of XYZ i.e.
  Haryana.

Illustration 2

  A goods transportation agency ABC located in Delhi transports a consignment of new
  motorcycles from the factory of XYZ in Gurgaon (Haryana), to the premises of a dealer
  in Jammu (non-taxable territory). Say, as per mutually agreed terms between ABC
  and XYZ, the dealer in Jammu is the person liable to pay freight. Here, in terms of
  amended provisions of rule 2(1)(d), since the person liable to pay freight is located in
  non-taxable territory, the person liable to pay tax will be ABC. Accordingly, the place of
  provision of the service of transportation of goods will be the location of ABC i.e. Delhi.


                                              70
5.11        Rule 11- Passenger Transportation Services
5.11.1 What is the place of provision of passenger transportation services?

The place of provision of a passenger transportation service is the place where the passenger
embarks on the conveyance for a continuous journey.

5.11.2 What does a "continuous journey" mean?

A "continuous journey" means a journey for which:-

     (i)    a single ticket has been issued for the entire journey; or

     (ii)    more than one ticket or invoice has been issued for the journey, by one service
            provider, or by an agent on behalf of more than one service providers, at the same
            time, and there is no scheduled stopover in the journey

5.11.3 What is the meaning of a stopover? Do all stopovers break a continuous
journey?

"Stopover" means a place where a passenger can disembark either to transfer to another
conveyance or break his journey for a certain period in order to resume it at a later point of
time. All stopovers do not cause a break in continuous journey. Only such stopovers will be
relevant for which one or more separate tickets are issued. Thus a travel on Delhi-London-
New York-London-Delhi on a single ticket with a halt at London on either side, or even both,
will be covered by the definition of continuous journey. However if a separate ticket is issued,
say New York-Boston-New York, the same will be outside the scope of a continuous journey.

5.11.4 The Table below contains illustrations which explain the principle enunciated
in this Rule.

Illustrations
 S. No. Journey                        Place of Provision     Taxability

 Single Ticket (No stopover)

 1          Mumbai-Delhi               Mumbai                 Yes, Mumbai being the place of
                                                              embarkation.

 2          Mumbai-Delhi-Jaipur       Mumbai                  Yes, Mumbai, being the place of
                                                              embarkation for the continuous journey.

 3          Mumbai-Delhi-London-       Mumbai                 -do-
            Delhi-London

 4          Delhi-London-New York-     Delhi                  Yes, New Delhi, being the place
            London-New York                                   of provision for continuous journey with
                                                              single return ticket.

 5          Delhi-London-New York      Delhi                  -do-

 6          New York-London-Delhi      New York               No, New York is place of provision for
                                                              continuous journey with single return
                                                              ticket.


                                                  71
S. No. Journey                      Place of Provision            Taxability

7      New York-London-Delhi-       New York                      -do-
       Mumbai-Delhi-London-
       New York
8      Delhi-Jammu-Delhi            Delhi                         Yes, Delhi is the place of provision for
                                                                  continuous journey.
9      Jammu-Delhi-Jammu            Jammu                         No, Jammu is the place of provision for
                                                                  continuous journey with single return
                                                                  ticket
More than one ticket for a journey (issued by a single service provider, or by a single agent, for
more than one service providers)
1      (a) Delhi-Bangkok-Delhi      Delhi is place of             Journey (a) is taxable since place of
       (b) Bangkok-Bali-Bangkok     provision for journey         provision is in taxable territory;Journey
                                    (a); Bangkok is place         (b) is not taxable since place of
                                    of provision for journey      provision is outside taxable territory.
                                    (b)
2      (a) Delhi-New York-Delhi     Delhi is place of             Journey (a) is taxable since place of
       (b) New York-Boston-         provision for journey         provision is in taxable territory;
       New York                     (a); New York is place        Journey (b) is not taxable since place
                                    of provision for journey      of provision is not in taxable territory.
                                    (b)
3      (a) London-Delhi-London      London is place of            Journey (a) is not taxable since place
       (b)Delhi-Chandigarh          provision for journey         of provision is outside taxable territory;
       (c) Chandigarh-Amritsar      (a); Delhi is place of        Journeys (b), (c) and (d) are taxable
       (d) Amritsar-Delhi           provision for journey         since place of provision is in taxable
                                    (b); Chandigarh is place      territory.
                                    of provision for journey
                                    (c); Amritsar is place of
                                    provision for journey (d)
4      (a) Delhi-Jammu              Delhi is place of provision   Journey (a)is taxable since
       (b) Jammu-Delhi              for journey (a)Jammu is       place of provision is in taxable
                                    place of provision for        territory.
                                    journey (b)                   Journey (b) is not taxable since place
                                                                  of provision is outside taxable territory.
5      (a) Jammu-Delhi-Jammu        Jammu is place of             Journey (a) is not taxable since place
       (b) Delhi-Bangkok-Delhi      provision for journey         of provision is outside taxable territory
                                    (a); Delhi is place of        for the continuous journey with single,
                                    provision for journey         return ticket.Journey (b) is taxable,
                                    (b)                           since place of provision is in taxable
                                                                  territory for the journey with single,
                                                                  return ticket.
6      (a) Jammu-Delhi              Jammu is place of             Journey (a) is not taxable since place
       (b) Delhi-Bangkok-Delhi      provision for journey         of provision is not in taxable territory;
       (c) Delhi-Lucknow            (a); Delhi is place of        Journeys (b), (c) and (d) are taxable
       (d) Lucknow-Jammu            provision for journey         since place of provision is in taxable
                                    (b); Delhi is place of        territory for each of these.
                                    provision for journey
                                    (c); Lucknow is place
                                    of provision for journey
                                    (d)



                                                72
It may also be pertinent to mention that for flights originating from, or terminating in, the north-
east region, though the place of provision will be determined in terms of this rule, there is an
exemption for air transportation of passengers, embarking from, or terminating in an airport
located in the state of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland,
Sikkim, or Tripura or at Bagdogra located in West Bengal. The examples in the table below
illustrate some situations.
 S. No. Journey                        Place of Provision         Taxability

 Single ticket (No stopover)

 1       Dibrugarh-Kolkata-Mumbai      Dibrugarh is the place     Journey is taxable, but no service tax
                                       of provision               is payable owing to the exemption.


 2       Dibrugarh-Kolkata-Mumbai-     Dibrugarh is the place     Journey is taxable, but no service tax
         Kolkata-Dibrugrah             of provision               is payable owing to the exemption.
                                                                  Here it is relevant to note that the
                                                                  journey is against a single, return
                                                                  ticket.

 3       Guwahati-Kolkata-Bangkok-     Guwahati is the place      Place of provision being in the taxable
         Kolkata-Guwahati              of provision for the       territory, the service is taxable, but no
                                       continuous journey         service tax is payable owing to the
                                                                  exemption and journey is
                                                                  deemed continuous.


 4       Kolkata-Guwahati-Kolkata      Kolkata is the place of    Place of provision being in the taxable
                                       provision for the          territory, the service is taxable, but no
                                       continuous journey.        service tax is payable owing to the
                                                                  exemption (the onward and return legs
                                                                  of journey terminate and originate in
                                                                  exempted territory respectively).

 More than one ticket for a journey (issued by a single service provider, or by a single agent, for
 more than one service providers)

 1       (a) Bagdogra-Kolkata          Place of provision for     In these cases, generally, the
         (b) Kolkata-Delhi             journey (a) is Bagdogra.   passenger would be required to change
                                       Place of provision for     aircraft after exiting the airport, and is
                                       journey (b) is Kolkata.    required to obtain a fresh boarding
                                                                  pass for the next leg.
                                                                  This is deemed to be a stopover. Thus,
                                                                  journey (b) is taxable, and service tax
                                                                  is payable on leg (b).

 2       (a) Guwahati-Kolkata-       Each journey is deemed Generally, in such cases, since
         Guwahati                    continuous based on the separate return tickets have been
         (b) Kolkata-Bangkok-Kolkata assumption that two       purchased for the two journeys,
                                     single return tickets are after completing journey (a) the
                                     purchased. For journey passenger will be required to
                                     (a) place of provision is disembark from the aircraft and
                                     Guwahati, and for journey complete check-in formalities for
                                     (b) place of provision is journey (b). Thus, the journey will not
                                     Kolkata.                  be deemed to be continuous and place
                                                               of provision for journey (b) will be
                                                               Kolkata.


                                                  73
5.12 Rule 12- Services provided on board conveyances
5.12.1 What are services provided on board conveyances?

Any service provided on board a conveyance (aircraft, vessel, rail, or roadways bus) will be
covered here. Some examples are on-board service of movies/music/video/ software games
on demand, beauty treatment etc, albeit only when provided against a specific charge, and
not supplied as part of the fare.

5.12.2 What is the place of provision of services provided on board conveyances?

The place of provision of services provided on board a conveyance during the course of a
passenger transport operation is the first scheduled point of departure of that conveyance for
the journey.

Illustration

  A video game or a movie-on-demand is provided as on-board entertainment during
  the Kolkata-Delhi leg of a Bangkok-Kolkata-Delhi flight. The place of provision of this
  service will be Bangkok (outside taxable territory, hence not liable to tax).

  If the above service is provided on a Delhi-Kolkata-Bangkok-Jakarta flight during the
  Bangkok-Jakarta leg, then the place of provision will be Delhi (in the taxable territory,
  hence liable to tax).



5.13 Rule 13- Power to notify services or circumstances
5.13.1 What is the implication of this Rule?
This Rule states as follows:-
"In order to prevent double taxation or non-taxation of the provision of a service, or for the
uniform application of rules, the Central Government shall have the power to notify any
description of service or circumstances in which the place of provision shall be the place of
effective use and enjoyment of a service."
The rule is an enabling power to correct any injustice being met due to the applicability of
rules in a foreign territory in a manner which is inconsistent with these rules leading to double
taxation. Due to the cross border nature of many services it is also possible in certain situations
to set up businesses in a non-taxable territory while the effective enjoyment, or in other words
consumption, may be in taxable territory. This rule is also meant as an anti-avoidance measure
where the intent of the law is sought to be defeated through ingenious practices unknown to
the ordinary ways of conducting business.
5.14 Rule 14- Order of application of Rules
5.14.1 What is the implication of this Rule?
Rule 14 provides that where the provision of a service is, prima facie, determinable in terms
of more than one rule, it shall be determined in accordance with the rule that occurs later
among the rules that merit equal consideration.

                                                74
This Rule covers situations where the nature of a service, or the business activities of the
service provider, may be such that two or more rules may appear equally applicable.

Following illustrations will make the implications of this Rule clear:-

Illustration 1

  An architect based in Mumbai provides his service to an Indian Hotel Chain (which
  has business establishment in New Delhi) for its newly acquired property in Dubai. If
  Rule 5 (Property rule) were to be applied, the place of provision would be the location
  of the property i.e. Dubai (outside the taxable territory). With this result, the service
  would not be taxable in India.

  Whereas, by application of Rule 8, since both the provider and the receiver are located
  in taxable territory, the place of provision would be the location of the service receiver
  i.e. New Delhi. Place of provision being in the taxable territory, the service would be
  taxable in India.

  By application of Rule 14, the later of the Rules i.e. Rule 8 would be applied to determine
  the place of provision.


Illustration 2

  For the Ms Universe Contest planned to be held in South Africa, the Indian pageant
  (say, located in Mumbai) avails the services of Indian beauticians, fashion designers,
  videographers, and photographers. The service providers travel as part of the Indian
  pageant's entourage to South Africa. Some of these services are in the nature of
  personalized services, for which the place of provision would normally be the location
  where performed (Performance rule-Rule 4), while for others, under the main rule
  (Receiver location) the place of provision would be the location of receiver.

  Whereas, by application of Rule 8, since both the provider and the receiver are located
  in taxable territory, the place of provision would be the location of the service receiver
  i.e. New Delhi. Place of provision being in the taxable territory, the service would be
  taxable in India.

  By application of Rule 15, the later of the Rules i.e. Rule 8 would be applied to determine
  the place of provision.



                                              *****




                                               75
FLOW DIAGRAM F1 (Refer para 5.2.4)

 HOW TO DETERMINE LOCATION?




                76
              FLOW DIAGRAM F 2 (Refer para 5.3.4)

PROVISION OF SERVICES UNDER A `GLOBAL AGREEMENT'- Scenario 1




                              77
                             FLOW DIAGRAM F 3 (Refer para 5.3.4)

PROVISION OF SERVICES UNDER `FRAMEWORK AGREEMENT'- Scenario 2




Agreement 1 is not transactional, has no consideration, and does not create a provision of
service. Agreement 1 stipulates the terms and conditions which are activated only when the
parties (i.e. group subsidiaries on either side enter into separate and independent business
agreements, in accordance with the terms specified in the framework agreement.

Under Agreement 2, service 1 is provided by BBB Ltd to AAA Ltd, and the place of provision
of this service, under the main rule, is the location of the receiver i.e. within the taxable territory.
Under Agreement 3, service 2 is provided by BBB-X to AAA-X, and the place of provision of
this service, under the main rule, is country X i.e. outside the taxable territory. Under Agreement
4, service 3 is provided by BBB-Y to AAA-Y, and the place of provision of this service, again
under the main rule, is country Y i.e. outside the taxable territory.
_____________________________________________________________________

                                                 *****
                                                  78
  Guidance Note 6 ­ Declared Services

In the definition of `service' contained in clause (44) of section 65B of the Act it has also been
stated that service includes a declared service. The phrase `declared service' is also defined
in the said section as an activity carried out by a person for another for consideration and
specified in section 66E of the Act. The following nine activities have been specified in section
66E:

     1.   renting of immovable property;
     2.   construction of a complex, building, civil structure or a part thereof, including a
          complex or building intended for sale to a buyer, wholly or partly, except where the
          entire consideration is received after issuance of certificate of completion by a
          competent authority;
     3.   temporary transfer or permitting the use or enjoyment of any intellectual property
          right;
     4.   development, design, programming, customization, adaptation, up gradation,
          enhancement, implementation of information technology software;
     5.   agreeing to the obligation to refrain from an act, or to tolerate an act or a situation,
          or to do an act;
     6.   transfer of goods by way of hiring, leasing, licensing or any such manner without
          transfer of right to use such goods;
     7.    activities in relation to delivery of goods on hire purchase or any system of payment
          by instalments;
     8.   service portion in execution of a works contract;
     9.   service portion in an activity wherein goods, being food or any other article of human
          consumption or any drink (whether or not intoxicating) is supplied in any manner as
          part of the activity.

The above activities when carried out by a person for another for consideration would amount
to provision of service. Most of these services are presently also being taxed except in so far
as Sl. No.5 is concerned. It is clarified that they are amply covered by the definition of service
but have been declared with a view to remove any ambiguity for the purpose of uniform
application of law all over the country.

6.1 Renting of Immovable Property
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'

6.1.1 Is renting of all kinds of immovable properties taxable?

No. Renting of certain kinds of immovable properties is specified in the negative list. These
are ­

     ·    renting of vacant land, with or without a structure incidental to its use, relating to
          agriculture. (Sl. no. (d) (iv) of Exhibit A1)

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      ·   renting of residential dwelling for use as residence (Sl. No. (m) of Exhibit A1)

      ·   renting out of any property by the Reserve Bank of India

      ·   renting out of any property by a Government or a local authority to a non-business
          entity.

Renting of all other immovable properties would be taxable unless covered by an exemption
(refer 6.1.2).

6.1.2 Are there any exemptions in respect of renting of immovable property?

Yes. These are:­

      ·   Threshold level exemption up to Rs. 10 lakh.

      ·   Renting of precincts of a religious place meant for general public.

      ·   Renting of a hotel, inn, guest house, club, campsite or other commercial places
          meant for residential or lodging purposes, having declared tariff of a room below
          rupees one thousand per day or equivalent.

      ·   Renting to an exempt educational institution

6.1.3 Would permitting usage of a property for a temporary purpose like conduct of
a marriage or any other social function be taxable?

Yes. As per definition allowing or permitting usage of immovable property, without transferring
possession of such property, is also renting of immoveable property.

6.1.4 Would activities referred to in column 1 of a table below be chargeable to service
tax?
 S. No. Journey                                            Taxability
 1.       Renting of property to an educational body Exempted if provided to an educational institution
                                                     for the purpose of education which is exempt from
                                                     the levy of service tax; to others will be taxable.

 2.       Renting of vacant land for animal                Not chargeable to service tax as it is covered in the
          husbandry or floriculture                        negative list entry relating to agriculture

 3.       Permitting use of immoveable property for        Chargeable to service tax as permitting usage of
          placing vending/dispensing machines              space is covered in the definition of renting

 4.       Allowing erection of a communication             Chargeable to service tax as permitting usage of
          tower on a building for consideration.           space is covered in the definition of renting

 5.       Renting of land or building for                  Chargeable to service tax as there is no specific
          entertainment or sports                          exemption.

 6.       Renting of theatres by owners to film            Chargeable to service tax as the arrangement
          distributors (including under a profit-          amounts to renting of immovable property.
          sharing arrangement)


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6.1.5 Whether hotels/restaurants/convention centres letting out their halls, rooms
etc. for social, official or business or cultural functions fall within the scope of this
declared list service?

Halls, rooms etc. let out by hotels/restaurants for a consideration for organizing social, official
or business or cultural functions are covered within the scope of renting of immovable property
and would be taxable if other elements of taxability are present.

6.2 Construction of a complex, building, civil structure or a part thereof,
including a complex or building intended for sale to a buyer, wholly
or partly, except where the entire consideration is received after
issuance of certificate of completion by a competent authority.
This service is already taxable as part of construction of residential complex service under
clause (zzzh) of sub-section 105 of section 65 of the Act and as part of service in relation to
commercial or industrial construction under clause (zzq) of sub-section 105 of section 65 of
the Act. This entry covers the services provided by builders or developers or any other person,
where building complexes, civil structure or part thereof are offered for sale but the payment
for such building or complex or part thereof is received before the issuance of completion
certificate by a competent authority.

6.2.1 What would be the liability to pay service tax on flats/houses agreed to be given
by builder/developer to the land owner towards the land /development rights and to
other buyers. If payable, how would the services be valued?

Here two important transactions are identifiable: (a) sale of land by the landowner which is
not a taxable service; and (b) construction service provided by the builder/developer. The
builder/developer receives consideration for the construction service provided by him, from
two categories of service receivers: (a) from landowner: in the form of land/development
rights; and (b) from other buyers: normally in cash.

Construction service provided by the builder/developer is taxable in case any part of the
payment/development rights of the land was received by the builder/ developer before the
issuance of completion certificate and the service tax would be required to be paid by builder/
developers even for the flats given to the land owner.

