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Presented By J.K. MITTAL (Advocate) Co-Chairman (Indirect Taxes) ASSOCHAM LL.B.,F.C.A., F.C.S.

Service Tax Conference NIRC- ICAI. Saturday, 21 st July 2007. Presented By J.K. MITTAL (Advocate) Co-Chairman (Indirect Taxes) ASSOCHAM LL.B.,F.C.A., F.C.S. NEW DELHI. Service Tax Expansion under exiting taxable services w.e.f. 1-6-2007.   Telecommunication service

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Presented By J.K. MITTAL (Advocate) Co-Chairman (Indirect Taxes) ASSOCHAM LL.B.,F.C.A., F.C.S.

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  1. Service Tax Conference NIRC- ICAI Saturday, 21st July 2007 Presented By J.K. MITTAL (Advocate) Co-Chairman (Indirect Taxes) ASSOCHAM LL.B.,F.C.A., F.C.S. NEW DELHI

  2. Service Tax Expansion under exiting taxable services w.e.f. 1-6-2007 •   Telecommunication service • Mining service •   Renting of immovable property service •   works contract services •   Development and supply of content service • Asset management including portfolio Management service •   Design services

  3. Renting of immovable property service • “Taxable service means any service provided or to be provided, to any person, by any other person in relation to renting of immovable property for use in the course or furtherance of business or commerce.” [Section 65 (105)(zzzz)]. • Explanation 2.—For the purposes of this sub-clause, an immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce.”

  4. Renting of immovable property service • Immovable property [Explanation 1] “immovable property” does not include- • (c) land used for educational, sports, circus, entertainment and parking purposes; and • (d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities. • Why service tax is being charged for “Parking” at airport?

  5. Renting of immovable property service • use in the course of furtherance of business or commerce • Explanation.—For the purposes of this clause, “for use in the course or furtherance of business or commerce” includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings.” [Section 65(90a)]. • Whether Property given for running Govt. offices like service tax, income tax offices, railways, similarly, post officers etc.? • Whether Property given for running offices by a Govt. company/ Govt. Department doing activities in competition with private sector companies like BSNL Telephone services, Parsar Bharti etc.?

  6. Renting of immovable property service • ““renting of immovable property” includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include — • (i) renting of immovable property by a religious body or to a religious body; or • (ii) renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre; • When tax is only for rending of property for business or commerce then what was the need to giving exclusion to giving property to a religious body or educational body as these are neither business nor commerce?

  7. Renting of immovable property service Deduction for Property Tax paid • Deduction of property tax paid from value of taxable service - Notification No. 24/2007-ST, dated 22-05-2007 . • Self-adjustment of service tax payable on the property tax for which deduction not claimed - Rule 4C • Property tax paid for whole property – but let out portion of it – how much amount shall be deducted?

  8. Renting of immovable property service Whether exemption available for first 8 lakhs Notification No. 6/2005-S.T., dated 1-3-2005 • “hereby exempts taxable services of aggregate value not exceeding eight lakh rupees in any financial year from the whole of the service tax leviable thereon under section 66 of the said Finance Act ………….. • the aggregate value of taxable services rendered by a provider of taxable service from one or more premises, does not exceed rupees eight lakh rupees in the preceding financial year. …………………. • "aggregate value not exceeding eight lakh rupees" means the sum total of first consecutive payments received during a financial year towards the gross amount, as prescribed under section 67 of the said Finance Act, charged by the service provider towards taxable services till the aggregate amount of such payments is equal to eight lakh rupees .”

  9. Renting of immovable property service Doubts and Questions • Whether Joint owner shall be taxed separately? • Whether minor shall be liable to pay service tax? • Whether minor can get registration even if not having PAN or his/ her parent PAN would suffice? • Whether can get centralize registration for having property under different jurisdiction? • Whether assessee is entitle for CENVAT credit of duty/ taxes paid on input, input service or capital goods?

  10. Finance Minister’s Reply to the debate on the Finance Bill 2007-08 in the Lok Sabha on May 3, 2007 • Renting is also an activity that goes into the calculation of GDP. It is a value added service. It is liable to service tax. That is the universal practice. We have introduced service tax only in respect of renting of large commercial properties.

