List of Exempted Services after 1 July 2012

Service tax exemptions under new regime are not only based on the status of service provider but also the status of service receiver. There can be situations where part of the services are taxable and part of services are exempted e.g. caterer providing Mid-day meal at school. The initial list of exempted “Services” are given below, which can be termed as exemptions available under current new service tax regime:-

1. Services provided to the United Nations or a specified international organization;

2. Health care services by a clinical establishment, an authorized 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; – this is the welcome step toward encouragement of welfare 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 to any person other than a business entity by -

(a) an individual as an advocate; or

(b) a person represented on and as arbitral tribunals;

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 organization 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- (Should be read with 4 & 8)

(a) to an educational institution by way of catering under any centrally assisted mid – day meals scheme sponsored by Government;

(b) to or by an institution in relation to educational services, where the educational services are exempt from the levy of service tax, by way of transportation of students or staff;

(c) to or by an institution in relation to educational services, where the educational services are exempt from the levy of service tax, by way of services in relation to admission to such education;

10. Services provided to a recognized sports body by-

(a) an individual as a player, referee, umpire, coach or manager for participation in a tournament or championship organized by a recognized sports body;

(b) another recognized sports body;

11. Services by way of sponsorship of tournaments or championships organized,-

(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, Paralympics Committee of India, 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 or local authority by way of erection, construction, maintenance, repair, alteration, renovation or restoration of -

(a) a civil structure or any other original works meant predominantly for a non-industrial or non-commercial use;

(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 (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) drinking water supply (ii) water treatment (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 Finance Act;

13. Services provided by way of erection, construction, maintenance, repair, alteration, renovation or restoration of,-

(a) road, bridge, tunnel, or terminal for road transportation for use by general public;

(b) 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;

(c) pollution control or effluent treatment plant, except located as a part of a factory; or

(d) electric crematorium;

14. Services by way of erection or construction of original works pertaining to,-

(a) airport, port or railways;

(b) single residential unit otherwise as a part of a residential complex;

(c) low- cost houses up to a carpet area of 60 square meters 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) mechanized 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 clause (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 room 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 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 beverages;

20. Services by way of transportation by rail or a vessel from one port 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;

(c) defense or military equipments;

(d) postal mail, mail bags or household effects;

(e) newspaper or magazines registered with Registrar of Newspapers;

(f) railway equipments or materials;

(g) agricultural produce;

(h) foodstuff including flours, tea, coffee, jiggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages; or

(i) 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 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 or terminating in an airport located in the state of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, or Tripura or at Baghdogra located in West Bengal; or

(b) a contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire;

24. Services by way of motor vehicle parking to general public excluding leasing of space to an entity for providing such parking facility;

25. Services provided to the Government or a local authority by way of -

(a) repair of a ship, boat or vessel;

(b) effluents and sewerage treatment;

(c) waste collection or disposal;

(d) storage, treatment or testing of water for drinking purposes; or

(e) transport of water by pipeline or conduit for drinking purposes;

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 business turnover of fifty lakh rupees in a financial year subject to the following conditions, namely:-

(a) the total business turnover had not exceeded fifty lakh rupees during the preceding financial year; and

(b) a period of three years has not lapsed from the date of entering into an agreement as an incubatee;

28. Service by an unincorporated body or an entity registered as a society to own members by way of reimbursement of charges or share of contribution –

(a) as a trade union;

(b) for the provision of exempt services by the entity to third persons; 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;

29. Services by the following persons in respective capacities -

(a) a sub-broker or an authorized person to a stock broker;

(b) an authorized person to a member of a commodity exchange;

(c) a mutual fund agent or distributor to mutual fund or asset management company for distribution or marketing of mutual fund;

(d) a selling or marketing agent of lottery tickets to a distributer or a selling agent;

(e) a selling agent or a distributer of SIM cards or recharge coupon vouchers; or

(f) a business facilitator or a business correspondent to a banking company or an insurance company in a rural area;

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 up to 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 organizer 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 telephones;

(b) guaranteed public telephones operating only for local calls; or

(c) free telephone at airport and hospitals where no bills are being issued;

33. Services by way of slaughtering of bovine animals;

34. Services received from a service provider located in a non- taxable territory by -

(a) the Government, a local authority or an individual in relation to any purpose other than industry, business or commerce; or

(b) An entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) for the purposes of providing charitable activities.