It may be pointed out that in a recent judgement passed by the Mumbai High Court in the case
of Maharashtra Chamber of Housing Industry and Others vs. Union of India [012-TIOL-78-
HC-Mum-ST] has upheld the Constitutional validity of levy of service tax, under clauses (zzzh)
and (zzzzu) of section 65, on similar construction services provided by a builder. A relevant
portion of the judgement is reproduced below-

"29. The charge of tax under Section 66 of the Finance Act is on the taxable services
defined in clause (105) of Section 65. The charge of tax is on the rendering of a taxable
service. The taxable event is the rendering of a service which falls within the description set
out in sub-clauses (zzq), (zzzh) and (zzzzu). The object of the tax is a levy on services which
are made taxable. The fact that a taxable service is rendered in relation to an activity which
occurs on land does not render the charging provision as imposing a tax on land and


                                                81
buildings. The charge continues to be a charge on taxable services. The charge is not a
charge on land or buildings as a unit. The tax is not on the general ownership of land. The
tax is not a tax which is directly imposed on land and buildings. The fact that land is subject
to an activity involving construction of a building or a complex does not determine the
legislative competence of Parliament. The fact that the activity in question is an activity
which is rendered on land does not make the tax a taxon land. The charge is on rendering
a taxable service and the fact that the service is rendered in relation to land does not alter
the nature or character of the levy. The legislature has expanded the notion of taxable
service by incorporating within the ambit of clause (zzq) and clause (zzzh) services rendered
by a builder to the buyer in the course of an intended sale whether before, during or after
construction. There is a legislative assessment underlying the imposition of the tax which
is that during the course of a construction related activity, a service is rendered by the
builder to the buyer. Whether that assessment can be challenged in assailing constitutional
validity is a separate issue which would be considered a little later. At this stage, what merits
emphasis is that the charge which has been imposed by the legislature is on the activity
involving the provision of a service by a builder to the buyer in the course of the execution
of a contract involving the intended sale of immovable property.

30. Parliament, in bringing about the amendment in question has made a legislative
assessment to the effect that a service is rendered by builders to buyers during the course
of construction activities. In our view, that legislative assessment does not impinge upon
the constitutional validity of the tax once, the true nature and character of the tax is held not
to fall within the scope of Entry 49 of List II. So long as the tax does not fall within any head
of legislative power reserved to the States, the tax must of necessity fall within the legislative
competence of Parliament. This is a settled principle of law, since the residuary power to
legislate on a field of legislation which does not fall within the exclusive domain of the
States is vested in Parliament under Article 248 read with Entry 97 of List I."

Value, in the case of flats given to first category of service receiver will be the value of the land
when the same is transferred and the point of taxation will also be determined accordingly.

6.2.2 What would be the service tax liability in the following model - land is owned by
a society, comprising members of the society with each member entitled to his share
by way of an apartment. Society /individual flat owners give `No Objection Certificate'
(NOC) or permission to the builder/developer, for re-construction. The builder/
developer makes new flats with same or different carpet area for original owners of
flats and additionally may also be involved in one or more of the following: (i) construct
some additional flats for sale to others; (ii) arrange for rental accommodation or rent
payments for society members/original owners for stay during the period of re-
construction; (iii) pay an additional amount to the original owners of flats in the
society.

Under this model, the builder/developer receives consideration for the construction service
provided by him, from two categories of service receivers. First category is the society/
members of the society, who transfer development rights over the land (including the permission
for additional number of flats), to the builder/developer. The second category of service
receivers consist of buyers of flats other than the society/members. Generally, they pay by
cash.


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Re-construction undertaken by a building society by directly engaging a builder/developer
will be chargeable to service tax as works contract service for all the flats built now.

6.2.3 When a certain number of flats are given by the builder/developer to a land
owner in a collaborative agreement to construct, in lieu of the land or development
rights transferred, will such transferee be required to pay service tax on further sale
of flats to customers?

Yes. The service tax will be required to be paid by such transferee if any consideration is
received by him from any person before the receipt of completion certificate.

6.2.4 What would be the service tax liability on conversion of any hitherto untaxed
construction of complex or part thereof into a building or civil structure to be used
for commerce or industry, after lapse of a period of time?

Mere change in use of the building does not involve any taxable service. If the renovation
activity is done on such a complex on contract basis the same would be a works contract as
defined in clause (54) of section 65B service portion, which would also be taxable if other
ingredients of taxability are present.

6.2.5 What would be the service tax liability on Build- Operate - Transfer (BOT)
Projects?

Many variants of this model are being followed in different regions of the country, depending
on the nature of the project. Build-Own-Operate-Transfer (BOOT) is a popular variant. Generally
under BOT model, Government, concessionaire (who may be a developer/builder himself or
may be independent) and the users are the parties. Risk taking and sharing ability of the
parties concerned is the essence of a BOT project. Government by an agreement transfers
the `right to use' and/or `right to develop' for a period specified, usually thirty years or near
about, to the concessionaire.

Transactions involving provision of service take place usually at three different levels: firstly,
between Government and the concessionaire; secondly, between concessionaire and the
contractor and thirdly, between concessionaire and users.

At the first level, Government transfers the right to use and/or develop the land, to the
concessionaire, for a specific period, for construction of a building for furtherance of business
or commerce (partly or wholly). Consideration for this taxable service may be in the nature of
upfront lease amount or annual charges paid by the concessionaire to the Government. Such
services provided by the "Government' would be in the negative list entry contained in clause
(a) of section 66D unless these services qualify as `support services provided to business
entities' under exception sub-clause (iv) to clause (a) of section 66D. `Support services have
been defined in clause (49) of section 65B as `infrastructural, operational, administrative,
logistic marketing or any other support of any kind comprising functions that entities carry out
in the 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'. If the nature of concession is such that it amounts to `renting of immovable
property service' then the same would be taxable. The tax is required to be paid by the
government as there is no reverse charge for services relating to renting of immovable property.


                                               83
In this model, though the concessionaire is undertaking construction of a building to be used
wholly or partly for furtherance of business or commerce, he will not be treated as a service
provider since such construction has been undertaken by him on his own account and he
remains the owner of the building during the concession period. However, if an independent
contractor is engaged by a concessionaire for undertaking construction for him, then service
tax is payable on the construction service provided by the contractor to the concessionaire.

At the third level, the concessionaire enters into agreement with several users for commercially
exploiting the building developed/constructed by him, during the lease period. For example,
the user may be paying a rent or premium on the sub-lease for temporary use of immovable
property or part thereof, to the concessionaire. At this third level, concessionaire is the service
provider and user of the building is the service receiver. Service tax would be leviable on the
taxable services provided by the concessionaire to the users if the ingredients of taxability
are present.

There could be many variants of the BOT model explained above and implications of tax may
differ. For example, at times it is possible that the concessionaire may outsource the
management or commercial exploitation of the building developed/constructed by him to
another person and may receive a pre-determined amount as commission. Such commission
would be a consideration for taxable service and liable to service tax.

6.2.6 If the builder instead of receiving consideration for the sale of an apartment
receives a fixed deposit, which it converts after the completion of the building into
sales consideration, will it amount to receiving any amount before the completion of
service.

This may be a colorable device wherein the consideration for provision of construction service
is disguised as fixed deposit, which is unlikely to be returned. In any case the interest earned
by the builder on such fixed deposits will be a significant amount received prior to the
completion of the immovable property. As clarified at serial no. 5 of the table in point no 2.3.2
interest in such cases would be considered as part of the gross amount charged for the
provision of service and the service of construction will be taxable.

6.2.7 In certain States requirement of completion certificate are waived of for certain
specified types of buildings. How would leviability of service tax be determined in
such cases?

In terms of Explanation to clause (b) of section 66E in such cases the completion certificate
issued by an architect or a chartered engineer or a licensed surveyor of the respective local
body or development or planning authority would be treated as completion certificate for the
purposes of determining chargeability of service tax.

6.2.8 If the person who has entered into a contract with the builder for a flat for
which payments are to be made in 12 installments depending on the stage of
construction and the person transfers his interest in the flat to a buyer after paying 7
installments, would such transfer be an activity chargeable to service tax?

Such transfer does not fall in this declared service entry as the said person is not providing
any construction service. In any case transfer of such an interest would be transfer of a benefit


                                                84
to arise out of land which as per the definition of immoveable property given in the General
Clauses Act, 1897 is part of immoveable property. Such transfer would therefore be outside
the ambit of `service' being a transfer of title in immoveable property. Needless to say that
service tax would be chargeble on the seven installments paid by the first allottee and also on
subsequent installments paid by the transferee.
6.3 Temporary transfer or permitting the use or enjoyment of any
intellectual property right
6.3.1What is the scope of the term `intellectual property right'?

`Intellectual property right' has not been defined in the Act. The phrase has to be understood
as in normal trade parlance as per which intellectual property right includes the following:-

     ·    Copyright
     ·    Patents
     ·    Trademarks
     ·    Designs
     ·    Any other similar right to an intangible property

6.3.2 Is the IPR required to be registered in India? Would the temporary transfer of a
patent registered in a country outside India also be covered under this entry?

Since there is no condition regarding the law under which an intellectual right should be
registered, temporary transfer of a patent registered outside India would also be covered in
this entry. However, it will become taxable only if the place of provision of service of temporary
transfer of intellectual property right is in taxable territory.

6.4 Development, design, programming, customization, adaptation,
up gradation, enhancement, implementation of information technology
software
The term `information technology software' has been defined in section 65B of the Act as `any
representation of instructions, data, sound or image, including source code and object code,
recorded in a machine readable form, and capable of being manipulated or providing
interactivity to a user, by means of a computer or an automatic data processing machine or
any other device or equipment'.

6.4.1 Would sale of pre-packaged or canned software be included in this entry?

No. It is a settled position of law that pre-packaged or canned software which is put on a
media is in the nature of goods [Supreme Court judgment in case of Tata Consultancy Services
vs State of Andhra Pradesh [2002(178) ELT 22(SC) refers]. Sale of pre-packaged or canned
software is, therefore, in the nature of sale of goods and is not covered in this entry.

6.4.2 Is on site development of software covered under this entry?

Yes. On site development of software is covered under the category of development of
information technology software.

                                               85
6.4.3 Would providing advice, consultancy and assistance on matters relating to
information technology software be chargeable to service tax?

These services may not be covered under the declared list entry relating to information
technology software. However, such activities when carried out by a person for another for
consideration would fall within the definition of service and hence chargeable to service tax if
other requirements of taxability are satisfied.

6.4.4 Would providing a license to use pre-packaged software be a taxable service?

The following position of law needs to be appreciated to determine whether a license to use
pre packaged software would be goods-

    ·    As held by the Hon'ble Supreme Court in the case of Tata Consultancy Services vs.
         State of Andhra Pradesh [2002(178) ELT 22(SC)] ] pre-packaged software or canned
         software or shrink wrapped software put on a media like is goods. Relevant portion
         of para 24 of the judgment is reproduced below-

         "A software programme may consist of various commands which enable the
         computer to perform a designated task. The copyright in that programme may
         remain with the originator of the programme. But the moment copies are made
         and marketed, it becomes goods, which are susceptible to sales tax. Even
         intellectual property, once it is put on to a media, whether it be in the form of books
         or canvas (in case of painting) or computer discs or cassettes, and marketed
         would become "goods". We see no difference between a sale of a software
         programme on a CD/floppy disc from a sale of music on a cassette/CD or a sale
         of a film on a video cassette/CD. In all such cases, the intellectual property has
         been incorporated on a media for purposes of transfer. Sale is not just of the
         media which by itself has very little value. The software and the media cannot be
         split up. What the buyer purchases and pays for is not the disc or the CD. As in the
         case of paintings or books or music or films the buyer is purchasing the intellectual
         property and not the media i.e. the paper or cassette or disc or CD. Thus a
         transaction sale of computer software is clearly a sale of "goods" within the meaning
         of the term as defined in the said Act. The term "all materials, articles and
         commodities" includes both tangible and intangible/incorporeal property which is
         capable of abstraction, consumption and use and which can be transmitted,
         transferred, delivered, stored, possessed etc. The software programmes have all
         these attributes."

    ·    Therefore, in case a pre-packaged or canned software or shrink wrapped software
         is sold then the transaction would be in the nature of sale of goods and no service
         tax would be leviable.
    ·    The judgement of the Supreme Court in Tata Consultancy Service case is applicable
         in case the pre-packaged software is put on a media before sale. In such a case the
         transaction will go out of the ambit of definition of service as it would be an activity
         involving only a transfer of title in goods.
    ·    As per the definition of `service' as contained in clause (44) of section 65(B) only
         those transactions are outside the ambit of service which constitute only a transfer

                                              86
    of title in goods or such transfers which are deemed to be a sale within the meaning
    of Clause 29(A) of article 366 of the Constitution. The relevant category of deemed
    sale is transfer of right to use goods contained in sub-clause (d) of clause (29A) of
    the Constitution.
·    `Transfer of right to use goods' is deemed to be a sale under Article 366(29A) of
    the Constitution of India and transfer of goods by way of hiring, leasing, licensing or
    any such manner without transfer of right to use such goods is a declared service
    under clause (f) of section 66E.
·   Transfer of right to use goods is a well-recognized constitutional and legal concept.
    Every transfer of goods on lease, license or hiring basis does not result in transfer
    of right to use goods. For understanding the concept of transfer of right to use please
    refer to point no 6.6.1.
·   A license to use software which does not involve the transfer of `right to use' would
    neither be a transfer of title in goods nor a deemed sale of goods. Such an activity
    would fall in the ambit of definition of `service' and also in the declared service
    category specified in clause (f) of section 66E.
·   Therefore, if a pre-packaged or canned software is not sold but is transferred under
    a license to use such software, the terms and conditions of the license to use such
    software would have to be seen to come to the conclusion as to whether the license
    to use packaged software involves transfer of `right to use' such software in the
    sense the phrase has been used in sub-clause (d) of article 366(29A) of the
    Constitution. (See point no 5.6.1).
·   In case a license to use pre-packaged software imposes restrictions on the usage
    of such licenses, which interfere with the free enjoyment of the software, then such
    license would not result in transfer of right to use the software within the meaning of
    Clause 29(A) of Article 366 of the Constitution. Every condition imposed in this
    regard will not make it liable to service tax. The condition should be such as restraints
    the right to free enjoyment on the same lines as a person who has otherwise
    purchased goods is able to have. Any restriction of this kind on transfer of software
    so licensed would tantamount to such a restraint.

·   Whether the license to use software is in the paper form or in electronic form makes
    no material difference to the transaction.

·   However, the manner in which software is transferred makes material difference to
    the nature of transaction. If the software is put on the media like computer disks or
    even embedded on a computer before the sale the same would be treated as goods.
    If software or any programme contained is delivered online or is down loaded on
    the internet the same would not be treated as goods as software as the judgment of
    the Supreme Court in Tata Consultancy Service case is applicable only in case the
    pre-packaged software is put on a media before sale.

·   Delivery of content online would also not amount to a transaction in goods as the
    content has not been put on a media before sale. Delivery of content online for
    consideration would, therefore, amount to provision of service.


                                          87
6.4.5 In case contract is given for customized development of software and the
customized software so developed is delivered to the client on media like a CD then
would the transaction fall in this declared entry or would it be covered by the TCS
Judgement?

In such a case although the software is finally delivered in the form of goods, since the contract
is essentially for design and development of software it would fall in the declared list entry.
Such a transaction would be in the nature of composite transaction involving an element of
provision of service, in as much as the contract is for design and development of software
and also an element of transfer of title in goods, in as much as the property in CD containing
the developed software is transferred to the client. However, the CD remains only a media to
transmit or deliver the outcome of which is essentially and pre-dominantly a contract of service.
Therefore, such a transaction would not be excluded from the ambit of the definition of `service'
as the transaction does not involve `only' transfer of title in goods and dominant nature of the
transaction is that of provision of service.

6.5 Activities in relation to delivery of goods on hire purchase or any
system of payment by instalments
6.5.1 Is the delivery of goods on hire purchase of any system of payment by
installments taxable?

No. The delivery of goods on hire purchase or any system of payment on installment is not
chargeable to service tax because as per Article 366(29A) of the Constitution of India such
delivery of goods is deemed to be a sale of goods.(For guidance on this aspect please refer
to point no. 2.7 of this Guide) However activities or services provided in relation to such
delivery of goods are covered in this declared list entry.

6.5.2 What is the scope of the phrase `delivery of goods on hire-purchase or any
system of payment by installments'?

Section 2 of the Hire Purchase Act, 1972 defines a "hire purchase agreement' as `an
agreement under which goods are let out on hire and under which the hirer has the option to
purchase them in accordance with the terms of the agreement and includes an agreement
under which-

     (i) possession of goods is delivered by the owner thereof to a person on condition that
         such person pays the agreed amount in periodical installments, and

     (ii) the property in the goods is to pass to such person on the payment of the last of
          such installments, and

     (iii) such person has a right to terminate the agreement at any time before the property
           so passes.'

As per the Sales of Goods Act by Mulla (Seventh Edition. Page 14) delivery is `voluntary
dispossession in favour of another' and that `in all cases the essence of delivery is that the
deliverer, by some apt and manifest act, puts the deliveree in the same position of control
over thing, either directly or through a custodian, which he held himself immediately before
the act'.
                                               88
The nature of such arrangements has been explained by the Supreme Court in the case of
Association of Leasing & Financial Service Companies Vs Union Of India [2010 (20) S.T.R.
417 (S.C.)]. The relevant extract in para 20 of the said judgment is reproduced below:

"20. According to Sale of Goods Act by Mulla [6th Edition] a common method of selling goods is by
means of an agreement commonly known as a hire-purchase agreement which is more aptly
described as a hiring agreement coupled with an option to purchase, i.e., to say that the owner lets
out the chattel on hire and undertakes to sell it to the hirer on his making certain number of payments."

Key ingredients of the deemed sale category of `delivery of goods on hire-purchase or any
system of payment by installments', therefore are-

     ·    Transfer of possession (and not just of custody)

     ·    The hirer has the option or obligation to purchase the goods in accordance with the
          terms of the agreement.

6.5.3 What is the difference between a normal hiring agreement and a hire-purchase
agreement?

In a mere hiring agreement the hirer has no option to purchase the goods hired and the risks
and rewards incidental to ownership of goods remain with the owner and are not transferred
to the hirer. In a hire-purchase agreement the hirer has an option or an obligation to purchase
goods.

6.5.4 Are `finance leases', `operating leases' and `capital leases' covered as `delivery
of goods on hire purchase or any system of payment of installments'?

Such leases would be covered only if the terms and conditions of such leases have the
ingredients as explained above. Normally in an `operating lease' the lease is for a term shorter
than property's useful life and the lessor is typically responsible for taxes and other expenses
on the property. The lessee does not have an option to purchase the property at the end of the
period of lease. Such arrangements do not qualify as `delivery of goods on hire purchase or
any system of payment of installments'.

On the other hand `financial leases' or `capital leases' strongly resemble security arrangements
and are entered into for financing the asset. The lessee pays maintenance costs and taxes
and has the option of purchasing the lease end. Such arrangements resemble a hire-purchase
agreement and would fall under the said `deemed sale' category. The essence of this deemed
sale category is that the arrangement under which the goods are `delivered' should be in the
nature of a financing arrangement wherein the lessee pays maintenance costs and taxes and
has the option of purchasing the asset so delivered at lease end.

It may, however, be pointed out that in case an `operating lease' has elements of transfer of
`right to use' then the same would be covered in the other `deemed sale' category pertaining
to `transfer of right to use any goods'




                                                   89
6.5.5 If delivery of goods on hire purchase or any system of payment on installment
is deemed to be sale of goods what are the activities in relation to such delivery
which are covered in the declared service?

It has been held by Supreme court in the case of Association Of Leasing & Financial Service
Companies Vs Union Of India[2010 (20) S.T.R. 417 (S.C.)] that in equipment leasing/hire-
purchase agreements there are two different and distinct transactions, viz., the financing
transaction and the equipment leasing/hire-purchase transaction and that the financing
transaction, consideration for which was represented by way of interest or other charges like
lease management fee, processing fee, documentation charges and administrative fees,
which is chargeable to service tax. Therefore, such financial services that accompany a hire-
purchase agreement fall in the ambit of this entry of declared services.

6.5.6 Is service tax leviable on the entire quantum of interest and other charges
received in relation to a hire purchase?

