Budget 2010, in many ways advances the broad agenda of fiscal reform in indirect taxes keeping in view the proposed introduction of GST by April 2011.

The maintenance of service tax rate at 10% and an extended scope in it seems to be an indication of central government plans aligned for GST. Eight new categories are integrated into the service tax ambit, namely:

* Permitting commercial use or exploitation of any event organised by a person or organisation;

* Copyright on cinematographic films and sound recording (excluding original literary, dramatic, musical and artistic work);

* Special services provided by builders to prospective buyers;

* Brand promotion of goods, services, events, business entity;

* Promotion, marketing of games of chance, lottery;

* Specified health services:

* Undertaken by hospitals, medical establishment for employees of business entities;

* Health insurance schemes offered by insurance companies.

The expansion of the scope of sponsorship services to include sponsorship of sports events is possibly an eye on taxing sponsorship of sports events like IPL.

Developments in the realty sector would lead to an upswing in the cost. Charges such as premium allocation charges, external development charges charged by developers are being brought into the ambit of service tax.

Further, in cases where any consideration is paid by a person to a developer prior to obtaining completion certificate for the project, such consideration will be deemed to be covered as construction services and would be subject to service tax, net of abatement prescribed.

The definition of renting of immovable property service has been amended (with retrospective effect from June 1, 2007) to include within the service tax net, the activity of renting of the property as well as any service in relation to such renting.

This amendment has been brought to override the Delhi High Court judgment in Home Solutions Ltd v. Union of India where the Court held the levy of service tax on renting of immovable property to be outside the scope of the Finance Act (and that only services in connection with such renting of property would be liable to service tax). The amendment of this category to also include leasing of vacant land with retrospective effect further complicates the issues and costs.

Additionally, the ambit of certain existing services has also been extended such as the expansion of passenger traveling by air services to include all classes for both domestic and international travel.

Taxes levied by the government (including foreign governments) on passenger travelling by air has been excluded from the levy of service tax, provided such taxes are shown separately on the ticket or the invoice for such ticket issued to the passenger. However, there is no clarity on whether charges by airport authorities (whether in India or abroad) are also excluded from the levy of tax.

A significant amendment welcomed by industry is the removal of the condition of 'provided from India and used outside India' for services to qualify as exports under the Export of Services Rules, 2005. This condition was subject to varying interpretations by the revenue authorities, creating considerable ambiguity and consequent litigation.

The removal of this condition would create substantial lucidity in determining the issue of whether a service would qualify as an export at least going forward.

In conclusion, the Budget on an overall basis has sought to address certain issues of the industry namely export of services and service tax refunds, but has also expanded the coverage indicating its intent from a perspective of GST.