Introduction to service tax in India

INTRODUCTION TO SERVICE TAX IN INDIA

Taxes in India are levied by the Central Government and the state governments. Some minor taxes are also levied by the local authorities such the Municipality or the Local Council. Service Tax is a Tax levied by the Central Government of India.

Compliance of Service Tax Rules has always been a big challenge before organizations. One of the main reasons for confusion over service tax compliance has been the fact that law changes every year by way of clarifications being given and introduction of new services for the purpose of charging service tax apart from making changes to the existing categories to expand the scope of levy.

Finance Act 2012 announced paradigm shift in the way services are proposed to be taxed in future. All services brought under service tax net except specifically exempted or covered under the “Negative List of Services”. In some situations service receiver was made responsible for deposit of service tax against services received by them.

1.1. What is Service Tax and who pays this tax?

Service Tax is a form of indirect tax imposed on services. Service tax now levied on all service except specifically exempt or covered under negative list of services.

Over the past few years, service tax been expanded to cover most of the services. For the purpose of levying service tax, the value of any taxable service should be the gross amount charged by the service provider for the service rendered by him.

Service Tax was first brought into force with effect from 1 July 1994. All service providers in India, except those in the state of Jammu and Kashmir, are required to pay a Service Tax in India.

Initially only three services were brought under the net of service tax and the tax rate was 5%. Gradually most of the services came under the ambit of Service Tax. The rate of tax was increased from 5% to 8% w.e.f. 14 May 2003. From 10 September 2004 the rate of Service Tax was enhanced to 10% from 8%. Besides this 2% education cess on the amount of Service Tax was also introduced. In the year 2006-2007, service tax was increased from 10% to 12%. On February 24, 2009 in order to give relief to the industry reeling under the impact of economic recession, the rate of Service Tax was reduced from 12 per cent to 10 per cent and from 1st April 2012 it has again increased to 12%.

1.2 ABATEMENT IN CASE OF SOME SERVICES

Even though maximum service tax is charged @ 12.36% (including 3% Cess) law provides abatement in certain cases.

Abatement is a fixed % age of value of services that is allowed to be deducted from it for calculation of service tax. In other words it is the amount liable to be reduced from value of taxable service as per finance act and rules therein. This abatement can be claimed by the service provider if he has not claimed the cenvat credit on input services/goods. Suppose a person has provided a service of Rs 100 and abatement on that service is 30 % than he can pay tax only on 70 % amount. For example in case of tour operator Service tax is applicable on following percentage of services after abatements are allowed:

Sl. No.

Description of taxable service

Percentage

(1)

(2)

(3)

Renting of any motor vehicle designed to carry passengers

40

(i) Services provided or to be provided to any person, by a tour operator in relation to a package tour

25

(ii) Services provided or to be provided to any person, by a tour operator in relation to a tour, if the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour

10

(iii) Services, other than services specified in (i) and (ii) above, provided or to be provided to any person, by a tour operator in relation to a tour

40

1.3 Who is liable to pay service tax?

Normally, the ‘person’ who provides the taxable service on receipt of service charges is responsible for paying the Service Tax to the Government. However, in few situations the receiver of the Services is also made responsible for the payment of Service tax for example where taxable services are provided by Foreign Service providers with no establishment in India, the recipient of such services in India is liable to pay Service Tax. In the following situations, the receiver of the Services is made responsible for the payment of Service tax:

Sl.No.

Description of a service

Percentage of service tax payable by the person providing service

Percentage of service tax payable by the person receiving the service

1

services provided or agreed to be provided by an insurance agent to any person carrying on insurance business

Nil

100%

2

services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road

Nil

100%

3

services provided or agreed to be provided by way of sponsorship

Nil

100%

4

services provided or agreed to be provided by an arbitral tribunal

Nil

100%

5

services provided or agreed to be provided by individual advocate

Nil

100%

6

services provided or agreed to be provided by way of support service by Government or local authority

Nil

100%

7

(a) in respect of services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on abated value.

(b) in respect of services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on non abated value.