No. In terms of the exemption notification relating to such activities, service tax is leviable only
on 10% of the amount representing interest plus other charges explicitly charged as mentioned
above.

6.6 Transfer of goods by way of hiring, leasing, licensing or any such
manner without transfer of right to use such goods
6.6.1 What is the meaning and scope of the phrase `transfer of right to use such
goods'

Transfer of right to use goods is a well recognized constitutional and legal concept. Every
transfer of goods on lease, license or hiring basis does not result in transfer of right to use
goods. `Transfer of right of goods' involves transfer of possession and effective
control over such goods in terms of the judgment of the Supreme Court in the case of
State of Andhra Pradesh vs RashtriyaIspat Nigam Ltd [Judgment dated 6/2/2002 in Civil
Appeal no. 31 of 1991]. Transfer of custody along with permission to use or enjoy such goods,
per se, does not lead to transfer of possession and effective control.

The test laid down by the Supreme Court in the case of Bharat Sanchar Nigam Limited vs
Union of India [2006(2)STR161(SC)] to determine whether a transaction involves transfer of
right to use goods, which has been followed by the Supreme Court and various High Courts,
is as follows:

     ·    There must be goods available for delivery;

     ·    There must be a consensus ad idem as to the identity of the goods;

     ·    The transferee should have legal right to use the goods ­ consequently all legal
          consequences of such use including any permissions or licenses required therefore
          should be available to the transferee;

     ·    For the period during which the transferee has such legal right , it has to be the
          exclusion to the transferor ­ this is the necessary concomitant of the plain language


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            of the statute, viz., a `transfer of the right to use' and not merely a license to use the
            goods;

       ·    Having transferred, the owner cannot again transfer the same right to others.

Whether a transaction amounts to transfer of right or not cannot be determined with reference
to a particular word or clause in the agreement. The agreement has to be read as a whole, to
determine the nature of the transaction.

6.6.2 Whether the transactions listed in column 1 of the table below involve transfer
of right to use goods?

  S.No. Nature of transaction                       Whether transaction involves transfer of right to use

  1        A car is given in hire by a person to    Right to use is not transferred as the car owner retains
           a company along with a driver on         the permissions and licenses relating to the cab.
           payment of charges on per                Therefore possession and effective control remains with
           month/mileage basis                      the owner (Delhi High Court Judgment in the case of
                                                    International Travel House in Sales Tax Appeal
                                                    no 10/2009 refers). The service is, therefore covered in
                                                    the declared list entry.

  2        Supply of equipment like excavators,     The transaction will not involve transfer of right to use
           wheel loaders, dump trucks, cranes,      such equipment as in terms of the agreement the
           etc for use in a particular project      possession and effective control over such equipment has
           where the person to whom such            not been transferred even though the custody may have
           equipment is supplied is subject to      been transferred along with permission to use such
           such terms and conditions in the         equipment. The receiver is not free to use such
           contract relating to the manner of       equipment in any manner as he likes and conditions have
           use of such equipment, return of         been imposed on use and control of such equipment.
           such equipment after a specified
           time, maintenance and upkeep of
           such equipment.

  3.       Hiring of bank lockers                   The transaction does not involve the right to use goods
                                                    as possession of the lockers is not transferred to the
                                                    hirer even though the contents of the locker would be in
                                                    the possession of the hirer.(refer to Andhra Pradesh
                                                    High Court Judgment in the case of State Bank of India
                                                    Vs State of Andhra Pradesh)


  4.       Hiring out of vehicles where it is       No transfer of right to use goods as effective control and
           the responsibility of the owner to       possession is not transferred ( Allahabad High Court
           abide by all the laws relating to        judgement in Ahuja Goods Agency vs State of UP
           motor vehicles                           [(1997)106STC540] refers)

  5        Hiring of audio visual equipment         No transfer of right to use goods as effective control and
           where risk is of the owner               possession is not transferred

Note: The list in the table above is only illustrative to demonstrate how courts have interpreted terms and
conditions of various types of contracts to see if a transaction involve transfer of right to use goods. The nature
of each transaction has to be examined in totality keeping in view all the terms and conditions of an agreement
relating to such transaction.




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6.7 Agreeing to the obligation to refrain from an act, or to tolerate an
act or a situation, or to do an act
In terms of this entry the following activities if carried out by a person for another for
consideration would be treated as provision of service.

     ·    Agreeing to the obligation to refrain from an act.

     ·    Agreeing to the obligation to tolerate an act or a situation.

     ·    Agreeing to the obligation to do an act.

6.7.1 Would non-compete agreements be considered a provision of service?

Yes. By virtue of a non-compete agreement one party agrees, for consideration, not to compete
with the other in any specified products, services, geographical location or in any other manner.
Such action on the part of one person is also an activity for consideration and will be covered
by the declared services.

6.8 Service portion in execution of a works contract
Works contract has been defined in section 65B of the Act as a contract wherein transfer of
property in goods involved in the execution of such contract is leviable to tax as sale of goods
and such contract is for the purpose of carrying out construction, erection, commissioning,
installation, completion, fitting out, repair, maintenance, renovation, alteration of any moveable
or immoveable property or for carrying out any other similar activity or a part thereof in relation
to such property.

Typically every works contract involves an element of sale of goods and provision of service.
In terms of Article 366 (29A) of the Constitution of India transfer of property in goods involved
in execution of works contract is deemed to be a sale of such goods. It is a well settled
position of law, declared by the Supreme Court in BSNL`s case [2006(2) STR 161 (SC)], that
a works contract can be segregated into a contract of sale of goods and contract of provision
of service. This declared list entry has been incorporated to capture this position of law in
simple terms.

It may be pointed out that prior to insertion of clause (29A) in article 366 of the Constitution
defining certain categories of transactions as `deemed sale'' of goods the position of law, as
declared by the Supreme Court in Gannon Dunkerley's case (AIR1958SC560) was that a
works contract was essentially a contract of service and no sales tax could be levied on
goods transferred in the course of execution of works contract. It is only after the constitutional
amendment that VAT or sales tax is leviable on such goods. The remaining portion of the
contract remains a contract for provision of service.

Further, with a view to bring certainty and simplicity, the manner of determining the value of
service portion in works contracts has been given in rule 2A of the Valuation Rules. For details
on valuation please refer to point no. 8.2 of this Guide.




                                                92
6.8.1 Would labour contracts in relation to a building or structure be treated as a
works contract?

No. Labour Contracts do not fall in the definition of works contract. It is necessary that there
should be transfer of property in goods involved in the execution of such contract which is
leviable to tax as sale of goods. Pure labour contracts are therefore not works contracts and
would be leviable to service tax like any other service and on full value.

6.8.2 Would contracts for repair or maintenance of motor vehicles be treated as `works
contracts'? If so, how would the value be determined for ascertaining the value portion
of service involved in execution of such a works contract?

Yes. Contracts for repair or maintenance of moveable properties are also works contracts if
property in goods is transferred in the course of execution of such a contract. Service tax has
to be paid in the service portion of such a contract.

6.8.3 Would contracts for construction of a pipe line or conduit be covered under
works contract?

Yes. As pipeline or conduits are structures on land contracts for construction of such structure
would be covered under works contract.

6.8.4 Would contracts for erection commissioning or installation of plant, machinery,
equipment or structures, whether prefabricated or otherwise, be treated as a works
contract?

Such contracts would be treated as works contracts if transfer of property in goods is involved
in such a contract.

6.8.5. Would contracts for painting of a building, repair of a building, renovation of a
building, wall tiling, flooring be covered under `works contract'?

Yes, if such contracts involve provision of materials as well.

6.8.6 Is the definition of `works contract' in clause (54) of section 65B in line with the
definition of `works contract' in various State VAT laws?

The definition of `works contract' in clause (54) of section 65B covers such contracts which
involve transfer of property in goods and are for carrying out the activities specified in the
said clause (54) in respect of both moveable and immoveable properties. This is broadly in
consonance with the definition of `works contract' in most of the State VAT laws. However,
each State has defined `works contracts' differently while dealing with works contract as a
category of deemed sales. There could, therefore, be variations from State to State. For
service tax purposes the definition in clause (54) of section 65B would alone be
applicable.




                                               93
6.8.7 What is the way to segregate service portion in execution of a works contract
from the total contract or what is the manner of determination of value of service
portion involved in execution of a works contract?

For detailed discussion on this topic please refer to Guidance Note 8, in particular point no
8.2.

6.9 Service portion in an activity wherein goods, being food or any
other article of human consumption or any drink (whether or not
intoxicating) is supplied in any manner as part of the activity
6.9.1 What are the activities covered in this declared list entry?

The following activities are illustration of activities covered in this entry-

     ·    Supply of food or drinks in a restaurant;

     ·    Supply of foods and drinks by an outdoor caterer.

In terms of article 366(29A) of the Constitution of India supply of any goods, being food or any
other article of human consumption or any drink (whether or not intoxicating) in any manner as
part of a service for cash, deferred payment or other valuable consideration is deemed to be
a sale of such goods. Such a service therefore cannot be treated as service to the extent of
the value of goods so supplied. The remaining portion however constitutes a service. It is a
well settled position of law, declared by the Supreme Court in BSNL`s case
[2006(2)STR161(SC)], that such a contract involving service along with supply of such goods
can be dissected into a contract of sale of goods and contract of provision of service. This
declared list entry is has been incorporated to capture this position of law in simple terms.

6.9.2 Are services provided by any kind of restaurant, big or small, covered in this
entry?

Yes. Although services provided by any kind of restaurant are covered in this entry, the emphasis
is to levy tax on services provided by only such restaurants where the service portion in the
total supply is substantial and discernible. Thus the following category of restaurants are
exempted ­

     ·    Services provided in relation to serving of food or beverages by a restaurant, eating
          joint or a mess, other than those having the facility of air-conditioning or central air-
          heating in any part of the establishment, at any time during the year, and which has
          a license to serve alcoholic beverage.

     ·    Below the threshold exemption

6.9.3. How is the value of service portion to be determined?

For detailed discussion on this topic please refer to Guidance Paper 8 and in particular point
no 8.4.
______________________________________________________________________

                                               *****
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  Guidance Note 7 ­ Exemptions

Under the present system there are 88 exemption notifications. The need for exemptions is
not obviated with the introduction of negative list. While some existing exemptions have been
built into the negative list, others, wherever necessary, have been retained as exemptions. In
addition some new exemptions are also proposed to be introduced. For ease of reference
and simplicity most of the exemptions are now a part of one single mega exemption notification
25/2012-ST dated 20/6/12 (list of such exemptions is placed as Exhibit A3). The exemptions
requiring some clarification are explained below:

7.1 Are services provided to all international organizations exempt
from service tax?
No. Services to only specified international organisations are exempt. `Specified international
organisation' has been defined in the notification and means an international organization
declared by the Central Government in pursuance of section 3 of the United Nations (Privileges
and Immunities) Act, 1947 to which the provisions of the Schedule to the said Act apply.
Illustrative list of specified international organisations are as follows:

    1.   International Civil Aviation Organisation
    2.   World Health Organisation
    3.   International Labor Organisation
    4.   Food and Agriculture Organisation of the United Nations
    5.   UN Educational, Scientific and Cultural Organisation (UNESCO)
    6.   International Monetary Fund (IMF)
    7.   International Bank for Reconstruction and Development
    8.   Universal Postal Union
    9.   International Telecommunication Union
    10. World Meteorological Organisation
    11. Permanent Central Opium Board
    12. International Hydrographic Bureau
    13. Commissioner for Indus Waters, Government of Pakistan and his advisers and
        assistants
    14. Asian African Legal Consultative Committee
    15. Commonwealth Asia Pacific Youth Development Centre, Chandigarh
    16. Delegation of Commission of European Community
    17. Customs Co-operation Council
    18. Asia Pacific Telecommunity
    19. International Centre of Public Enterprises in Developing Countries, Ljubljana
        (Yugoslavia)


                                              95
    20. International Centre for Genetic Engineering and Biotechnology
    21. Asian Development Bank
    22. South Asian Association for Regional Co-operation
    23. International Jute Organisation, Dhaka, Bangladesh

Note: As the list is subjected to addition (or even deletion), the officers are advised to verify
the eligibility of the concerned organizations as and when required.

7.2 Health Care Services (Details at Sr. No 2 of Exhibit A3)
7.2.1 Are all health care services exempt?

No. only services in recognized systems of medicines in India are exempt. In terms of the
Clause (h) of section 2 of the Clinical Establishments Act, 2010, the following systems of
medicines are recognized systems of medicines:

    ·    Allopathy
    ·    Yoga
    ·    Naturopathy
    ·    Ayurveda
    ·    Homeopathy
    ·    Siddha
    ·    Unani
    ·    Any other system of medicine that may be recognized by central government

7.2.2 Who all are covered as paramedic?

Paramedics are trained health care professionals, for example nursing staff, physiotherapists,
technicians, lab assistants etc. Services by them in a clinical establishment would be in the
capacity of employee and not provided in independent capacity and will thus be considered
as services by such clinical establishment. Similar services in independent capacity are also
exempted.

7.3 Services provided to or by a governmental authority
7.3.1 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 special acts covered under the definition of `governmental
authority'?

No. In terms of its definition in mega notification 25/2012-ST, following conditions should be
satisfied for a board, body or an authority to be eligible for exemptions as a governmental
authority:

    ·    set up by an act of the Parliament or a State Legislature;


                                               96
    ·     established with 90% or more participation by way of equity or control by Government;
          and

    ·     carries out any of the functions entrusted to a municipality under article 243W of the
          Constitution.

7.3.2 What are the functions entrusted to a municipality under article 243W of the
Constitution?

Article 243W of the Constitution is as under:

`Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow--

(a) the Municipalities with such powers and authority as may be necessary to enable them to
function as institutions of self-government and such law may contain provisions for the
devolution of powers and responsibilities upon Municipalities, subject to such conditions as
may be specified therein, with respect to--

    (i)   the preparation of plans for economic development and social justice;

    (ii) the performance of functions and the implementation of schemes as may be entrusted
         to them including those in relation to the matters listed in the Twelfth Schedule;

(b) the Committees with such powers and authority as may be necessary to enable them to
carry out the responsibilities conferred upon them including those in relation to the matters
listed in the Twelfth Schedule.'

Matters listed in twelfth schedule are:

    1.    Urban planning including town planning.
    2.    Regulation of land-use and construction of buildings.
    3.    Planning for economic and social development.
    4.    Roads and bridges.
    5.    Water supply for domestic, industrial and commercial purposes.
    6.    Public health, sanitation conservancy and solid waste management.
    7.    Fire services.
    8.    Urban forestry, protection of the environment and promotion of ecological aspects.
    9.    Safeguarding the interests of weaker sections of society, including the handicapped
          and mentally retarded.
    10. Slum improvement and upgradation.
    11. Urban poverty alleviation.
    12. Provision of urban amenities and facilities such as parks, gardens, playgrounds.
    13. Promotion of cultural, educational and aesthetic aspects.
    14. Burials and burial grounds; cremations, cremation grounds; and electric
        crematoriums.
                                                97
    15. Cattle pounds; prevention of cruelty to animals.
    16. Vital statistics including registration of births and deaths.
    17. Public amenities including street lighting, parking lots, bus stops and public
        conveniences.
    18. Regulation of slaughter houses and tanneries.

7.3.3 Are all services provided by a governmental authority exempt from service tax?

No. All services are not exempt. Services by a governmental authority by way of any activity in
relation to any function entrusted to a municipality under article 243 W of the Constitution are
exempt. All other services are subjected to service tax if they are not otherwise exempt.

7.3.4 Are all services provided to a governmental authority exempt from service tax?

No. A governmental authority enjoys same benefits as the Government or a local authority in
respect of receipt of services. The following services when provided to a governmental authority
are exempt:

    a)   Specified services as listed in Sr. no. 12 of Exhibit A3 relating to construction.

    b)   Services in relation to any function ordinarily entrusted to a municipality in relation to
         water supply, public health, sanitation conservancy, solid waste management or
         slum improvement and upgradation.

    c)   Services received from a service provider located in a non- taxable territory by such
         authorities in relation to any purpose other than commerce, industry or any other
         business or profession.

7.4 Charities (Details at Sr. No. 4 of Exhibit A3)
7.4.1 I am a registered charity. How do I know that activities provided by me are
charitable activities?

You are doing charitable activities if you are registered with income tax authorities for this
purpose under section 12AA the Income Tax Act, 1961 and carry out one or more of the
specified charitable activities. Following are the specified charitable activities:-

    a)   public health by way of ­

         (I)   care or counseling of (i) terminally ill persons or persons with severe physical
               or mental disability, (ii) persons afflicted with HIV or AIDS, or (iii) persons
               addicted to a dependence-forming substance such as narcotics drugs or
               alcohol; or

         (II) public awareness of preventive health, family planning or prevention of HIV
              infection;

    b)   advancement of religion or spirituality;


                                               98
     c)   advancement of educational programmes or skill development relating to,-

          (I)   abandoned, orphaned or homeless children;

          (II) physically or mentally abused and traumatized persons;

          (III) prisoners; or

          (IV) persons over the age of 65 years residing in a rural area;

     d)   preservation of environment including watershed, forests and wildlife; or

     e)   advancement of any other object of general public utility up to a value of twenty five
          lakh rupees in a financial year subject to the condition that total value of such activities
          had not exceeded twenty five lakh rupees during the preceding financial year.

7.4.2 What is the tax liability of a registered charity on their activities?

If a registered charity is doing any activity falling in negative list of services or is otherwise
exempt, it is not required to pay service tax on that activity. In case, where its activity is covered
explicitly in any of the specified charitable activities at `a' to `d' of the answer to 7.4.1, it is
exempt from service tax without any value limit. For charitable activities mentioned at `e', it is
exempt up to a value of twenty five lakh rupees in a financial year if the total value of such
services had not exceeded twenty five lakh rupees during the preceding financial year.
However, this later exemption is available only if the activities are meant for general public.
General public is defined in the notification as `body of people at large sufficiently defined by
some common quality of public or impersonal nature'.

7.5 Religious places/ceremonies (Details at Sr. No. 5 of Exhibit A3)
7.5.1 Is renting of precincts of a religious place taxable?

Yes. However, exemption is available only if the place is meant for general public. General
public is also defined in the mega notification 25/2012-ST as `body of people at large
sufficiently defined by some common quality of public or impersonal nature'.

7.5.2 Am I liable to pay service tax for conducting religious ceremonies for my client?

No. Conduct of religious ceremonies is exempt under Sr. no. 4 of mega exemption. Religious
ceremonies are life-cycle rituals including special religious poojas conducted in terms of
religious texts by a person so authorized by such religious texts. Occasions like birth, marriage,
and death involve elaborate religious ceremonies.

7.6 Advocates or arbitral tribunals (Details at Sr. No.6 of Exhibit A3)
7.6.1 What is the tax liability of advocates, or arbitral tribunal in respect of services
provided by them?

Advocates can provide services either as individuals or as firms. Legal services provided by
advocates or partnership firms of advocates are exempt from service tax when provided to


                                                 99
the following:

     ·    an advocate or partnership firm of advocates providing legal services (same class
          of persons)
     ·    any person other than a business entity
     ·    a business entity with a turnover up to rupees ten lakh in the preceding financial
          year

However, in respect of services provided to business entities, with a turnover exceeding
rupees ten lakh in the preceding financial year, tax is required to be paid on reverse charge
by the business entities. Business entity is defined in section 65B of the Finance Act, 1994
as `any person ordinarily carrying out any activity relating to industry, commerce or any other
business or profession'. Thus it includes sole proprietors as well. The business entity can,
however, take input tax credit of such tax paid in terms of Cenvat Credit Rules, 2004, if otherwise
eligible. The provisions relating to arbitral tribunal are also on similar lines.