  11. Renting of immovable property service Goodricke Group Ltd. and Others v State of West Bengal and Others reported in (1995) Supp (1) SCC 707 • “20.It is thus clear from the aforesaid decision that merely because a tax on land or building is imposed with reference to its income or yield; it does not cease to be a tax on land or building. The income or yield of the land/building is taken merely as a measure of the tax; it does not alter the nature or character of the levy. It still remains a tax on land or building. There is no set pattern of levy of tax on lands and buildings - indeed there can be no such standardisation. No one can say that a tax under a particular entry must be levied only in a particular manner, which may have been adopted hitherto. ”

  12. Renting of immovable property service Goodricke Group Ltd. and Others v State of West Bengal and Others reported in (1995) Supp (1) SCC 707 • “31……………………….The power of the legislature to make law with reference to Entry 49 of List II is plenary like any other entry in List II. It is open to the legislature to adopt such formula as it thinks appropriate for levying the tax and so long as the character of the tax remains the one contemplated by the entry, it does not matter how the tax is calculated, measured or assessed. If a tax on the land can be assessed with reference to or on the basis of the previous year’s income, we failed to see why it cannot be levied on current year’s income. For example, take the case in newly constructed building which is let out soon after its completion. Can the rent realized for the first year not to be taken as the basis for determining the rental value for levying property tax for that year? Indeed, that can be and should be the only basis……..………………….. ”

  13. Service involved in the execution of a works contract • “Taxable service meansany service provided or to be provided,any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. • Port has also been excluded by exemption – vide Notification No. 25/2007-ST, 22-5-2007.

  14. Service involved in the execution of a works contract • Explanation.—For the purposes of this sub-clause, “works contract” means a contract wherein,— • (i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and • (ii) such contract is for the purposes of carrying out,— Continue..

  15. Service involved in the execution of a works contract • erection, commissioning or installation • construction of a new building primarily for the purposes of commerce or industry • construction of a new residential complex or a part thereof • turnkey projects including engineering, procurement and construction or commissioning (EPC) projects

  16. A works contract • Ultimately, the terms of a given contract would be determinative of the nature of the transaction, whether it is a “sale” or a “works-contract.” Therefore, this question has to be ascertained on facts of each case, on proper construction of terms and conditions of the contract between the parties – State of Andhra Pradesh v Kone Elevators (India) Ltd. 2005 (181) ELT 156 (SC). And held that installation of Lift was a contract for sale.

  17. A works contract • Hindustan Shipyard Ltd. v State of Andhra Pradesh (2000) 119 STC 533 • In this case the Supreme Court has given instance which could be ‘sale, contract for labour and works contract.

  18. A works contract • Sentinel Rolling Shutters and Engineering Company Pvt. Ltd. v Commissioner of Sales Tax (1978) 4 SCC 2609 - whether it was possible to break up one contract into two segments – one for sale of goods and the other for providing services, the court observed that in a individual composite contract, this is not possible to do so. The court accepted the commercial practice in spreading the contractual payment over the entire period of the execution of the contract and held that the progressive release of payment would not have any bearing of the nature of the contract.

  19. Service involved in the execution of a works contract • Levy of service tax on indivisible contract • Daelim Industrial Co. Limited v Commissioner of Central Excise, Vadodara 2003 (155) ELT 457 (Tribunal-Delhi): 2006 (3) STR 124 (Tri.-Del.), • Larsen & Toubro Ltd v CCE 2004 (174) ELT 322: 2006 (3) STR 223 (Tri.-Del.) • CCE & C, Vadodara v M/s Larsen & Toubro Ltd and M/s Petrofac International Ltd, 2006 (4) STR 63 (Tri. - Mumbai): 2006-TIOL-490-CESTAT-MUM .

  20. Valuation of services involved in the execution of works contract (works contract services): Rule 2A • gross amount charged for the works contract after deducting the value of transfer of property in goods involved in the said works contract [Rule 2A(1)(i)]. • Explanation (b) of said Rule 2A, value of works contract service shall include …. would not be practically feasible to determining the amount paid for various services used in the execution of a works contract • There is no option has been given under said Rule that one can dis-regard the above mentioned of determination of value of works contract services.

  21. Composition scheme –2% tax • Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 -2% of the gross amount charged for the works contract . • The Rule 3(1) of said Rules, start with non-obstante clause, which override the provisions of Section 67 and the Rule 2A of the Service Tax (Determination of Value) Rules, 2006. • Vidya Lachmandas Khanchandani and another AIR (2000) SC 2747.In the case of ITW Signode India Ltd. v Collector of Central Excise 2003 (158) ELT 403 (SC)

  22. Composition scheme –2% tax • CENVAT credit of duty paid on ‘inputs’ shall not be available. • D.O.F. No. 334/1/2007-TRU, dated 28th February 2007, the Ministry of Finance announced that “Assessee opting for the composition scheme is not entitled to avail CENVAT credit of capital goods, inputs and input services required for use in the works contract.” • However, while announcing the Scheme,, the credit has been denied only in respect of ‘input’.