Nil

60%

100 %

40%

8.

services provided or agreed to be provided by way of supply of manpower for any purpose

25%

75 %

9.

services provided or agreed to be provided by way of works contract

50%

50%

10

any taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory(IMPORT OF SERVICES)

Nil

100%

1.4 CONCEPT OF CLASSIFICATION

The service provider should ensure that he classifies the service properly as this would enable him to ascertain his liability correctly. Correct classification is critical as the exemptions under service tax barring the general exemptions are based on specified categories and if the classification is wrong, the service provider may either end up paying more than required or even face a liability. For the purposes of classification, the category which gives the most specific description of the service should be adopted.

1.5 PAYMENT OF SERVICE TAX

The service provider providing taxable services shall be required to pay service tax by the 5th of the month following the month in which the sums are received towards such taxable service. However, in respect of the amounts received in the month of March, the payment would have to be made by the 31st of March and not by 5th of April.

1.6 PAYMENT OF INTEREST

Where there is short payment or delay in payment of service tax. The present notified rate is 18% p.a. simple interest and this should be paid along with the tax. The interest shall be for the period of default. Interest is mandatory in nature as far as the service tax is concerned.

1.7 POINT OF TAXATION RULES

Point of taxation means the point in time when a service shall be deemed to have been provided. According to Rule 3 of Service Tax Rules provision of service shall be the earliest of the following dates:

(i) date on which service is provided (or to be provided).

(ii) date of invoice.

(iii) date of payment received.

In other words, a taxable service, to be provided at a future date, shall also be taxable before its actual execution.

1.8 FILING OF RETURNS

It is provided that an assessee whose service tax liability was Rs. 25 lakhs or more in the previous year and in case of a newly registered service provider other than individual or firms, will have to file return “Monthly”.

And in other cases i.e. Individuals and partnership firm or proprietary firms having paid service tax of less than Rs. 25 lakhs in previous year, will have to file return ‘Quarterly.’

Penalty for Late Filing of Service Tax Return

Day wise default criteria

Penalty Amount (Rs.)

< 15 days

500 Rs. per day

> 15 days but < 30 days

1000 Rs. per day

> 30 days

1000 Rs. fix plus Rs. 100 per day or Rs. 20,000/- maximum

The same provisions apply for NIL returns

1.9 PROCEDURE WITH REGARD TO INVOICING

Under Service Tax the assessee is expected to ensure following points before raising a invoice:

The invoicing requirement is governed by Rule 4A of Service Tax Rules 1994.

· The invoice is to be issued within 14 days of completion of taxable service or receipt of amount whichever is earlier.

· The invoice / bill / challan should be signed by such service provider or a person authorised by him.

· The invoice shall be serially numbered and should contain the following information -

Ø The name, address and registration number of the service provider.

Ø The name and address of the service receiver

Ø Date of raising of invoice

Ø Details of the customer’s/client’s work order/purchase order

Ø Description, classification and value of taxable service provided.

Ø The amount of ST and Education cess/SHE Cess charged on such service tax

Ø Break up of the amount charged towards the service

Illustrative format for the service invoice is given below –

(Tax Invoice/Invoice U/R 4A of Service Tax Rules 1994)

(Name and address of the service provider)

ST Registration number

Invoice Number

Date

(Name and address of the service receiver)

PO Ref

Date

Particulars

Amount in Rs

Amount in Rs

Description of service provided (Classification wise)

Gross amount

Exemption being claimed (details)

Amount to be subjected to service tax

Service tax at 12%

Education cess 2%

Secondary and Higher Education cess 1%

Total service tax

(In words)

Others

Total bill amount

1.10 FREQUENT ERRORS COMMITTED IN SERVICE TAX

The assessee is generally seen committing following mistakes during compliance of service tax rules:

1. Classifying the services under wrong category results in inaccurate computation of service tax liability due to different rates applicable to each type of service.

5. Generating invoice not as per 4A of Service Tax Rules 1994.

6. Deposit of Challan under wrong category resulting in excess payment under one category and short payment under another category. It is pertinent to note that Inter adjustment of wrongly deposited service tax is not allowed under service tax rules.