7.6.2 I am serving as a member of an arbitral tribunal comprising many arbitrators
and receiving an amount from the arbitral tribunal. Am I providing a service and
required to pay service tax on such amount received?

Arbitral tribunal comprising more than one arbitrator will constitute an entity by itself. Thus
services of individual arbitrator when represented on such an arbitral tribunal will also constitute
service by one person to another. However such service is exempt under sr. no. 6(c) of the
mega notification.

7.7 Recreational coaching or training (Details at Sr. No. 8 of Exhibit
A3)
7.7.1What is the scope of exemption to coaching or training in recreational activities?

There is exemption from service tax to training or coaching in recreational activities relating
to arts, culture or sports. The benefit is available to coaching or training relating to all forms of
dance, music, painting, sculpture making, theatre and sports etc.

7.8 Sports (Details at Sr. No 10 of Exhibit A3)
7.8.1 What is the tax liability on services provided to a recognized sports body?

Services provided to a recognized sports body by an individual as a player, referee, umpire,
coach or team manager for participation in a sporting event organized by a recognized sports
body are exempt from service tax. Similarly services by a recognized sports body to another
are also exempt. Services by individuals such as selectors, commentators, curators, technical
experts are taxable. Recognized sports body has been defined in the mega notification itself.

7.8.2 Are the services of an individual as a player, umpire in a premier league taxable?

The service of a player to a franchisee which is not a recognized sports body is taxable.
However, services of an individual as umpire, referee when provided directly to a recognized
sports body shall be exempt.

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7.9 Construction (Details at Sr No 12 to 14 of Exhibit A3)
7.9.1 Which are the construction services exempted when provided to the
Government, a local authority or a governmental authority?

Exemption is available to the services by way of construction, erection, commissioning,
installation, completion, fitting out, repair, maintenance, renovation, or alteration of:

    A.   a civil structure or any other original works meant predominantly for use other than
         for commerce, industry, or any other business or profession

    B.   a historical monument, archaeological site or remains of national importance,
         archaeological excavation, or antiquity specified under Ancient Monuments and
         Archaeological Sites and Remains Act, 1958

    C.   a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii)
         an art or cultural establishment

    D. canal, dam or other irrigation works

    E.   pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage
         treatment or disposal

    F.   a residential complex predominantly meant for self-use or the use of their employees
         or other persons specified in the of a religious building

7.9.2 What is the significance of words predominantly for use other than for
commerce, industry, or any other business or profession?

The exemption is available for a civil structure or any other original works meant predominantly
for use other than for commerce, industry, or any other business or profession. The significance
of the word predominantly is that benefit of exemption will not be denied if the building is also
incidentally used for some other purposes if it is used primarily for commerce, industry, or any
other business or profession.

7.9.3 I am a contractor in number of projects for constructing roads. What is my tax
liability on construction of roads under different types of projects?

Construction of roads for use by general public is exempt from service tax. Construction of
roads which are not for general public use e.g. construction of roads in a factory, residential
complex would be taxable.

7.9.4 I am engaged in construction of hospitals and educational institutes. Am I
required to pay service tax?

If you are constructing such structures for the government, a local authority or a governmental
authority, you are not required to pay service tax. If you are constructing for others, you are
required to pay tax.




                                              101
7.9.5 What is the service tax liability on construction of a religious building?

Service tax is exempt on construction of a building owned by an entity registered under section
12 AA of the Income tax Act, 1961 and meant predominantly for religious use by general
public.

7.9.6 I am constructing a residential complex for my client. The houses are
predominantly meant for self-use or the use of the employees. Am I required to pay
service tax?

If your client is other than the Government, a local authority or a governmental authority, you
are required to pay service tax. However, exemption is available for services provided to the
Government, a local authority or a governmental authority by way of construction of a residential
complex predominantly meant for self-use or the use of their employees or other persons
specified in the Explanation 1 to clause 44 of section 65 B of the said Act.

7.9.7 What is the service tax liability on construction of two - floor house constructed
through a contractor? My contractor is demanding service tax. Is he right in doing
so?

Service tax is payable on construction of a residential complex having more than one single
residential unit. Single residential unit is defined in the notification and means a self-contained
residential unit which is designed for use, wholly or principally, for residential purposes for
one family. If each of the floors of your house is a single residential unit in terms of the definition,
the contractor is rightly demanding service tax. If the title of each of floors is capable of being
transferred to another person by mutation in land/ municipal records, both the floors may be
considered as separate single residential units.

7.9.8 Are repair, maintenance of airports, ports and railways liable to tax?

Yes. They are liable to service tax and the same will be available as input tax credit to railways,
port or airport authority, if other conditions are met.

7.9.9 I am setting up a wheat flour mill. The supplier of machines is demanding service
tax on erection and installation of machineries and equipments in the flour mill. Is he
right in demanding service tax?

There is no service tax liability on erection or installation of machineries or equipments for
units processing agricultural produce as food stuff excluding alcoholic beverages. You are
processing wheat which is made from processing an agricultural produce. Similarly erection
or installation of machineries or equipment for dal mills, rice mills, milk dairies or cotton ginning
mills would be exempt.

7.10 Copyright (Details at Sr No 15 of Exhibit A3)
7.10.1 Will a music company having the copyright for any sound recording be taxable
for his activity of distributing music?

Temporary transfer of a copyright relating to original literary, dramatic, musical, artistic work
or cinematographic film falling under clause (a) and (b) of sub-section (1) of section 13 of the

                                                  102
Indian Copyright Act, 1957 is exempt. A music company would be required to pay service tax
as the copyright relating to sound recording falls under clause (c) of sub-section (1) of section
13 of the Indian Copyright Act, 1957.

7.10.2 I am a composer of a song having the copyright for my song. When I allow the
recording of the song on payment of some royalty by a music company for further
distribution, am I required to pay service tax on the royalty amount received from a
music company?

No, as the copyright relating to original work of composing song falls under clause (a) of sub-
section (1) of section 13 of the Indian Copyright Act, 1957 which is exempt from service tax.
Similarly an author having copy right of a book written by him would not be required to pay
service tax on royalty amount received from the publisher for publishing the book. A person
having the copyright of a cinematographic film would also not be required to pay service tax
on the amount received from the film exhibitors for exhibiting the cinematographic film in
cinema theatres.

7.10.3 What would be the liability of service tax on various arrangements entered
into for screening of cinematographic films by producers/distributors/exhibitors?

A detailed circular has been issued by the Board dealing with various arrangements in the
context of existing present system of taxation based on positive list of services vide Circular
No.148 / 17 / 2011 ­ ST, dated 13.12.2011. The said circular may be referred for the guidance.
However, no service tax is payable on temporary transfer of copyright in relation to
cinematographic films as the same is exempt under the mega-notification 25/2012.

7.11 Miscellaneous
7.11.1 I am an artist. How do I know that my activity is subjected to service tax?

The activities by a performing artist in folk or classical art forms of music, dance, or theatre
are not subjected to service tax. All other activities by an artist in other art forms e.g. western
music or dance, modern theatres, performance of actors in films or television serials would
be taxable. Similarly activities of artists in still art forms e.g. painting, sculpture making etc.
are taxable.

7.11.2 Are the services of an artist as brand ambassador taxable? Who are brand
ambassadors?

Yes, services provided by an artist as brand ambassador is taxable. Brand ambassador is
defined in the mega notification and means a person engaged for promotion or marketing of
a brand of goods, service, property or actionable claim, event or endorsement of name,
including a trade name, logo or house mark of any person.

7.11.3 What is the significance of declared tariff?

Declared tariff is defined in the mega notification. It includes charges for all amenities provided
in the unit of accommodation (given on rent for stay) like furniture, air-conditioner, refrigerators
or any other amenities, but without excluding any discount offered on the published charges
for such unit. Its relevance is in determining the liability to pay service tax on renting of a hotel,

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inn, guest house, club, campsite or other commercial places meant for residential or lodging
purposes as exemption is available where declared tariff of a unit of accommodation is below
rupees one thousand per day or equivalent. However, the tax will be liable to be paid on the
amount actually charged i.e. declared tariff minus any discount offered.

Thus if the declared tariff is Rs 1100/-, but actual room rent charged is Rs 800/-, tax will be
required to be paid on Rs 800/-.

When the declared tariff is revised as per the tourist season, the liability to pay tax shall be
only on the declared tariff for the accommodation where the published/printed tariff is above
Rupees 1000/-. However, the revision in tariff should be made uniformly applicable to all
customers and declared when such change takes place.

7.11.4 I am running a hotel having the facility of central air-conditioning. There are
number of restaurants in the hotel. Am I liable to pay service tax on to serving of food
or beverages in these restaurants?

 Serving of food or beverages in a centrally air-conditioned premise will be taxed if its restaurant
has a license to serve alcoholic beverages. However, those restaurants which do not have
license to serve alcoholic beverages will be exempt from service tax. Serving of food or
beverages outside the restaurant, say near the swimming pool, will be taxed if service is from
a restaurant having license to serve alcoholic beverages.

7.11.5 Is giving of a bus on hire to any person liable to tax?

Giving on hire a bus to a state transport undertaking is exempt from service tax. If the bus is
given on hire to a person other than a state transport undertaking, it will be taxed.

6.11.6 I have a bus with a contract permit and operating the bus on a route. The
passengers embark or disembark from the bus at any place falling on the route and
pay separate fares either for the whole or for the stages of journey. Am I required to
pay tax?

No. However, transport of passengers in a contract carriage for the transportation of
passengers, for tourism, conducted tour, charter or hire is taxable.

7.11.7 I have taken on rent a piece of vacant land from its owner. The land will be
used for providing the facility of vehicles parking on payment. What is my service
tax liability?

You are not required to pay tax on providing the facility of vehicle parking to general public.
However, if you are providing the facility of parking of vehicles to a car dealer, you are be
required to pay tax as parking facility is not for general public. Moreover, land owner is liable
to pay service tax on renting of his land to you.

7.11.8 What is the tax liability of a RWA on the charges collected from own members
by way of reimbursement of charges or share of contribution for the common use of
its members in a housing society or a residential complex.

Service of an unincorporated body or a non- profit entity registered under any law for the time
being in force to its own members up to an amount of Rs 5,000 per member per month by

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way of reimbursement of charges or share of contribution is exempt from service tax. Where
RWA is working as a pure agent of its members for sourcing of goods or services from a third
person, amount collected by RWA from its members may be excluded from the value of
taxable service in terms of Rule 5(2) 0f Service Tax (Determination of Value) Rules, 2006
subject to compliance with the specified conditions.

7.11.9 I am a Resident Welfare Association (RWA). The members contribute an amount
to RWA for holding camps to provide health care services to poor men and women.
Am I required to pay tax on contribution received from members?

No. You are not required to pay service tax on the contribution received as you are carrying
out any activity (holding camps to provide health care services) which is exempt from the levy
of service tax. If contribution is for carrying out an activity which is taxable, you are required to
pay service tax.

7.11.10 What is the tax liability on services by the intermediaries to entities those are
liable to pay tax on their final output services? (Details at Sr. No 29 of Exhibit A3)

Services by following intermediaries are exempt from service tax:

     A.   sub-broker or an authorised person to a stock broker;
     B.   authorised person to a member of a commodity exchange;
     C.   mutual fund agent to a mutual fund or asset management company;
     D.   distributor to a mutual fund or asset management company;
     E.   selling or marketing agent of lottery tickets to a distributer or a selling agent;
     F.   selling agent or a distributer of SIM cards or recharge coupon vouchers;
     G.   business facilitator or a business correspondent to a banking company or an
          insurance company in a rural area; or
     H.   sub-contractor providing services by way of works contract to another contractor
          providing works contract services which are exempt;

7.11.11 Whether the exemption provided in the mega -exemption to services by way
of construction of roads, airports, railways, transport terminals, bridges, tunnels,
dams etc., is also available to the sub-contractors who provide input service to these
main contractors in relation to such construction?

As per clause (1) of section 66Freference to a service by nature or description in the Act will
not include reference to a service used for providing such service. Therefore, if any person is
providing services, in respect of projects involving construction of roads, airports, railways,
transport terminals, bridges, tunnels, dams etc., such as architect service, consulting engineer
service ., which are used by the contractor in relation to such construction, the benefit of the
specified entries in the mega-exemption would not be available to such persons unless the
activities carried out by the sub-contractor independently and by itself falls in the ambit of the
exemption.

It has to be appreciated that the wordings used in the exemption are `services by way of
construction of roads etc' and not `services in relation to construction of roads etc'. It is thus


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apparent that just because the main contractor is providing the service by way of construction
of roads, airports, railways, transport terminals, bridges, tunnels, dams etc., it would not
automatically lead to the classification of services being provided by the sub-contractor to the
contractor as an exempt service.

However, a sub-contractor providing services by way of works contract to the main contractor,
providing exempt works contract services, has been exempted from service tax under the
mega exemption if the main contractor is engaged in providing exempt services of works
contracts. It may be noted that the exemption is available to sub-contractors engaged in
works contracts and not to other outsourced services such as architect or consultants.

7.11.12 What is the tax liability of a person carrying out intermediate production
process as job work for his clients?

Any process amounting to manufacture or production of goods is in the negative list. If process
does not amount to manufacture or production of goods, and is further not covered in clause
30 of the mega notification, the same is liable to service tax.

7.11.13 Whether service tax is leviable on telephone services rendered by M/s. BSNL
through Village Panchayat Telephone (VPT) with local call facility, as M/s. BSNL is a
public sector unit and telephones run by it cannot be treated as `departmentally run
telephones'?

As per Sl. No. 32 of the mega-exemption Notification in addition to exemption to
`departmentally run telephones' there is exemption for `Guaranteed Public Telephone operating
only for local calls' also. Village Public Telephones (VPTs) with facility of local calls (without 9
dialing facility or STD facility) run by BSNL would fall under the category of `Guaranteed Public
Telephone operating only for local calls'.

7.11.14 I am in the business of running a chain of restaurants. I intend to sell my
business. Am I required to pay service tax?

Services by way of transfer of a going concern, as a whole or an independent part thereof,
are exempt from service tax. Therefore, you are not required to pay service tax on such sale
of your business. Sale of assets of a business that has closed will be outside the definition of
"service"

7.11.15 What does the term `transfer of a going concern' mean?

Transfer of a going concern means transfer of a running business which is capable of being
carried on by the purchaser as an independent business, but shall not cover mere or
predominant transfer of an activity comprising a service. Such sale of business as a whole
will comprise comprehensive sale of immovable property, goods and transfer of unexecuted
orders, employees, goodwill etc. Since the transfer in title is not merely a transfer in title of
either the immovable property or goods or even both it may amount to service and has thus
been exempted.


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7.11.16 Footwear Association of India is organizing a business exhibition in Germany
for footwear manufacturers of India. Is Footwear association of India required to pay
service tax on services to footwear manufacturers?

No. The activity is exempt from service tax.

7.11.17 I am resident in Jammu and Kashmir and planning to construct a property in
Delhi. I have got the architectural drawings made from an architect who is also
resident in Jammu and Kashmir. Am I liable to pay service tax on architect services?

No. Even though the property is located in Delhi- in a taxable territory- your architect is exempt
from service tax as both the service provider and the service receiver is in a non-taxable
territory.

7.11.18 I am an individual receiving services from a service provider located in non-
taxable territory. Am I required to pay service tax?

If you are using these services in relation to any purpose other than commerce, industry or
any other business or profession, you are required to pay tax under reverse charge, unless
you are otherwise exempt. If use is for any other purpose, you are exempt from service tax.

_____________________________________________________________________

                                               *****




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  Guidance Note 8 ­ Valuation

With the introduction of system of taxation of services based on the negative list there has
been no fundamental change in the manner of valuation of service for the purpose of payment
of service tax. The broad scheme remains the same barring some marginal changes carried
out to align the scheme of valuation of taxable services and the Service Tax (Determination of
Value) Rules, 2006 with the new system of taxation. Broadly these changes in the Valuation
Rules are as follows:-

    ·    As compared to the existing two schemes for valuation of works contract services ­
         one under the rule 2A of the Valuation Rules and second under the Works Contract
         (Composition Scheme for Payment of Service Tax) Rules 2007 has been replaced
         with a unified scheme under the new rule 2A of Service Tax (Determination of Value)
         Rules, 2006.

    ·    A new Rule 2C has been inserted for determining the value of service involved in
         supply of food or any other article of human consumption or any drinks in a restaurant
         or as outdoor catering. The existing scheme of determination of value of such services
         through prescribed abatements in various exemption notifications has been done
         away with.

    ·    There are certain changes in rule 6 of the Service Tax (Determination of Value)
         Rules, 2006.

    ·    All notifications that prescribed the abatements for working out the taxable value
         from the gross amount charged have been merged into one single exemption
         notification i.e., notification no. 26/2012- ST dated 20/6/12.

The broad scheme of valuation and provisions of Valuation Rules have been explained through
a set of examples, questions and answers below.

8.1. Broad Scheme of Valuation.

8.1.1 How is value of service relevant for the purpose of payment of service tax?

In terms of the charging provisions contained in Section 66B, service tax is levied @ 12% on
the value of taxable services. Therefore, value of service provided is relevant for determining
the amount of service tax payable when a taxable service is provided by a person to another.

8.1.2 What is the value on which service tax is to be paid?

The manner of value of service is provided in Section 67. As per sub-section (1) of Section
67 wherever Service Tax is chargeable on any taxable service with regard to its value then its
value shall-


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    (i)   in a case where the provision of service is for a consideration in money, be the
          gross amount charged by the service provider for such service provided or to be
          provided by him;

    (ii) in a case where the provision of service is for a consideration not wholly or partly
         consisting of money, be such amount in money as, with the addition of service tax
         charged, is equivalent to the consideration;

    (iii) in a case where the provision of service is for a consideration which is not
          ascertainable, be the amount as may be determined in the prescribed manner.

8.1.3 If the gross amount charged is inclusive of service tax payable then would
service tax be chargeable on the gross amount?

No. As per sub-section (2) of section 67 where the gross amount chargeable by the service
provider is inclusive of service tax payable then the value of such taxable service shall be
such amount as, with the addition of such tax payable , is equal to the gross amount charged.
For example if the gross amount charged for provision of service is Rs.1500 then the value of
taxable service would be Rs.1339.29 (1500 x 100/112) as after including the tax payable at
Rs.1339.29 @ 12% (which works out to Rs.160.71) the total amount (1339.29 + 160.71)
comes to Rs.1500.

8.1.4 Is it necessary that gross amount charged should have been received by the
service provider prior to provision of service?

No. As per sub-section (3) of Section 67 the gross amount charged includes any amount
received towards the taxable service before during or after the provision of such service.

8.1.5 What is the meaning of `consideration' referred to in sub clause (1) Section 67?

The concept of consideration comes from the very root of the definition of service contained
in clause (44) of section 65B as per which service has been defined as an activity carried out
by a person for another `for consideration'.

For detailed discussion on consideration please refer to Point 2.2 of this Guide. The
consideration could be monetary or non-monetary.

8.1.6 If provision of service is for the consideration for money then what will be the
manner of determining the value of taxable service?

In terms of clause (i) of sub-section (1) of Section 67 in case provision of service is for
consideration in money, then the value of taxable service shall be the gross amount charged
by the service provider for such service provided or agreed to be provided by him.