  23. Service involved in the execution of a works contract • Levy of service tax on works contract transactions under separate categories of taxable services - Constitutionality validity • Levy of service tax on services involved in the execution of works contract - Constitutionality validity

  24. works contract – recent SC judgment • The Supreme Court in the case of State of Jharkand v Voltas Ltd. 2007-TIOL-86-SC-CT (decided on 9th May 2007) held that “the State legislature under Entry 54 of List II of the Seventh Schedule can tax only on the sale or purchase of goods. If an item does not come within List II or List III of the Seventh Schedule to the Constitution, then it can only be the Central legislature i.e. the Parliament which can levy tax either under List I or under the residual provision contained in Article 248 thereof.”

  25. Material Used in photography Service • The Tribunal in the case of Shilpa Color Lab v CCE, Calicut 2007 (5) STR 423 (Tri.-Bang.) : 2007-TIOL-340-CESTAT-BANG relying upon the Supreme Court decision in the case of Bharat Sanchar Nigam Ltd. v UOI 2006 (2) STR 161 (SC) held that in the services related to photography, if certain goods and materials are consumed, then the value of those goods cannot be included in the value of service for the levy of service tax. In the result, the decision of the Tribunal in the Adlabs case is correct and legal

  26. Service tax on Commercial/ Residential Complex-Raheja case • Mahakaushal Builders Welfare Association v Superintendent of Customs & Central Excise, Jabalpur 2006-TIOL-285-HC-MP-ST- The High Court in this case held that impugned circular cannot create liability for payment of service tax and directed the department to decide the question of service tax liability strictly in accordance with the provisions contained in the Finance Act, 1994 (as amended) notwithstanding anything contrary in the impugned circular .

  27. Service Tax Expansion under exiting taxable services w.e.f. 1-6-2007 • Scope of ten existing taxable services • Expended or clarified, some of them are: • Renting of motor vehicles • marriage functions • Cash management services • business consultant’s service • computer hardware engineering consultancy • “goods” includes computer software • Advertisement space in commercial publication

  28. CIRCULAR NO93/04/2007-ST , Dated : May 10, 2007 • Review of Circulars/ clarifications/ instructions issued on matters relating to service tax law and procedures. • 48 circulars/ clarifications/ instructions stand withdrawn with immediate effect.

  29. Draft Comprehensive Circulars Issued on 19th June 2007 • Procedural Issues. • Technical Issue. • After Public Comments, pending finalization. • Withdraw all previous circulars, clarifications, letters etc. issued in respect of service tax except instructions issued at the time of Budget or enactment of Finance Bill.

  30. Draft Comprehensive Circulars Issued on 19th June 2007 • Total 28 issues • Total 16 taxable services • Some issues/ clarifications are concerned to trade/ industry Express Cargo, Hotel Rooms for social functions, merger/acquisitions, goods sold/ consumed, postal services.

  31. Effective date of Notification – Finance Act, 2007 - 1% Additional Cess • Union of India Vs. Ganesh Das Bhojraj - 2000 (116) ELT 431(SC) the date on which the Notification is dated. • CCE Vs. New Tobacco Co. - 1998 (74) ECR 478(sc) and that of Garware Nylons Ltd. Vs. CC & CE, Pune - 1998 (27) RLT 6(SC) the Notification will come into force only when it is made known to the public.

  32. Fee for filing late Return • Section 70(1) is amended for empowering Government to prescribed the fee to be payable for late filing of return but not more than Rs. 2000/- . • Rule 7C has been introduced w.e.f. 12-5-2007 for prescribing late fee which based on delay in filing return, upto 15 days Rs. 500/- then next 15days Rs. 1000/- thereafter Rs. 100 per day but not exceeding Rs. 2000/-

  33. Exemption from levy of Service Tax on international in-bound roamer for the period 1-7-1994 to 14-1-2007 • the Central government has directed that the service tax payable on roaming services provided by a telegraph authority to an international in-bound roaming subscriber, which was not being levied in accordance with the prevailing practice, shall not be required to be paid in respect of such roaming service provided during the period 1-7-1994 to 14-1-2007Notification No. 36/2007-S.T., dated 15-6-2007

  34. Whether a service provider exempted under Notification No.6/2005-ST dated 01.03.2005 can get deregistration? • Yes, Issue resolved – vide Board instruction through F.No. 137/58/2007-CX.4, dated 29.03.2007 • The Board has directed to the Directorate of Publicity and Public Relation to carry out publicity campaign, to advise exempted service providers to come forward to get themselves deregistered.

  35. Whether a person exemption under Notification No.6/2005-ST dated 01.03.2005 is required to file service tax return? • No, Issue resolved – vide Board instruction through F.No. 137/58/2007-CX.4, dated 29.03.2007 • The Board has clarified that a person who is not liable to pay service because of exemption are also not required to file service tax return. The Board has further clarified that any show cause notice issued for non-filing of return whose annual turnover is far below the exempted limit may be disposed of accordingly .

  36. ………Thank you………..

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