7. Short payment or excess payment of service tax due to improper accounting of the service tax amounts.

8. Delay in payment of service tax liability.

9. Delay in filing of service tax returns.

10. Failing to pay tax u/s 68(2) on services received in India from abroad when the same constitutes an import of service.

11. Excluding the expenses reimbursed by the service receiver from the purview of service tax where the same is not incurred by the service provider as a pure agent of the service receiver.

12. Non segregation of the education cess and Secondary Higher Education cess amounts from the basic portion of service tax invoices.

New Accounting Codes for Deposit of Service Tax

The New Accounting Codes for Deposit of Service tax According to the Circular No.161/12/2012 -ST; F.No.341/21/2012-TRU are as follows:

Applicable Accounting Code for payment of service tax under the Negative List approach to taxation of services, with effect from the first day of July 2012 .

Negative List based comprehensive approach to taxation of services came into effect from the first day of July, 2012. For payment of service tax under the new approach, a new Minor Head – ‘All taxable Services’ has been allotted under the Major Head “0044-Service Tax”.

2. Accounting codes for the purpose of payment of service tax under the Negative List approach, with effect from 1st July, 2012 is as follows:

Name of Services

Accounting codes

Tax collection Other Receipts Penalties Deduct refunds
All Taxable Services 00441089 00441090 00441093 00441094

NOTE: (i) service specific accounting codes will also continue to operate, side by side, for accounting of service tax pertaining to the past period (meaning, for the period prior to 1st July, 2012); (ii) Primary Education Cess on all taxable services will be booked under 00440298 and Secondary and Higher Education Cess on all taxable services will be booked under 00440426; (iii) a new sub-head has been created for payment of “penalty”; the sub-head “other receipts” is meant only for payment of interest etc. leviable on delayed payment of service tax; (iv) the sub-head “deduct refunds” is not to be used by the assessees, as it is meant for use by the Revenue/Commissionerates while allowing refund of tax.

Notification No. 34/2012 – RESCINDED OLD ABATEMENT

Notification No. 34/2012- Service Tax

New Delhi, the 20th June, 2012

G.S.R…..(E).- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby rescinds the following notifications of the Government of India in the Ministry of Finance (Department of Revenue), as specified in column (2) of the Table below, except as respects things done or omitted to be done before such recession namely:-

Table

SL. NO.

(1)

NOTIFICATION NO. AND DATE

(2)

1.

06/2012- Service Tax, dated 17-03-2012.[G.S.R. 204(E), dated 17-03-2012]

2.

45/2011 – Service Tax, dated 12-09-2011.[G.S.R. 672(E), dated 12-09-2011]

3.

42/2011 – Service Tax, dated 25-07-2011.[G.S.R. 566(E), dated 25-07-2011]

4.

33/2011 – Service Tax, dated 25-04-2011.[G.S.R 341(E) dated 25-04-2011]

5.

31/2011 – Service Tax, dated 25-04-2011.[G.S.R 339(E) dated 25-04-2011]

6.

30/2011 – Service Tax, dated 25-04-2011.[G.S.R 338(E) dated 25-04-2011]

7.

11/2011 – Service Tax, dated 01-03-2011 .[G.S.R 168(E) dated 01-03-2011]

8.

10/2011 – Service Tax, dated 01-03-2011 .[G.S.R.167(E) dated 01-03-2011]

9.

09/2011 – Service Tax, dated 01-03-2011. [G.S.R.166(E) dated 01-03-2011]

10.

08/2011 – Service Tax, dated 01-03-2011. [G.S.R.165(E) dated 01-03-2011]

11.

07/2011 – Service Tax, dated 01-03-2011. [G.S.R.164(E) dated 01-03-2011]

12.

06/2011 – Service Tax, dated 01-03-2011. [G.S.R. 163(E) dated 01-03-2011]

13.

05/2011 – Service Tax, dated 01-03-2011. [G.S.R. 162(E) dated 01-03-2011]

14.

58/2010 – Service Tax, dated 21-12-2010. [G.S.R.996(E) dated 21-12-2010]

15.

53/2010 – Service Tax, dated 21-12-2010. [G.S.R.991(E) dated 21-12-2010]

16.