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8.1.7 What is the meaning of `gross amount charged'?

`Gross amount charged' has been defined in Explanation (c) of Section 67 to include payment
by cheque, credit card, deduction from account and any form of payment by issue of credit
notes or debit notes and book adjustment, and any amount credited or debited, as the case
may be, to any account, whether called "Suspense account" or by any other name, in the
books of account of a person liable to pay service tax, where the transaction of taxable service
is with any associated enterprise.

8.1.8 What is the manner of determining the value of non-monetary consideration?

As per clause (ii) of sub-section (1) of section 67 of the Act where the consideration received
is not wholly or partly consisting of money the value of taxable service shall be the equivalent
money value of such consideration. If the same is not ascertainable then the value of such
consideration is determined under clause (iii) of section 67 read with rule 3 of the Service Tax
(Determination of the value) Rules 2006 as follows:-

    ·    On the basis of gross amount charged for similar service provided to other person
         in the ordinary course of trade;

    ·    Where value cannot be so determined, the equivalent money value of such
         consideration, not less than the cost of provision of service.

8.1.9. As per clause (iii) of sub-section (1) of Section 67 in cases where provision of
service is for a consideration which is not ascertainable then the value of taxable
service shall be the amount as it may be determined in the prescribed manner. What
are the situations where consideration is not ascertainable and what is the manner
for determining the value in such cases are prescribed?

There may be several situations wherein it may be difficult to determine the consideration
received by service provider for provision of a service. Such situations can arise on account
of several factors such as consideration of service being embedded in the total amount
received as consideration for a composite activity involving elements of provisions of service
and element of sale of goods or consideration for service being included in the gross amount
charged for a particular transaction or consideration of service being wholly or partly in the
nature of non-monetary consideration.

The manner has been prescribed under Service Tax (Determination of Value) Rules 2006.
These rules inter-alia provide provisions in respect of the following situations:
    ·    Determination of value of service portion involved in execution of works contract.
    ·    Determination of value of service in relation to money changing.
    ·    Determination of value of service portion involved in supply of food and any other
         article of human consumption or any drinks in a restaurant or as outdoor catering.
    ·    Determination of value where such value is not ascertainable.


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    ·    The said rules also specify certain expenditures or costs that are incurred by the
         service provider which have to be included or excluded
    ·    The said rules also specify certain commissions or costs that are received by the
         service provider that have to be included or excluded while arriving at the taxable
         value.

In addition to the Service Tax (Determination of Value) Rules 2006, certain sub-rules in rule 6
of the Service Tax Rules, 1994 also provide simplified compounded mechanism for
determination of value of taxable services in specified situations.

These specified aspects of determination of value under the Service Tax (Determination of
Value) Rules 2006 and the Service Tax Rules, 1994 have been dealt individually with in point
nos. 8.2 to 8.7 below.

8.1.10 In addition to the two set of rules explained in point no 8.1.9 above, that have
a bearing on the valuation of services, are there any exemption notifications that
exempt certain portion of the gross amount charged from levy of service tax or in
other words provide for abatements to arrive at the value of taxable services?

Yes. Earlier there were a number of exemption notifications that prescribed the abatements
for various categories of services. As another measure of simplification now all such
abatements for specified category of services have been merged into a single notification no
26/2102 ­ ST dated 20/6/12 which has been dealt with in point no. 8.8 below.

8.2 Valuation of service portion in execution of a works contract

Works contract has been defined in clause (54) of section 65B of the Act. Typically every
works contract involves an element of sale of goods and provision of service. It is a well
settled position of law, declared by the Supreme Court in BSNL`s case [2006(2) STR 161
(SC)], that a works contract can be segregated into a contract of sale of goods and contract
of provision of service. With a view to bring certainty and simplicity the manner of determining
the value of service portion in works contracts has been provided in Rule 2A of the Service
Tax (Determination of Value) Rules, 2006. In order to align this rule with the new system of
taxation of services based on the negative list the old Rule 2A has been replaced by a new
rule by the Service Tax (Determination of Value) Second Amendment Rules, 2012. The new
provisions have been explained in this note

8.2.1 What is the manner of determination of value of service portion in execution of
a works contract from the total contract?

The manner for determining the value of service portion of a works contract from the total
works contract is given in Rule 2A of the Service Tax (Determination of Value) Rules, 2006.
As per sub-rule (i) of the said Rule 2A the value of the service portion in the execution of a




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works contract is the gross amount charged for the works contract less the value of transfer of
property in goods involved in the execution of the said works contract.

 Gross amount includes                          Gross amount does not include

 Labour charges for execution of the works   Value of transfer of property in goods involved in the
                                             execution of the said works contract.
 Amount paid to a sub-contractor for labour Note:
 and services                                As per Explanation (c) to the said sub-rule (i), where value
                                             added tax or sales tax has been paid or payable on the
 Charges for planning, designing and         actual value of property in goods transferred in the execution
 architect's fees                            of the works contract, then such value adopted for the
 Charges for obtaining on hire or otherwise, purposes of payment of value added tax or sales tax, shall
 machinery and tools used for the execution be taken as the value of property in goods transferred in the
 of the works contract                       execution of the said works contract.
 Cost of consumables such as water,
 electricity, fuel, used in the execution of
 the works contract

 Cost of establishment of the contractor        Value Added Tax (VAT) or sales tax, as the case may be,
 relatable to supply of labour and services     paid, if any, on transfer of property in goods involved in the
 and other similar expenses relatable to        execution of the said works contract
 supply of labour and services

 Profit earned by the service provider
 relatable to supply of labour and services


8.2.2. Is there any simplified scheme for determining the value of service portion in a
works contract?

Yes. The scheme is contained in the clause (ii) of rule 2A of the Service Tax (Determination of
Value) Rules, 2006.

As per this scheme the value of the service portion, where value has not been determined in
the manner as provided in clause (i) of rule 2A (explained in point 8.2.1 above), shall be
determined in the manner explained in the table below -

 Where works contract is for...                     Value of the service portion shall be...

 (A) execution of original works                    forty percent of the total amount charged for the
                                                    works contract

 (B) maintenance or repair or reconditioning        seventy per cent of the total amount charged
 or restoration or servicing of any goods           including such gross amount

 (C) in case of other works contracts, not          sixty percent of the total amount charged for the
 included in serial nos. (A) and (B) above,         works contract
 including contracts for maintenance, repair,
 completion and finishing services such as
 glazing, plastering, floor and wall tiling,
 installation of electrical fittings.

Important ­ As per the Explanation (II) to clause (ii) of rule 2A of the said Rules `total amount'
referred to in the second column of the table above would be the sum total of gross amount
charged for the works contract and the fair market value of all goods and services supplied in

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or in relation to the execution of works contract, under the same contract or any other contract,
less (i) the amount charged for such goods or services provided by the service receiver; and
(ii) the value added tax or sales tax, if any, levied to the extent they form part of the gross
amount or the total amount, as the case may be.

8.2.3 How is the fair market value of goods or services, so supplied, be determined
to arrive at the total amount charged for a works contract?

As per the proviso to Explanation (II) to clause (ii) of rule 2A of the Valuation Rules the fair
market value of the goods or services so supplied shall be determined in accordance with
the generally accepted accounting principles.

8.2.4. What are `'original works'?

As per Explanation (I) to clause (ii) of rule 2A of the Valuation Rules `Original works' means :

     ·     all new constructions;

     ·      all types of additions and alterations to abandoned or damaged structures on land
           that are required to make them workable;

     ·     erection, commissioning or installation of plant, machinery or equipment or structures,
           whether pre-fabricated or otherwise.

8.2.5 Can the manner of determination of `total amount charged' be explained by
way of a suitable example?

The manner of arriving at the `total amount charged' is explained with the help of the following
example pertaining to works contract for execution of `original works'.

 S. No.    NOTATION                                                                         AMOUNT (in Rs.)

 1         Gross amount received excluding taxes                                            95,00,000

 2         Fair market value of goods supplied by the service receiver excluding taxes 10,00,000

 3         Amount charged by service receiver for 2                                         5,00,000

 4         Total amount charged (1+2-3)                                                     1,00,00,000

 5         Value of service portion(40% of 4 in case of original works)                     40,00,000

Note: When the service provider pays partially or fully for the materials supplied by the service receiver, gross
amount charged would inevitably go higher by that much amount.




8.3 Determination of value of service in relation to money changing
In services of money changing including sale and purchase of foreign currency the problem of
valuation arises on account of the fact that as per normal trade practice in such services the
consideration is inbuilt in the difference between the selling/buying rates and the Reserve
Bank of India (RBI) reference rate for that currency at that time. Accordingly a separate Rule
2B provides for the manner of determination of value of service in relation to money changing.


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8.3.1 Would sale and purchase of foreign currency or money changing not be
excluded from the definition of service as being transaction only in money?

No. As per Explanation 2 to clause (44) of Section 65B, which defines `service', activity of
conversion of one currency into another for which a separate consideration is charged would
not get tantamount to a transaction only in money. In transactions of sale and purchase of
foreign currency or money changing since a separate consideration is charged these would
not be excluded from the definition of `service'.

8.3.2 What is the manner of determination of value of service in relation to money
changing including sale and purchase of foreign currency?

If a currency is exchanged from or to Indian Rupees then, as per Rule 2B of the Valuation
Rules, the value of taxable service shall be equal to the difference in the buying rate or the
selling rate, as the case may be, and the RBI reference rate for that currency. For example if
US$ 1000 are sold by a customer @ Rs55 per US$ and RBI reference rate for US$ is Rs.55.73
then the taxable value shall be Rs.730 (1000 x 0.73).

8.3.3 How would the value be determined if the RBI reference rate for a currency is
not available?

As per the first proviso to Rule 2B in case RBI reference rate for a currency is not available
the value shall be 1% of the gross amount of Indian Rupees provided or received by the
person changing the money.

8.3.4 How would the value of taxable service be determined if foreign currency is
exchanged for another foreign currency?

These situations are dealt with in second proviso to Rule 2B as per which in such situations
the value of taxable service shall be equal to 1% of the lesser of the two amounts the person
changing the money would have received by converting one of the currencies into Indian
Rupees on that day at the reference rate provided by RBI.

8.4 Valuation of service portion involved in supply of food or any other
article of human consumption or any drink in a restaurant or as
outdoor catering.
In terms of article 366(29A) of the Constitution of India supply of any goods, being food or any
other article of human consumption or any drink (whether or not intoxicating) in any manner as
part of a service for cash, deferred payment or other valuable consideration is deemed to be
a sale of such goods. Such a service therefore cannot be treated as service to the extent of
the value of goods so supplied. The remaining portion however constitutes a service. It is a
well settled position of law, declared by the Supreme Court in BSNL`s case
[2006(2)STR161(SC)], that such a contract involving service along with supply of such goods
can be dissected into a contract of sale of goods and contract of provision of service. Since
normally such an activity is in the nature of composite activity, difficulty arises in determining
the value of the service portion. In order to ensure transparency and standardization in the
manner of determination of the value of such service provided in a restaurant or as outdoor
catering a new rule 2C has been inserted in the Service Tax (Determination of Value) Rules,

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2006 by the amendment rules of 2012. This manner of valuation is explained in the points
below.

8.4.1 Are services provided by any kind of restaurant, big or small, covered by the
manner of valuation provided in Rule 2C of the Valuation Rules?

Yes. Although services provided by any kind of restaurant would be valued in the manner
provided in Rule 2C, it may be borne in mind that the following category of restaurants are
exempted ­

    ·    Services provided in relation to serving of food or beverages by a restaurant, eating
         joint or a mess, other than those having the facility of air-conditioning or central air-
         heating in any part of the establishment, at any time during the year, and which has
         a license to serve alcoholic beverage.

    ·    Below the threshold exemption

8.4.2. How is the value of service portion to be determined in supply of food or any
other article of human consumption or any drink in a restaurant or as outdoor
catering?

The manner of determination of service portion in such an activity is very simple and is given
in Rule 2C of the the Service Tax (Determination of Value) Rules, 2006. In terms of the said
rule value of the service portion shall be determined in the following manner-

 Value of service portion in an              Shall be ..... percent of the total amount
 activity wherein goods, being               charged:
 food or any other article of
 human consumption or any
 drink (whether or not
 intoxicating) is supplied in
 any manner.....
 In a restaurant                             40
 As part of outdoor catering                 60


Important - As per Explanation 1 to the said Rule 2C `Total amount' (referred to in the second
column of the table above) means the sum total of gross amount charged and the fair market
value of all goods and services supplied by the service receiver in or in relation to the supply
of food or any other article of human consumption or any drink (whether or not intoxicating),
under the same contract or any other contract, less (i) the amount charged for such goods or
services provided by the service receiver; and (ii) the value added tax or sales tax, if any,
levied to the extent they form part of the gross amount or the total amount, as the case may
be.

The clarification given in point no 8.2.5 above would, mutatis mutandis, apply to valuation in
this case also.



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8.4.3. What are the restrictions, if any, on availment of Cenvat credit by such service
providers?
In terms of the Explanation2 to Rule 2C of the Valuation Rules any goods meant for human
consumption classifiable under chapters 1 ­ 22 of Central Excise Tariff are not `inputs' for
provision of such service. Cenvat Credit is, therefore, not available on these items. Availability
of Cenvat credit on other inputs, input services and capital goods would be subject to the
provisions of the Cenvat Credit Rules, 2004 including the provisions relating to reversal of
credits contained in rule 6 of the said rules. It may be noted the sale of food in the restaurant
would amount to clearance of exempt goods and thus the provisions of Rule 6 of Cenvat
Credit Rules will be applicable.
8.4.4 Would Rule 2C of the Valuation Rules also apply to determination of value of
service portion in cases of supply of food or any other article of human consumption
or any drink, in a premises, including hotel, convention center, club, pandal, shamiana
or any place specially arranged for organizing a function?
No. Rule 2C applies only in cases of restaurants and outdoor catering. For valuation of service
portion where such supplies are made in any other premises like hotel, convention center,
club, pandal, shamiana or any place specially arranged for organizing a function an abatement
of 30% has been provided for in exemption notification no 26/2012-ST dated 20/6/12. For
details please refer to serial no. 4 of the table in point no 8.8 below.

8.5 Inclusion or exclusion from value of certain expenditure or costs
borne by the service provider.
Rule 5 of Service Tax (Determination of Value) Rules, 2012 lays down the details of expenditure
and cost borne by the service provider which have to be included or excluded while determining
the value of taxable service.

8.5.1 What is the expenditure or costs that are to be included in the value of taxable
services as per rule 5 of the Valuation Rules?

As per Rule 5 any expenditure or cost that are incurred by the service provider in the course
of providing taxable services are treated as consideration for taxable service provided or
agreed to be provided and shall be included in the value for the purpose of charging Service
Tax on the said service.

However, Explanation to sub-rule (1) of Rule 5 clarifies that for the value of telecommunication
services shall be the gross amount paid by the person to whom the service is actually provided
(i.e. the subscriber).

8.5.2 Which costs or expenditure is to be excluded from the value of taxable service
as per Rule 5?

As per sub rule (2) of Rule 5 the expenditure or cost incurred by the service provider as a pure
agent of the recipient of the service shall be excluded from the value of taxable service if all
the following conditions are satisfied:

     ·    the service provider acts as a pure agent of the recipient of service when he makes
          payment to third party for the goods or services procured;
                                               117
    ·    the recipient of service receives and uses the goods or services so procured by the
         service provider in his capacity as pure agent of the recipient of service;
    ·    the recipient of service is liable to make payment to the third party;
    ·    the recipient of service authorises the service provider to make payment on his
         behalf;
    ·    the recipient of service knows that the goods and services for which payment has
         been made by the service provider shall be provided by the third party;
    ·    the payment made by the service provider on behalf of the recipient of service has
         been separately indicated in the invoice issued by the service provider to the recipient
         of service;
    ·    the service provider recovers from the recipient of service only such amount as has
         been paid by him to the third party; and
    ·    the goods or services procured by the service provider from the third party as a
         pure agent of the recipient of service are in addition to the services he provides on
         his own account.

8.5.3 What is the meaning of pure agent?

Pure agent has been defined in Explanation to sub-rule 2 of Rule (5) of the Valuation Rules as
a person who-

    ·    enters into a contractual agreement with the recipient of service to act as his pure
         agent to incur expenditure or costs in the course of providing taxable service;

    ·    neither intends to hold nor holds any title to the goods or services so procured or
         provided as pure agent of the recipient of service;

    ·    does not use such goods or services so procured; and

    ·    receives only the actual amount incurred to procure such goods or services.

8.6 Cases in which commission, costs etc. received by the service
provider will be included or excluded.
Rule 6 of the Valuation Rules deals with specific situation where certain commission or costs
received by the service provider would be included as part of the taxable service.

INCLUSIONS

    ·    the commission or brokerage charged by a broker on the sale or purchase of
         securities including the commission or brokerage paid by the stock-broker to any
         sub-broker;

    ·    the adjustments made by the telegraph authority from any deposits made by the
         subscriber at the time of application for telephone connection or pager or facsimile
         or telegraph or telex or for leased circuit;

                                              118
    ·   the amount of premium charged by the insurer from the policy holder;

    ·   the commission received by the air travel agent from the airline;

    ·   the commission, fee or any other sum received by an actuary, or intermediary or
        insurance intermediary or insurance agent from the insurer;

    ·   the reimbursement received by the authorised service station, from manufacturer
        for carrying out any service of any motor car, light motor vehicle or two wheeled
        motor vehicle manufactured by such manufacturer;

    ·   the commission or any amount received by the rail travel agent from the Railways or
        the customer;

    ·   the remuneration or commission, by whatever name called, paid to such agent by
        the client engaging such agent for the services provided by a clearing and forwarding
        agent to a client rendering services of clearing and forwarding operations in any
        manner;

    ·   the commission, fee or any other sum, by whatever name called, paid to such agent
        by the insurer appointing such agent in relation to insurance auxiliary services
        provided by an insurance agent; and

    ·   the amount realized as demurrage or by any other name whatever called for the
        provision of service beyond the period originally contracted or in any other manner
        relatable to the provision of service.

EXCLUSIONS

    ·   initial deposit made by the subscriber at the time of application for telephone
        connection or pager or facsimile (FAX) or telegraph or telex or for leased circuit;

    ·   the airfare collected by air travel agent in respect of service provided by him;

    ·   the rail fare collected by [rail travel agent] in respect of service provided by him;

    ·   interest on delayed payment of any consideration for the provision of services or
        sale of property, whether moveable or immoveable;

    ·   the taxes levied by any Government on any passenger travelling by air, if shown
        separately on the ticket, or the invoice for such ticket, issued to the passenger;

    ·   accidental damages due to unforeseen action not relatable to the provision of
        service;

    ·   subsidies or grants disbursed by the Government, not in the nature of directly
        influencing the value of service.

(italics indicate the additions made in the Service Tax (Determination of Value) Second
Amendment, Rules, 2012)


                                             119
8.6.1. Does the interest for delayed payment for provision of a service includable in
the taxable value?

No. In terms of clause (iv) of Sub-rule 2 of Rule 6 delayed payments of any consideration for
provision of service is excluded from the value of taxable service.

8.6.2. What is the scope of the exclusion entry related to accidental damages due to
unforeseen actions not relatable to the provisions of service?

This inclusion has been inserted vide the Serviced Tax (Determination of Value) Second
Amendment Rules, 2012. In terms of this exclusion accidental damages are not to be included
in the value of service provided the following two conditions are specified:

         The damages are due to unforeseen actions.

         The damages are not related to provisions of service.

Examples-

    ·    Insurance Companies provide insurance services to the clients for which the premium
         is charged. The premium charged is a consideration for the insurance service
         provided. However, in case due to an unforeseen action ,like an accident etc., a
         compensation is paid by the insurance company to the client then the money would
         not be included as part of value of taxable service as it is not relatable to the provisions
         of service but is only in the nature of consequence of provisions of insurance service.

    ·    In case a landlord who has rented out his office building to a tenant receives
         compensation from the tenant for the damage caused to the building by an
         unforeseen action then such compensation would not form part of the value of taxable
         service related to tenant of his building as an unforeseen damage caused by the
         tenant is not relatable to provision of service of renting of the office building.

8.6.3. What is the scope of the exclusion entry relating to subsidies and grants
disbursed by the Government, not in the nature or directly influencing the value of
service?

This exclusion entry has also been inserted by the Service Tax (Determination of Value) Second
Amendment Rules, 2012. A subsidy influences the price directly when the price goes down
proportionately to the amount of subsidy. In terms of this exclusion any subsidy or grant
disbursed by the Government cannot form part of the value of taxable service unless such
subsidy or grant directly influences the value of such service.

8.7. Compounding schemes for determination of value under the
Service Tax Rules, 1994.
In addition to the Service Tax (Determination of Value) Rules, 2006 various sub-rules Rule (6)
of the Service Tax 1994 also provides for simplified compounding mechanism for determining
the amount of service tax payable. These sub-rules either specify the service tax payable as
a certain percentage of the gross amount of a specified sum received by the service provider
or also provide for manner of determination of value of taxable service for other specified

                                                120
services. This facility is normally available as an option to the person responsible to pay
service tax. These compounding schemes are tabulated below:
 Sub-rule Specified service       Compounding scheme                      Conditions
 of rule 6
 (7)       Services provided by   Pay an amount calculated at the         Option, once exercised, shall
           an air travel agent    rate of 0.6% of the basic fare          apply uniformly in respect of all
                                  (i.e. that part of the fare on which    the bookings of passage for
                                  commission is normally paid to          travel by air made by him and
                                  the travel agent by the airlines)       shall not be changed during a
                                  in the case of domestic bookings,       financial year under any
                                  and at the rate of 1.2% of the basic    circumstances
                                  fare in the case of international
                                  bookings, of passage for travel by
                                  air, during any calendar month or
                                  quarter
 (7A)      An insurer carrying    Option to pay tax (i) on the gross      Option shall not be available in
           on life insurance      premium charged from a policy           cases where the entire premium
           business               holder reduced by the amount            paid by the policy holder is only
                                  allocated for investment, or savings    towards risk cover in life
                                  on behalf of policy holder, if such     insurance
                                  amount is intimated to the policy
                                  holder at the time of providing of
                                  service;
                                  (ii)in all other cases 3% of the
                                  gross amount of premium charged
                                  in the first year and 1.5% of the
                                  premium charged in the subsequent
                                  years.
 (7B)      Service of purchase    Option to pay an amount calculated      The person providing the service
           or sale of foreign     at the following rate                   shall exercise such option for a
           currency, including    (a) 0.12 per cent. of the gross         financial year and such option
           money changing,        amount of currency exchanged for        shall not be withdrawn during
           provided by a foreign an amount upto rupees 100,000,           the remaining part of that
           exchange broker,       subject to the minimum amount           financial year.
           including an           of rupees 30; and
           authorised dealer      (b) rupees 120 and 0.06 per cent.
           in foreign exchange    of the gross amount of currency
           or an authorized       exchanged for an amount of
           money changer          rupees exceeding rupees 100,000
                                  and upto rupees 10,00,000; and
                                  (c) rupees 660 and 0.012 per cent.
                                  of the gross amount of currency
                                  exchanged for an amount of rupees
                                  exceeding 10,00,000, subject to
                                  maximum amount of rupees 6000
 (7C)      Services by            Option to pay-                          1. In case of online lottery, the
           distributor or selling (i)Rs. 7000/- on every Rs. 10 Lakh      aggregate face value of lottery
           agent of promotion,    (or part of Rs. 10 Lakh) of aggregate   tickets for the purpose of this
           marketing, organising face value of lottery tickets printed    sub-rule shall be taken as the
           or in any other        by the organising State for a draw      aggregate value of tickets sold
           manner assisting       (If guaranteed prize payout is more     2. The distributor or selling
           in organising lottery, than 80%)                               agent shall exercise such
                                  (ii)Rs. 11000/- on every Rs. 10 Lakh    option within a period of one
                                  (or part of Rs. 10 Lakh) of aggregate   month of the beginning of each
                                  face value of lottery tickets printed   financial year and such option
                                  by the organising State for a draw      shall not be withdrawn during
                                  (If guaranteed prize payout is          the remaining part of the
                                  less than 80%)                          financial year.


                                                   121
8.8 Notified abatements for determining the taxable value.
All abatements available to services of specified categories have now been merged in one
exemption notification no 26/2012-ST dated 20/6/12. In terms of the said notification,
exemption is granted from so much of the service tax leviable, as is in excess of the service
tax calculated on a value which is equivalent to a percentage specified in the corresponding
entry in column (3) of the following Table, of the amount charged (or in some cases of specified
amount) by such service provider for providing the said taxable service, unless specified
otherwise, subject to the relevant conditions specified in the corresponding entry in column
(4) of the said Table:

                                                    Table

 Sl.No. Description of taxable service              %                       Conditions

 (1)                       (2)                      (3)                          (4)

 1      Services in relation to financial leasing   10      Nil.
        including hire purchase

 2      Transport of goods by rail                  30      Nil.

 3      Transport of passengers, with or            30      Nil.
        without accompanied belongings
        by rail

 4      Bundled service by way of supply            70      CENVAT credit on any goods classifiable under
        of food or any other article of human               chapter 1 to 22 of the Central Excise Tariff Act,
        consumption or any drink, in a                      1985 (5 of 1986) has not been taken under the
        premises ( including hotel,                         provisions of the CENVAT Credit Rules, 2004.
        convention center, club, pandal,
        shamiana or any other place,
        specially arranged for organizing a
        function) together with renting of
        such premises

 5      Transport of passengers by air,             40      CENVAT credit on inputs and capital goods,
        with or without accompanied                         used for providing the taxable service, has not
        belongings                                          been taken under the provisions of the CENVAT
                                                            Credit Rules, 2004.

 6      Renting of hotels, inns, guest              60      Same as above.
        houses, clubs, campsites or other
        commercial places meant for
        residential or lodging purposes

 7      Services of goods transport agency          25      CENVAT credit on inputs, capital goods and
        in relation to transportation of goods.             input services, used for providing the taxable
                                                            service, has not been taken under the provisions
                                                            of the CENVAT Credit Rules, 2004.

 8      Services provided in relation to chit       70      Same as above.

 9      Renting of any motor vehicle                40      Same as above.
        designed to carry passengers

 10     Transport of goods in a vessel              50      Same as above.


                                                     122
 Sl.No. Description of taxableservice         %      Conditions

 (1)    (2)                                   (3)    (4)

 11     Services by a tour operator in        25     (i) CENVAT credit on inputs, capital goods and
        relation to,-                                input services, used for providing the taxable
        (i) a package tour                           service, has not been taken under the provisions
                                                     of the CENVAT Credit Rules, 2004.
                                                     (ii) The bill issued for this purpose indicates that
                                                     it is inclusive of charges for such a tour.
        (ii) a tour, if the tour operator     10     (i) CENVAT credit on inputs, capital goods and
        is providing services solely of              input services, used for providing the taxable
        arranging or booking                         service, has not been taken under the provisions
        accommodation for any person                 of the CENVAT Credit Rules, 2004.
                                                     (ii) The invoice, bill or challan issued indicates
                                                     that it is towards the charges for such
                                                     accommodation.
                                                     (iii) This exemption shall not apply in such
                                                     cases where the invoice, bill or challan issued
                                                     by the tour operator, in relation to a tour, only
                                                     includes the service charges for arranging or
                                                     booking accommodation for any person and
                                                     does not include the cost of such
                                                     accommodation.

        (iii) services other than those       40     (i) CENVAT credit on inputs, capital goods and
        specified in (i) and (ii) above              input services, used for providing the taxable
                                                     service, has not been taken under the provisions
                                                      of the CENVAT Credit Rules, 2004.
                                                     (ii)The bill issued indicates that the amount
                                                     charged in the bill is the gross amount charged
                                                     for such a tour.

 12.    Construction of a complex,            25     (i) CENVAT credit on inputs used for providing
        building, civil structure or a part          the taxable service has not been taken under
        thereof, intended for a sale to a            the provisions of the CENVAT Credit Rules,
        buyer, wholly or partly except               2004.
        where entire consideration is                (ii)The value of land is included in the amount
        received after issuance of                   charged from the service recipient.
        completion certificate by the
        competent authority


8.8.1 Once the specified description of services has been done away with in the
negative list regime how would the scope of services specified by way of description
in the said notification be determined?

The services specified in the said notification, which have been tabulated in the table above,
have been so specified in self-explanatory terms. In addition certain terms that have been
used in the said notification are already defined in section 65B of the Act (like goods transport
agency, vessel, port etc) and others have been defined in the said notification itself (like chit,
package tour, tour operator and financial leasing).




                                               123
8.8.2 Would the gross amount charged for financial leasing services, including
equipment leasing and hire purchase, also include the interest amount charged for
such financial services?

The gross amount charged for this service will be sum total of the following-

    ·    10% of the amount forming or representing interest; and

    ·    Other charges such as lease management fees, processing fees, documentation
         charges and administrative fees.

8.9 Person responsible for determining the value of taxable service
8.9.1 Who is the person responsible for determining the value of taxable service?

Since Service Tax has to be paid by the persons responsible to pay Service Tax on the basis
of self-assessment for value of taxable service has to be determined by the person responsible
for payment of Service Tax in accordance with the provisions of Section 67 of the Act and
rules made there under.

8.9.2 Can the value determined by the person responsible to pay service tax be
rejected by the Department?

Yes. In terms of the provisions of Section 73 of the Finance Act 1994 and Rule 4 of Service
Tax (Determination of value) Rules 2006 the value works out by the service provider or any
other person responsible for payment of service tax can be rejected by Central Excise Officer
if he has specified that the value so determined is not in accordance with the provisions of the
act or the Valuation Rules. In such a situation the Central Excise Officer shall issue a Show
Cause Notice to the serviced provider or any other person responsible for payment of Service
Tax to Show Cause as to why the value of such taxable service for the purpose of charging
service tax should not be fixed on the amount specified in the notice. After giving reasonable
options and heard, the Central Excise Officer shall determining the value of such taxable
service for the purpose of charging service tax in accordance with the provisions of the Finance
Act 1994 and the Valuation Goods.

______________________________________________________________________

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                                              124
  Guidance Note 9 ­ Rules of Interpretation

Despite doing away with the service-specific descriptions, there will be some descriptions
where some differential treatment will be available to a service or a class of services. Section
66F lays down the principles of interpretation of specified descriptions of services and bundled
services. These are explained in paras below ­

9.1 Principles for interpretation of specified descriptions of services
Although the negative list approach largely obviates the need for descriptions of services,
such descriptions continue to exist in the following areas ­

    ·    In the negative list of services.
    ·    In the declared list of services.
    ·    In exemption notifications.
    ·    In the Place of Provision of Service Rules, 2012
    ·    In a few other rules and notifications e.g. Cenvat Credit Rules, 2004.

There are two principles laid down which are contained in clauses (1) and (2) of section 66F
of the Act.

9.1.1 What is the scope of the clause (1) of section 66F: `Unless otherwise specified,
reference to a service (hereinafter referred to as the "main service") shall not include
reference to a service which is used for providing the main service'

This rule can be best understood with a few illustrations which are given below ­

    ·    `Provision of access to any road or bridge on payment of toll' is a specified entry in
         the negative list in section 66D of the Act. Any service provided in relation to collection
         of tolls or for security of a toll road would be in the nature of service used for providing
         such specified service and will not be entitled to the benefit of the negative list entry.

    ·    Transportation of goods on an inland waterway is a specified entry in the negative
         list in section 66D of the Act. Services provided by an agent to book such
         transportation of goods on inland waterways or to facilitate such transportation would
         not be entitled to the negative list entry.

9.1.2 What is the scope of clause (1) of section 66F: `where a service is capable of
differential treatment for any purpose based on its description, the most specific
description shall be preferred over a more general description'.

This rule can also be best understood with some illustrations which are given below ­

    ·    The services provided by a real estate agent are in the nature of intermediary services
         relating to immovable property. As per the Place of Provision of Service Rule, 2012,
         the place of provision of services provided in relation to immovable property is the
         location of the immovable property. However in terms of the rule 5 pertaining to

                                                125
          services provided by an intermediary the place of provision of service is where the
          intermediary is located. Since Rule 5 provides a specific description of `estate
          agent', the same shall prevail.

     ·    Pandal and Shamiana is an existing service and will remain a subject of taxation.
          Likewise service provided by way of catering is a taxable service and entitled to
          abatement. There is abatement when the two are provided in combination. Since
          the combination is more a specific entry than the two provided individually, there is
          no need to apply the later rule of bundled services, where the character could be
          judged by the service which provides it the essential character.

9.2 Taxability of `bundled services'.

`Bundled service' means a bundle of provision of various services wherein an element of
provision of one service is combined with an element or elements of provision of any other
service or services. An example of `bundled service' would be air transport services provided
by airlines wherein an element of transportation of passenger by air is combined with an
element of provision of catering service on board. Each service involves differential treatment
as a manner of determination of value of two services for the purpose of charging service tax
is different.

Two rules have been prescribed for determining the taxability of such services in clause (3) of
section 66F of the Act. These rules, which are explained below, are subject to the provisions
of the rule contained in sub section (2) of section 66F, viz a specific description will be preferred
over a general description as explained in para 9.1.2 above.

9.2.1 Services which are naturally bundled in the ordinary course of business

The rule is ­ `If various elements of a bundled service are naturally bundled in the ordinary
course of business, it shall be treated as provision of a single service which gives such bundle
its essential character'

Illustrations -

     ·    A hotel provides a 4-D/3-N package with the facility of breakfast. This is a natural
          bundling of services in the ordinary course of business. The service of hotel
          accommodation gives the bundle the essential character and would, therefore, be
          treated as service of providing hotel accommodation.
     ·    A 5 star hotel is booked for a conference of 100 delegates on a lump sum package
          with the following facilities:
               Accommodation for the delegates
               Breakfast for the delegates,
               Tea and coffee during conference
               Access to fitness room for the delegates
               Availability of conference room
               Business centre


                                                126
As is evident a bouquet of services is being provided, many of them chargeable to different
effective rates of tax. None of the individual constituents are able to provide the essential
character of the service. However, if the service is described as convention service it is able
to capture the entire essence of the package. Thus the service may be judged as convention
service and chargeable to full rate. However it will be fully justifiable for the hotel to charge
individually for the services as long as there is no attempt to offload the value of one service
on to another service that is chargeable at a concessional rate.

9.2.2 Services which are not naturally bundled in the ordinary course of business

The rule is ­ `If various elements of a bundled service are not naturally bundled in the ordinary
course of business, it shall be treated as provision of a service which attracts the highest
amount of service tax.'

Illustrations -

    ·    A house is given on rent one floor of which is to be used as residence and the other
         for housing a printing press. Such renting for two different purposes is not naturally
         bundled in the ordinary course of business. Therefore, if a single rent deed is
         executed it will be treated as a service comprising entirely of such service which
         attracts highest liability of service tax. In this case renting for use as residence is a
         negative list service while renting for non-residence use is chargeable to tax. Since
         the latter category attracts highest liability of service tax amongst the two services
         bundled together, the entire bundle would be treated as renting of commercial
         property.

9.2.3 Significance of the condition that the rule relating to `bundled service' is subject
to the provisions of sub-section (2) of section 66F.

Sub-section (2) of section 66 lays down : `where a service is capable of differential treatment
for any purpose based on its description, the most specific description shall be preferred
over a more general description' (refer para 9.1.2 above). This rule predominates over the
rule laid down in sub-section (3) relating to `bundled services'. In other words, if a bundled
service falls under a service specified by way of a description then such service would be
covered by the description so specified. The illustration, relating to a bundled service wherein
a pandal and shamiana is provided in combination with catering service, given in the second
bullet in para 9.1.2 above explains the operation of this rule.

9.2.4 Manner of determining if the services are bundled in the ordinary course of
business

Whether services are bundled in the ordinary course of business would depend upon the
normal or frequent practices followed in the area of business to which services relate. Such
normal and frequent practices adopted in a business can be ascertained from several
indicators some of which are listed below ­

    ·    The perception of the consumer or the service receiver. If large number of service
         receivers of such bundle of services reasonably expect such services to be provided
         as a package then such a package could be treated as naturally bundled in the
         ordinary course of business.

                                              127
    ·    Majority of service providers in a particular area of business provide similar bundle
         of services. For example, bundle of catering on board and transport by air is a
         bundle offered by a majority of airlines.

    ·    The nature of the various services in a bundle of services will also help in determining
         whether the services are bundled in the ordinary course of business. If the nature of
         services is such that one of the services is the main service and the other services
         combined with such service are in the nature of incidental or ancillary services which
         help in better enjoyment of a main service. For example service of stay in a hotel is
         often combined with a service or laundering of 3-4 items of clothing free of cost per
         day. Such service is an ancillary service to the provision of hotel accommodation
         and the resultant package would be treated as services naturally bundled in the
         ordinary course of business.

    ·    Other illustrative indicators, not determinative but indicative of bundling of services
         in ordinary course of business are -

              There is a single price or the customer pays the same amount, no matter how
              much of the package they actually receive or use.

              The elements are normally advertised as a package.

              The different elements are not available separately.

              The different elements are integral to one overall supply ­ if one or more is
              removed, the nature of the supply would be affected.

No straight jacket formula can be laid down to determine whether a service is naturally bundled
in the ordinary course of business. Each case has to be individually examined in the backdrop
of several factors some of which are outlined above.

9.2.5 Manner of determination of taxability of `composite transactions' wherein an
element of provision of service is combined with an element of sale of goods

Please refer to point no 2.6.3 of this Guidance Note.

______________________________________________________________________________

                                             *****




                                              128
  Guidance Note 10 ­ Miscellaneous

10.1 Partial Reverse Charge
With effect from 1.7.2012 a new scheme of taxation is being brought into effect whereby the
liability of payment of service tax shall be both on the service provider and the service recipient.
Usually such liability is affixed either on the service provider or the service recipient, but in
specified services and in specified conditions, such liability shall be on both the service
provider and the service recipient.

The enabling provision has been provided by insertion of proviso to section 68 in the Finance
Act, 2012 as per which Central Government may notify the service and the extent of service
tax which shall be payable by such person and the provisions of Chapter V shall apply to such
person to the extent so specified and the remaining part of the service tax shall be paid by the
service provider. Under this clause the Central government has issued notification no. 30/
2012 dated 20.6.2012 notifying the description of specified services when provided in the
manner so specified where part of the service tax has to be paid by the service receiver. The
extent to which tax liability has to be discharged by the service receiver has also been specified
in the said notification.

The manner of operation of the reverse charge mechanism has been explained in this point.

10.1.1 What are the services on which such partial reverse change mechanism shall
be applicable?

In terms of serial nos. 7(b), 8 and 9 of the table in notification no. 30/2012 dated 20.6.12, the
new partial reverse charge mechanism is applicable to services provided or agreed to be
provided by way of

     (a) renting of a motor vehicle designed to carry passengers on non-abated value to any
         person who is not engaged in a similar business, or

     (b) supply of manpower for any purpose, or

     (c) service portion in execution of a works contract;

          by any individual, Hindu Undivided Family or partnership firm, whether registered
          or not, including association of persons, located in the taxable territory to a business
          entity registered as a body corporate located in the taxable territory. Thus the nature
          of the service and the status of both the service provider and service receiver are
          important to determine the applicability of partial reverse charge provisions.

10.1.2 What does a service provider need to indicate on the invoice when he is liable
to pay only a part of the liability under the partial reverse charge mechanism?

The service provider shall issue an invoice complying with Rule 4A of the Service Tax Rules
1994. Thus the invoice shall indicate the name, address and the registration number of the
service provider; the name and address of the person receiving taxable service; the description


                                                129
and value of taxable service provided or agreed to be provided; and the service tax payable
thereon. As per clause (iv) of sub-rule (1) of the said rule 4A `'the service tax payable thereon'
has to be indicated. The service tax payable would include service tax payable by the service
provider.

10.1.3 If the service provider is exempted being a SSI (turnover less than Rs 10 lakhs),
how will the reverse charge mechanism work?

The liability of the service provider and service recipient are different and independent of
each other. Thus in case the service provider is availing exemption owing to turnover being
less than Rs 10 lakhs, he shall not be obliged to pay any tax. However, the service recipient
shall have to pay service tax which he is obliged to pay under the partial reverse charge
mechanism.

10.1.4 Will the credit of such tax paid be available to the service recipient?

Normally, the credit of the entire tax paid on the service received by the service receiver
would be available to the service recipient subject to the provisions of the CENVAT Credit
Rules 2004. The credit of tax paid by the service provider would be available on the basis of
the invoice subject to the conditions specified in the CENVAT Credit Rules 2004. The credit
of tax paid by the service recipient under partial reverse charge would be available on the
basis on the tax payment challan, again subject to conditions specified in the said Rules.

10.1.5 What shall be the point of taxation for the service recipient? When will he need
to pay the service tax in respect of his liability?

Both the service provider and service recipient are governed by the Point of Taxation Rules
2011 in respect of the service provided or received by him. Usually it is the invoice or date of
receipt of payment which is the point of taxation for the service provider. However for the
service recipient, in terms of rule 7 of the said rules, point of taxation is when he pays for the
service. Thus in the case where the invoice is issued in say July 2012 and the service recipient
pays for the same in August 2012 the point of taxation for the service provider will be the date
of issue of invoice in July 2012. The point of taxation for the service recipient shall be the date
of payment in August 2012. The service provider would be required to pay tax (to the extent
liability is affixed on him) by 5th/6th August, 2012 or 5th/6th October 2012 depending upon the
admissibility of benefit under the proviso to rule 6 of the Service Tax Rules 1994. The service
recipient would need to pay tax (to the extent liability is affixed on him) by 5th/6th September
2012.

10.1.6 How is the service recipient required to calculate his tax liability under partial
reverse charge mechanism? How will the service recipient know which abatement
or valuation option has been exercised by the service provider?

The service recipient would need to discharge liability only on the payments made by him.
Thus the assessable value would be calculated on such payments done (Free of Cost material
supplied and out of pocket expenses reimbursed or incurred on behalf of the service provider
need to be included in the assessable value in terms of Valuation Rules). The invoice raised
by the service provider would normally indicate the abatement taken or method of valuation
used for arriving at the taxable value. However since the liability of the service provider and


                                               130
service recipient are different and independent of each other, the service recipient can
independently avail or forgo an abatement or choose a valuation option depending upon the
ease, data available and economics.

10.1.7 Is the reverse charge applicable on services provided and complete before
1.7.2012 though payments were made after 1.7.2012?

For any service whose point of taxation has been determined and whole liability affixed before
1.7.2012 the new provisions will not apply. Merely because payments are being made after
1.7.2012 will not add any additional liability on the service receiver in respect of such services.

10.2 Export of Services
10.2.1 What does the export of a service mean under the new system?

Export of services shall now be governed by new provisions in the Service Tax Rules 1994,
namely rule 6A. The essential requisites before a service can be designated as export service
are:

     ·    It must be a service as defined under sub-section 44 of section 65B
     ·    by a service provider located in the taxable territory
     ·    to a service receiver located outside India
     ·    the service is not a service specified in the negative list
     ·    the place of provision of the service is outside India
     ·    the payment for such service is received by the service provider in convertible foreign
          exchange
     ·    the service provider and service receiver are not merely establishments of a distinct
          person by virtue of item (b) of Explanation 2 of clause 44 of section 65B of the Act

The answer to all questions above must be yes to avail the status of export of service.

10.2.2 Can there be an export between an establishment of a person in taxable
territory and another establishment of same person in a non-taxable territory?

No. Even though such persons have been specified as distinct persons under the explanation
to clause (44) of section 65B, the transaction between such establishments have not been
recognized as exports under the above stated rule.

10.3 ISD: Input Service Distributor
The facility of registering as an input service distributor exists to allow businesses to operate
at their convenience and allow centralized procurement of services and the distribution of
credit to units where such services are used. The provisions have been slightly altered in
Budget 2012 to align the practice with the intent stated above.




                                               131
10.3.1 Credit of which services can be distributed?

Credit of only "input services" can be distributed. Hence a service procured needs to be
assessed whether it is an "input service" at any of the units of the ISD. Only if it qualifies as an
"input service" it can be distributed. Further the credit of service tax attributable to service
used in a unit exclusively engaged in manufacture of exempted goods or providing of exempted
services cannot be distributed.

10.3.2 How do I calculate the credit to be distributed?

While the status of the service as "input service" is ascertained, the units where it is used is
also ascertained. The credit of a service used exclusively in one unit can be distributed only
to that unit. If it is used in more than one unit, the credit can be distributed proportionate to the
turnover of the units. The total turnover shall be determined in the same manner as determined
under rule 5 and shall be determined for the month previous to the month during which the
CENVAT credit is distributed. In case if any of its unit pays tax or duty on quarterly basis as
provided in rule 6 of Service Tax Rules, 1994 or rule 8 of Central Excise Rules, 2002 then the
relevant period shall be the quarter previous to the quarter during which the CENVAT credit is
distributed. The turnover so calculated would be ex-duty i.e not inclusive of the taxes and
duties on the goods and services supplied.

e.g. a company manufactures fans in 2 units and other appliances in 2 other units.
Advertisement services for fans would qualify as an input service for the units manufacturing
fans and hence could be distributed to such units based on the turnover of the previous month
of the 2 units.

10.3.3 How do I distribute credit in a new unit when there is no turnover?

In case of an assessee who does not have any total turnover in the said period as in the case
of a new company, the ISD shall distribute any credit only after the end of such relevant period
wherein the total turnover of its units are available. In case of a new unit wherein any credit is
exclusively used, the credit can be distributed in total to such unit.

10.3.4 Will such credit which is distributed need to be reversed on account of any
exempted turnover?

Credit so distributed is availed on the strength of a challan issued by the ISD. It shall be
subject to rule 6 of CENVAT Credit Rules 2004 and depending upon the option exercised
under the rule 6 due reversals will be required to be effected by the unit to which the credit has
been distributed.

______________________________________________________________________________

                                                *****




                                                132
      Exhibit A1 : Negative List of Services.

(a) Services by Government or a local authority excluding the following services to the extent
    they are not covered elsewhere:

       (i)   services by the Department of Posts by way of speed post, express parcel post, life
             insurance, and agency services provided to a person other than Government;

       (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a
            port or an airport;

       (iii) transport of goods or passengers; or

       (iv) support services, other than services covered under clauses (i) to (iii) above, provided
            to business entities.

(b) Services by the Reserve bank of India.

(c) Services by a foreign diplomatic mission located in India.

(d) Services relating to agriculture or agricultural produce by way of ­

       (i)   agricultural operations directly related to production of any agricultural produce
             including cultivation, harvesting, threshing, plant protection or seed testing;

       (ii) supply of farm labour;

       (iii) processes carried out at an agricultural farm including tending, pruning, cutting,
             harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading,
             cooling or bulk packaging and such like operations which do not alter essential
             characteristics of agricultural produce but make it only marketable for the primary
             market;

       (iv) renting or leasing of agro machinery or vacant land with or without a structure
            incidental to its use;

       (v) loading, unloading, packing, storage or warehousing of agricultural produce;

       (vi) agricultural extension services;

       (vii) services by any Agricultural Produce Marketing Committee or Board or services
             provided by a commission agent for sale or purchase of agricultural produce.

(e) Trading of goods.

(f)    Any process amounting to manufacture or production of goods.

(g) Selling of space or time slots for advertisements other than advertisements broadcast
    by radio or television.

(h) Service by way of access to a road or a bridge on payment of toll charges.

                                                  133
(i)   Betting, gambling or lottery.
(j)   Admission to entertainment events or access to amusement facilities.
(k) Transmission or distribution of electricity by an electricity transmission or distribution
    utility.
(l)   Services by way of ­
      (i)   pre-school education and education up to higher secondary school or equivalent;
      (ii) education as a part of a curriculum for obtaining a qualification recognized by law;
      (iii) education as a part of an approved vocational education course.
(m) Services by way of renting of residential dwelling for use as residence;
(n) Services by way of ­
      (i)   extending deposits, loans or advances in so far as the consideration is represented
            by way of interest or discount;
      (ii) inter-se sale or purchase of foreign currency amongst banks or authorized dealers
           of foreign exchange or amongst banks and such dealers;
(o) Service of transportation of passengers, with or without accompanied belongings, by ­
      (i)   a stage carriage;
      (ii) railways in a class other than ­
            (A) first class; or
            (B) an air conditioned coach;
      (iii) metro, monorail or tramway;
      (iv) inland waterways;
      (v) public transport, other than predominantly for tourism purpose, in a vessel between
          places located in India; and
      (vi) metered cabs, radio taxis or auto rickshaws;
(p) Services by way of transportation of goods ­
      (i)   by road except the services of ­
            (A) a goods transportation agency; or
            (B) a courier agency;
      (ii) by an aircraft or a vessel from a place outside India up to the customs station of
           clearance in India; or
      (iii) by inland waterways;
(q) Funeral, burial, crematorium or mortuary services including transportation of the deceased.

                                               134
     Exhibit A2 : Place of Provision of Services Rules, 2012

                    Notification No. 28/2012 - Service Tax dated 20/6/12

     G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 66C and
clause (hhh) of sub-section (2) of section 94 of the Finance Act, 1994 and in supersession of
the notification of the Government of India in the Ministry of Finance, Department of Revenue,
number 9/2005-ST, dated the 3rd March, 2005 published in the Gazette of India Extraordinary,
Part II, ...vide number G.S.R. 151 (E) dated the 3rd March, 2005 and the notification of the
Government of India in the Ministry of Finance, Department of Revenue, number 11/2006-ST
dated the 19th May, 2006 published in the Gazette of India Extraordinary, Part II, Section 3,
Sub-Section (i) vide number G.S.R. 227 (E) dated the 19th May, 2006.., except as respects
things done or omitted to be done before such supersession, the Central Government hereby
makes the following rules for the purpose of determination of the place of provision of services,
namely:-

1.    Short title, extent and commencement.- (1) These rules may be called the Place of
      Provision of Services Rules, 2012.

      (2) They shall come into force on 1st day of July, 2012.

2.    Definitions.- In these rules, unless the context otherwise requires,-

      (a) "Act" means the Finance Act, 1994 (32 of 1994);

      (b) "account" means an account bearing interest to the depositor, and includes a non-
          resident external account and a non-resident ordinary account;

      (c) "banking company" has the meaning assigned to it in clause (a) of section 45A of
          the Reserve Bank of India Act, 1934 (2 of 1934);

      (d) "continuous journey" means a journey for which a single or more than one ticket or
          invoice is issued at the same time, either by one service provider or through one
          agent acting on behalf of more than one service provider, and which involves no
          stopover between any of the legs of the journey for which one or more separate
          tickets or invoices are issued;

      (e) "financial institution" has the meaning assigned to it in clause (c) of section 45-I of
          the Reserve Bank of India Act,1934 (2 of 1934);

      (f)   "intermediary" means a broker, an agent or any other person, by whatever name
            called, who arranges or facilitates a provision of a service (hereinafter called the
            `main' service) between two or more persons, but does not include a person who
            provides the main service on his account.;

      (g) "leg of journey" means a part of the journey that begins where passengers embark
          or disembark the conveyance, or where it is stopped to allow for its servicing or
          refueling, and ends where it is next stopped for any of those purposes;


                                               135
(h) "location of the service provider" means-

      (a). where the service provider has obtained a single registration, whether
           centralized or otherwise, the premises for which such registration has been
           obtained;

      (b). where the service provider is not covered under sub-clause (a):

      (i)   the location of his business establishment; or

      (ii) where the services are provided from a place other than the business
           establishment, that is to say, a fixed establishment elsewhere, the location of
           such establishment; or

      (iii) where services are provided from more than one establishment, whether
            business or fixed, the establishment most directly concerned with the provision
            of the service; and

      (iv) in the absence of such places, the usual place of residence of the service
           provider.

(i)   "location of the service receiver" means:-

      (a). where the recipient of service has obtained a single registration, whether
      centralized or otherwise, the premises for which such registration has been obtained;

      (b). where the recipient of service is not covered under sub-clause (a):

      (i)   the location of his business establishment; or

      (ii) where services are used at a place other than the business establishment, that
      is to say, a fixed establishment elsewhere, the location of such establishment; or

      (iii) where services are used at more than one establishment, whether business or
      fixed, the establishment most directly concerned with the use of the service; and

      (iv) in the absence of such places, the usual place of residence of the recipient of
      service.

      Explanation:-. For the purposes of clauses (h) and (i), "usual place of residence" in
      case of a body corporate means the place where it is incorporated or otherwise
      legally constituted.

      Explanation 2:-. For the purpose of clause (i), in the case of telecommunication
      service, the usual place of residence shall be the billing address.

(j)   "means of transport" means any conveyance designed to transport goods or persons
      from one place to another;

(k)   "non-banking financial company" means-


                                          136
           (i)   a financial institution which is a company; or

           (ii) 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; or

           (iii) such other non-banking institution or class of such institutions, as the Reserve
                 Bank of India may, with the previous approval of the Central Government and
                 by notification in the Official Gazette specify;

     (l)   "online information and database access or retrieval services" means providing
           data or information, retrievable or otherwise, to any person, in electronic form through
           a computer network;

     (m) "person liable to pay tax" shall mean the person liable to pay service tax under
         section 68 of the Act or under sub-clause (d) of sub-rule (1) of rule (2) of the Service
         Tax Rules, 1994;

     (n)   "provided" includes the expression "to be provided";

     (o) "received" includes the expression "to be received";

     (p) "registration" means the registration under rule 4 of the Service Tax Rules, 1994;

     (q)    "telecommunication service" means service of any description (including electronic
           mail, voice mail, data services, audio tex services, video tex services, radio paging
           and cellular mobile telephone services) which is made available to users by means
           of any transmission or reception of signs, signals, writing, images and sounds or
           intelligence of any nature, by wire, radio, visual or other electro-magnetic means but
           shall not include broadcasting services.

     (r) words and expressions used in these rules and not defined, but defined in the Act,
         shall have the meanings respectively assigned to them in the Act.

3.   Place of provision generally.- The place of provision of a service shall be the location
     of the recipient of service:

     Provided that in case the location of the service receiver is not available in the ordinary
     course of business, the place of provision shall be the location of the provider of service.

4.   Place of provision of performance based services.- The place of provision of following
     services shall be the location where the services are actually performed, namely:-

     (a) services provided in respect of goods that are required to be made physically
         available by the recipient of service to the provider of service, or to a person acting
         on behalf of the provider of service, in order to provide the service:

           Provided that when such services are provided from a remote location by way of
           electronic means the place of provision shall be the location where goods are situated
           at the time of provision of service:


                                                137
          Provided further that this sub-rule shall not apply in the case of a service provided in
          respect of goods that are temporarily imported into India for repairs, reconditioning
          or reengineering for re-export, subject to conditions as may be specified in this
          regard.

     (b) services provided to an individual, represented either as the recipient of service or
         a person acting on behalf of the recipient, which require the physical presence of
         the receiver or the person acting on behalf of the receiver, with the provider for the
         provision of the service.

5.   Place of provision of services relating to immovable property.- The place of provision
     of services provided directly in relation to an immovable property, including services
     provided in this regard by experts and estate agents, provision of hotel accommodation
     by a hotel, inn, guest house, club or campsite, by whatever, name called, grant of rights to
     use immovable property, services for carrying out or co-ordination of construction work,
     including architects or interior decorators, shall be the place where the immovable property
     is located or intended to be located.

6.   Place of provision of services relating to events.- The place of provision of services
     provided by way of admission to, or organization of, a cultural, artistic, sporting, scientific,
     educational, or entertainment event, or a celebration, conference, fair, exhibition, or similar
     events, and of services ancillary to such admission, shall be the place where the event is
     actually held.

7.   Place of provision of services provided at more than one location.-Where any
     service referred to in rules 4, 5, or 6 is provided at more than one location, including a
     location in the taxable territory, its place of provision shall be the location in the taxable
     territory where the greatest proportion of the service is provided.

8.   Place of provision of services where provider and recipient are located in taxable
     territory.- Place of provision of a service, where the location of the provider of service
     as well as that of the recipient of service is in the taxable territory, shall be the location of
     the recipient of service.

9.   Place of provision of specified services.- The place of provision of following services
     shall be the location of the service provider:-

     (a) Services provided by a banking company, or a financial institution, or a non-banking
         financial company, to account holders;

     (b) Online information and database access or retrieval services;

     (c) Intermediary services;

     (d) Service consisting of hiring of means of transport, upto a period of one month.

10. Place of provision of goods transportation services.- The place of provision of
    services of transportation of goods, other than by way of mail or courier, shall be the
    place of destination of the goods:


                                                 138
         Provided that the place of provision of services of goods transportation agency
         shall be the location of the person liable to pay tax.

11. Place of provision of passenger transportation service.- The place of provision in
    respect of a passenger transportation service shall be the place where the passenger
    embarks on the conveyance for a continuous journey.

12. Place of provision of services provided on board a conveyance.- Place of provision
    of services provided on board a conveyance during the course of a passenger transport
    operation, including services intended to be wholly or substantially consumed while on
    board, shall be the first scheduled point of departure of that conveyance for the journey.

13. Powers to notify description of services or circumstances for certain purposes.-
    In order to prevent double taxation or non-taxation of the provision of a service, or for the
    uniform application of rules, the Central Government shall have the power to notify any
    description of service or circumstances in which the place of provision shall be the place
    of effective use and enjoyment of a service.

14. Order of application of rules.- Notwithstanding anything stated in any rule, where the
    provision of a service is, prima facie, determinable in terms of more than one rule, it shall
    be determined in accordance with the rule that occurs later among the rules that merit
    equal consideration.

______________________________________________________________________

                                              *****




                                              139
     Exhibit A3 : Exemptions under Mega Notification.

A.    The following taxable services have been exempt from the whole of the service tax
      leviable thereon under section 66B of the said Act vide mega exemption notification
      no. 25/2012 ­ ST dated 20/6/12 namely:-
      1.   Services provided to the United Nations or a specified international organization;
      2.   Health care services by a clinical establishment, an authorised medical practitioner
           or para-medics;
      3.   Services by a veterinary clinic in relation to health care of animals or birds;
      4.   Services by an entity registered under section 12AA of the Income tax Act, 1961 (43
           of 1961) by way of charitable activities;
      5.   Services by a person by way of-
           (a) renting of precincts of a religious place meant for general public; or
           (b) conduct of any religious ceremony;
      6.   Services provided by-
           (a) an arbitral tribunal to -
                (i)   any person other than a business entity; or
                (ii) a business entity with a turnover up to rupees ten lakh in the preceding
                     financial year;
           (b) an individual as an advocate or a partnership firm of advocates by way of legal
               services to,-
                (i)   an advocate or partnership firm of advocates providing legal services ;
                (ii) any person other than a business entity; or
                (iii) a business entity with a turnover up to rupees ten lakh in the preceding
                      financial year; or
           (c) a person represented on an arbitral tribunal to an arbitral tribunal;
      7.   Services by way of technical testing or analysis of newly developed drugs, including
           vaccines and herbal remedies, on human participants by a clinical research
           organisation approved to conduct clinical trials by the Drug Controller General of
           India;
      8.   Services by way of training or coaching in recreational activities relating to arts,
           culture or sports;
      9.   Services provided to or by an educational institution in respect of education
           exempted from service tax, by way of,-
           (b) auxiliary educational services; or


                                                141
    (c) renting of immovable property;
10. Services provided to a recognised sports body by-
    (a) an individual as a player, referee, umpire, coach or team manager for
        participation in a sporting event organized by a recognized sports body;
    (b) another recognised sports body;
11. Services by way of sponsorship of sporting events organised,-
    (a) by a national sports federation, or its affiliated federations, where the
        participating teams or individuals represent any district, state or zone;
    (b) by Association of Indian Universities, Inter-University Sports Board, School
        Games Federation of India, All India Sports Council for the Deaf, Paralympic
        Committee of India or Special Olympics Bharat;
    (c) by Central Civil Services Cultural and Sports Board;
    (d) as part of national games, by Indian Olympic Association; or
    (e) under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA) Scheme;
12. Services provided to the Government, a local authority or a governmental authority
    by way of construction, erection, commissioning, installation, completion, fitting out,
    repair, maintenance, renovation, or alteration of -
    (a) a civil structure or any other original works meant predominantly for use other
        than for commerce, industry, or any other business or profession;
    (b) a historical monument, archaeological site or remains of national importance,
        archaeological excavation, or antiquity specified under the Ancient Monuments
        and Archaeological Sites and Remains Act, 1958 (24 of 1958);
    (c)    a structure meant predominantly for use as (i) an educational, (ii) a clinical, or
          (iii) an art or cultural establishment;
    (d) canal, dam or other irrigation works;
    (e) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage
        treatment or disposal; or
    (f)   a residential complex predominantly meant for self-use or the use of their
          employees or other persons specified in the Explanation 1 to clause 44 of
          section 65 B of the said Act;
13. Services provided by way of construction, erection, commissioning, installation,
    completion, fitting out, repair, maintenance, renovation, or alteration of,-
    (a) a road, bridge, tunnel, or terminal for road transportation for use by general
        public;
    (b) a civil structure or any other original works pertaining to a scheme under
        Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana;



                                          142
     (c) a building owned by an entity registered under section 12 AA of the Income tax
         Act, 1961(43 of 1961) and meant predominantly for religious use by general
         public;
     (d) a pollution control or effluent treatment plant, except located as a part of a factory;
         or
     (e) a structure meant for funeral, burial or cremation of deceased;
14. Services by way of construction, erection, commissioning, or installation of original
    works pertaining to,-
     (a) an airport, port or railways, including monorail or metro;
     (b) a single residential unit otherwise than as a part of a residential complex;
     (c) low- cost houses up to a carpet area of 60 square metres per house in a housing
         project approved by competent authority empowered under the `Scheme of
         Affordable Housing in Partnership' framed by the Ministry of Housing and Urban
         Poverty Alleviation, Government of India;
     (d) post- harvest storage infrastructure for agricultural produce including a cold
         storages for such purposes; or
     (e) mechanised food grain handling system, machinery or equipment for units
         processing agricultural produce as food stuff excluding alcoholic beverages;
15. Temporary transfer or permitting the use or enjoyment of a copyright covered under
    clauses (a) or (b) of sub-section (1) of section 13 of the Indian Copyright Act, 1957
    (14 of 1957), relating to original literary, dramatic, musical, artistic works or
    cinematograph films;
16. Services by a performing artist in folk or classical art forms of (i) music, or (ii) dance,
    or (iii) theatre, excluding services provided by such artist as a brand ambassador;
17. Services by way of collecting or providing news by an independent journalist, Press
    Trust of India or United News of India;
18. Services by way of renting of a hotel, inn, guest house, club, campsite or other
    commercial places meant for residential or lodging purposes, having declared tariff
    of a unit of accommodation below rupees one thousand per day or equivalent;
19. Services provided in relation to serving of food or beverages by a restaurant, eating
    joint or a mess, other than those having (i) the facility of air-conditioning or central
    air-heating in any part of the establishment, at any time during the year, and (ii) a
    licence to serve alcoholic beverages;
20. Services by way of transportation by rail or a vessel from one place in India to another
    of the following goods -
     (a) petroleum and petroleum products falling under Chapter heading 2710 and
         2711 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);
     (b) relief materials meant for victims of natural or man-made disasters, calamities,
         accidents or mishap;

                                           143
    (c) defence or military equipments;
    (d) postal mail or mail bags;
    (e) household effects;
    (f)   newspaper or magazines registered with the Registrar of Newspapers;
    (g) railway equipments or materials;
    (h) agricultural produce;
    (i)   foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible
          oil, excluding alcoholic beverages; or
    (j)   chemical fertilizer and oilcakes;
21. Services provided by a goods transport agency by way of transportation of -
    (a) fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage;
    (b) goods where gross amount charged for the transportation of goods on a
        consignment transported in a single goods carriage does not exceed one
        thousand five hundred rupees; or
    (c) 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;
22. Services by way of giving on hire -
    (a) to a state transport undertaking, a motor vehicle meant to carry more than twelve
        passengers; or
    (b) to a goods transport agency, a means of transportation of goods;
23. Transport of passengers, with or without accompanied belongings, by -
    (a) air, embarking from or terminating in an airport located in the state of Arunachal
        Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, or Tripura
        or at Bagdogra located in West Bengal;
    (b) a contract carriage for the transportation of passengers, excluding tourism,
        conducted tour, charter or hire; or
    (c)   ropeway, cable car or aerial tramway;
24. Services by way of vehicle parking to general public excluding leasing of space to
    an entity for providing such parking facility;
25. Services provided to Government, a local authority or a governmental authority by
    way of -
    (a) carrying out any activity in relation to any function ordinarily entrusted to a
        municipality in relation to water supply, public health, sanitation conservancy,
        solid waste management or slum improvement and upgradation; or
    (b) repair or maintenance of a vessel or an aircraft;

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26. Services of general insurance business provided under following schemes -
    (a) Hut Insurance Scheme;
    (b) Cattle Insurance under Swarnajaynti Gram Swarozgar Yojna (earlier known as
        Integrated Rural Development Programme);
    (c) Scheme for Insurance of Tribals;
    (d) Janata Personal Accident Policy and Gramin Accident Policy;
    (e) Group Personal Accident Policy for Self-Employed Women;
    (f)   Agricultural Pumpset and Failed Well Insurance;
    (g) premia collected on export credit insurance;
    (h) Weather Based Crop Insurance Scheme or the Modified National Agricultural
        Insurance Scheme, approved by the Government of India and implemented by
        the Ministry of Agriculture;
    (i)   Jan Arogya Bima Policy;
    (j)   National Agricultural Insurance Scheme (Rashtriya Krishi Bima Yojana);
    (k) Pilot Scheme on Seed Crop Insurance;
    (l)   Central Sector Scheme on Cattle Insurance;
    (m) Universal Health Insurance Scheme;
    (n) Rashtriya Swasthya Bima Yojana; or
    (o) Coconut Palm Insurance Scheme;
27. Services provided by an incubatee up to a total turnover of fifty lakh rupees in a
    financial year subject to the following conditions, namely:-
    (a) the total turnover had not exceeded fifty lakh rupees during the preceding financial
        year; and
    (b) a period of three years has not been elapsed from the date of entering into an
        agreement as an incubatee;
28. Service by an unincorporated body or a non- profit entity registered under any law
    for the time being in force, to its own members by way of reimbursement of charges
    or share of contribution -
    (a) as a trade union;
    (b) for the provision of carrying out any activity which is exempt from the levy of
        service tax; or
    (c) up to an amount of five thousand rupees per month per member for sourcing of
        goods or services from a third person for the common use of its members in a
        housing society or a residential complex;



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29. Services by the following persons in respective capacities -
    (a) sub-broker or an authorised person to a stock broker;
    (b) authorised person to a member of a commodity exchange;
    (c) mutual fund agent to a mutual fund or asset management company;
    (d) distributor to a mutual fund or asset management company;
    (e) selling or marketing agent of lottery tickets to a distributer or a selling agent;
    (f)   selling agent or a distributer of SIM cards or recharge coupon vouchers;
    (g) business facilitator or a business correspondent to a banking company or an
        insurance company, in a rural area; or
    (h) sub-contractor providing services by way of works contract to another contractor
        providing works contract services which are exempt;
30. Carrying out an intermediate production process as job work in relation to -
    (a) agriculture, printing or textile processing;
    (b) cut and polished diamonds and gemstones; or plain and studded jewellery of
        gold and other precious metals, falling under Chapter 71 of the Central Excise
        Tariff Act ,1985 (5 of 1986);
    (c) any goods on which appropriate duty is payable by the principal manufacturer;
        or
    (d) processes of electroplating, zinc plating, anodizing, heat treatment, powder
        coating, painting including spray painting or auto black, during the course of
        manufacture of parts of cycles or sewing machines upto an aggregate value
        of taxable service of the specified processes of one hundred and fifty lakh
        rupees in a financial year subject to the condition that such aggregate value
        had not exceeded one hundred and fifty lakh rupees during the preceding
        financial year;
31. Services by an organiser to any person in respect of a business exhibition held
    outside India;
32. Services by way of making telephone calls from -
    (a) departmentally run public telephone;
    (b) guaranteed public telephone operating only for local calls; or
    (c) free telephone at airport and hospital where no bills are being issued;
33. Services by way of slaughtering of bovine animals;
34. Services received from a provider of service located in a non- taxable territory by-
    (a) Government, a local authority, a governmental authority or an individual in relation
        to any purpose other than commerce, industry or any other business or
        profession;


                                         146
          (b) an entity registered under section 12AA of the Income tax Act, 1961 (43 of
              1961) for the purposes of providing charitable activities; or
          (c) a person located in a non-taxable territory;
    35. Services of public libraries by way of lending of books, publications or any other
        knowledge- enhancing content or material;
    36. Services by Employees' State Insurance Corporation to persons governed under
        the Employees' Insurance Act, 1948 (34 of 1948);
     37. Services by way of transfer of a going concern, as a whole or an independent part
         thereof;
    38. Services by way of public conveniences such as provision of facilities of bathroom,
        washrooms, lavatories, urinal or toilets;
    39. Services by a governmental authority by way of any activity in relation to any function
        entrusted to a municipality under article 243 W of the Constitution.
B. Definitions. - For the purpose of the notification, unless the context otherwise requires,
   certain terms used in the notification have been defined in the notification itself ­
    (a) "advocate" has the meaning assigned to it in clause (a) of sub-section (1) of section
        2 of the Advocates Act, 1961 ( 25 of 1961);
    (b) "appropriate duty" means duty payable on manufacture or production under a Central
        Act or a State Act, but shall not include `Nil' rate of duty or duty wholly exempt;
    (c) "arbitral tribunal" has the meaning assigned to it in clause (d) of section 2 of the
        Arbitration and Conciliation Act, 1996 (26 of 1996);
    (d) "authorised medical practitioner" means a medical practitioner registered with any
        of the councils of the recognised system of medicines established or recognized
        by law in India and includes a medical professional having the requisite qualification
        to practice in any recognised system of medicines in India as per any law for the
        time being in force;
    (e) "authorised person" means any person who is appointed as such either by a stock
        broker (including trading member) or by a member of a commodity exchange and
        who provides access to trading platform of a stock exchange or a commodity
        exchange as an agent of such stock broker or member of a commodity exchange;
    (f)   "auxiliary educational services" means any services relating to imparting any skill,
          knowledge, 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 services relating to admission
          to such institution, conduct of examination, catering for the students under any mid-
          day meals scheme sponsored by Government, or transportation of students, faculty
          or staff of such institution;
    (g) "banking company" has the meaning assigned to it in clause (a) of section 45A of
        the Reserve Bank of India Act,1934(2 of 1934);

                                              147
(h) "brand ambassador" means a person engaged for promotion or marketing of a
    brand of goods, service, property or actionable claim, event or endorsement of
    name, including a trade name, logo or house mark of any person;
(i)   "business facilitator or business correspondent" means an intermediary appointed
      under the business facilitator model or the business correspondent model by a
      banking company or an insurance company under the guidelines issued by Reserve
      Bank of India;
(j)   "clinical establishment" means a hospital, nursing home, clinic, sanatorium or any
      other institution by, whatever name called, that offers services or facilities requiring
      diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy
      in any recognised system of medicines in India, or a place established as an
      independent entity or a part of an establishment to carry out diagnostic or investigative
      services of diseases;
(k) "charitable activities" means activities relating to -
      (i)   public health by way of -

            (a) care or counseling of (i) terminally ill persons or persons with severe
                physical or mental disability, (ii) persons afflicted with HIV or AIDS, or (iii)
                persons addicted to a dependence-forming substance such as narcotics
                drugs or alcohol; or
            (b) public awareness of preventive health, family planning or prevention of
                HIV infection;
      (ii) advancement of religion or spirituality;
      (iii) advancement of educational programmes or skill development relating to,-
            (a) abandoned, orphaned or homeless children;
            (b) physically or mentally abused and traumatized persons;
            (c) prisoners; or
            (d) persons over the age of 65 years residing in a rural area;
      (iv) preservation of environment including watershed, forests and wildlife; or
      (v) advancement of any other object of general public utility up to a value of,-
            (a) eighteen lakh and seventy five thousand rupees for the year 2012-13 subject
                to the condition that total value of such activities had not exceeded twenty
                five lakhs rupees during 2011-12;
            (b) twenty five lakh rupees in any other financial year subject to the condition
                that total value of such activities had not exceeded twenty five lakhs rupees
                during the preceding financial year;
(l)    "commodity exchange" means an association as defined in section 2 (j) and
      recognized under section 6 of the Forward Contracts (Regulation) Act,1952 (74 of
      1952);


                                            148
(m) "contract carriage" has the meaning assigned to it in clause (7) of section 2 of the
    Motor Vehicles Act, 1988 (59 of 1988);
(n) "declared tariff" includes charges for all amenities provided in the unit of
    accommodation (given on rent for stay) like furniture, air-conditioner, refrigerators
    or any other amenities, but without excluding any discount offered on the published
    charges for such unit;
(o) "distributor or selling agent" has the meaning assigned to them in clause (c) of the
    rule 2 of the Lottery (Regulation) Rules, 2010 notified by the Government of India in
    the Ministry of Home Affairs, published in the Gazette of India, Extraordinary, Part-II,
    Section 3, Sub-section (i), vide number G.S.R. 278(E), dated the 1st April, 2010
    and shall include distributor or selling agent authorised by the lottery- organising
    State;
(p) "general insurance business" has the meaning assigned to it in clause (g) of section
    3 of General Insurance Business (Nationalisation) Act, 1972 (57 of 1972);
(q) "general public" means the body of people at large sufficiently defined by some
    common quality of public or impersonal nature;
(r)   "goods carriage" has the meaning assigned to it in clause (14) of section 2 of the
      Motor Vehicles Act, 1988 (59 of 1988);
(s)    "governmental authority'' means a board, or an authority or any other body
      established with 90% or more participation by way of equity or control by Government
      and set up by an Act of the Parliament or a State Legislature to carry out any function
      entrusted to a municipality under article 243W of the Constitution;
(t)   "health care services" means any service by way of diagnosis or treatment or care
      for illness, injury, deformity, abnormality or pregnancy in any recognised system of
      medicines in India and includes services by way of transportation of the patient to
      and from a clinical establishment, but does not include hair transplant or cosmetic
      or plastic surgery, except when undertaken to restore or to reconstruct anatomy or
      functions of body affected due to congenital defects, developmental abnormalities,
      injury or trauma;
(u) "incubatee" means an entrepreneur located within the premises of a Technology
    Business Incubator (TBI) or Science and Technology Entrepreneurship Park (STEP)
    recognised by the National Science and Technology Entrepreneurship Development
    Board (NSTEDB) of the Department of Science and Technology, Government of
    India and who has entered into an agreement with the TBI or the STEP to enable
    himself to develop and produce hi-tech and innovative products;
(v) "insurance company" means a company carrying on life insurance business or
    general insurance business;
(w) "legal service" means any service provided in relation to advice, consultancy or
    assistance in any branch of law, in any manner and includes representational services
    before any court, tribunal or authority;
(x) "life insurance business" has the meaning assigned to it in clause (11) of section 2
    of the Insurance Act, 1938 (4 of 1938);

                                          149
   (y) "original works" means has the meaning assigned to it in Rule 2A of the Service
       Tax (Determination of Value) Rules, 2006;
   (z) "principal manufacturer" means any person who gets goods manufactured or
       processed on his account from another person;
   (za) "recognized sports body" means - (i) the Indian Olympic Association, (ii) Sports
        Authority of India, (iii) a national sports federation recognised by the Ministry of
        Sports and Youth Affairs of the Central Government, and its affiliate federations, (iv)
        national sports promotion organisations recognised by the Ministry of Sports and
        Youth Affairs of the Central Government, (v) the International Olympic Association or
        a federation recognised by the International Olympic Association or (vi) a federation
        or a body which regulates a sport at international level and its affiliated federations
        or bodies regulating a sport in India;
   (zb) "religious place" means a place which is primarily meant for conduct of prayers or
        worship pertaining to a religion, meditation, or spirituality;
   (zc) "residential complex" means any complex comprising of a building or buildings,
        having more than one single residential unit;
   (zd) "rural area" means the area comprised in a village as defined in land revenue
        records, excluding-the area under any municipal committee, municipal corporation,
        town area committee, cantonment board or notified area committee; or any area
        that may be notified as an urban area by the Central Government or a State
        Government;
   (ze) "single residential unit" means a self-contained residential unit which is designed
        for use, wholly or principally, for residential purposes for one family;
   (zf) "specified international organization" means an international organization declared
        by the Central Government in pursuance of section 3 of the United Nations (Privileges
        and Immunities) Act, 1947 (46 of 1947), to which the provisions of the Schedule to
        the said Act apply;
   (zg) "state transport undertaking" has the meaning assigned to it in clause (42) of section
        2 of the Motor Vehicles Act, 1988 (59 of 1988);
   (zh) "sub-broker" has the meaning assigned to it in sub-clause (gc) of clause 2 of the
        Securities and Exchange Board of India (Stock Brokers and Sub-brokers)
        Regulations, 1992;
   (zi) "trade union" has the meaning assigned to it in clause (h) of section 2 of the Trade
        Unions Act,1926(16 of 1926).
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