50/2010 – Service Tax, dated 08-10-2010. [G.S.R.823(E) dated 08-10-2010]

17.

47/2010 – Service Tax, dated 03-09-2010. [G.S.R 727(E) dated 03-09-2010]

18.

42/2010 – Service Tax, dated 28-06-2010. [G.S.R.563(E) dated 28-06-2010]

19.

41/2010 – Service Tax, dated 28-06-2010. [G.S.R.562(E) dated 28-06-2010]

20.

38/2010 – Service Tax, dated 28-06-2010. [G.S.R.559(E) dated 28-06-2010]

21.

32/2010 – Service Tax, dated 22-06-2010. [G.S.R.538(E) dated 22-06-2010]

22.

31/2010 – Service Tax, dated 22-06-2010. [G.S.R.537(E) dated 22-06-2010]

23.

30/2010 – Service Tax, dated 22-06-2010. [G.S.R.536(E) dated 22-06-2010]

24.

28/2010 – Service Tax, dated 22-06-2010. [G.S.R.534(E) dated 22-06-2010]

25.

27/2010 – Service Tax, dated 22-06-2010. [G.S.R.533(E) dated 22-06-2010]

26.

25/2010 – Service Tax, dated 22-06-2010. [G.S.R. 531(E)dated 22-06-2010]

27.

23/2010 – Service Tax, dated 29-04-2010. [G.S.R.345(E) dated 29-04-2010]

28.

13/2010 – Service Tax, dated 27-02-2010. [G.S.R.157(E) dated 27-02-2010]

29.

12/2010 – Service Tax, dated 27-02-2010. [G.S.R.156(E) dated 27-02-2010]

30.

11/2010 – Service Tax, dated 27-02-2010. [G.S.R.155(E) dated 27-02-2010]

31.

10/2010 – Service Tax, dated 27-02-2010. [G.S.R.154(E) dated 27-02-2010]

32.

08/2010 – Service Tax, dated 27-02-2010. [G.S.R.152(E) dated 27-02-2010]

33.

42/2009 – Service Tax, dated 12-11-2009. [G.S.R.821(E) dated 12-11-2009]

34.

41/2009 – Service Tax, dated 23-10-2009. [G.S.R.776(E) dated 23-10-2009]

35.

39/2009 – Service Tax, dated 23-09-2009. [G.S.R.696(E) dated 23-09-2009]

36.

33/2009- Service Tax, dated 1-9-2009. [G.S.R.627(E) dated 1-9-2009]

37.

32/2009 – Service Tax, dated 1-09-2009. [G.S.R.626(E) dated 1-9-2009]

38.

31/2009 – Service Tax, dated 1-09-2009. [G.S.R.625(E) dated 1-9-2009]

39.

30/2009 – Service Tax, dated 31-08-2009. [G.S.R.619(E) dated 31-08-2009]

40.

24/2009- Service Tax, dated 27-7-2009. [G.S.R.551(E) dated 27-7-2009]

41.

20/2009 – Service Tax, dated 07-07-2009. [G.S.R.492(E) dated 07-07-2009]

42.

19/2009 – Service Tax, dated 07-07-2009. [G.S.R.491(E) dated 07-07-2009]

43.

01/2009 – Service Tax, dated 05-01-2009. [G.S.R.10(E) dated 05-01-2009]

44.

14/2008 – Service Tax, dated 01-03-2008. [G.S.R.158(E) dated 01-03-2008]

45.

13/2008- Service Tax, dated 01-03-2008. [G.S.R.157(E) dated 01-03-2008]

46.

34/2007 – Service Tax, dated 23-05-2007. [G.S.R.387(E) dated 23-05-2007]

47.

33/2007 – Service Tax, dated 23-05-2007. [G.S.R.386(E) dated 23-05-2007]

48.

25/2007- Service Tax, dated 22-05-2007. [G.S.R.371(E) dated 22-05-2007]

49.

12/2007- Service Tax dated 01-03-2007. [G.S.R.166(E) dated 01-03-2007]

50.

11/2007- Service Tax dated 01-03-2007. [G.S.R.165(E) dated 01-03-2007]

51.

10/2007- Service Tax dated 01-03-2007. [G.S.R.164(E) dated 01-03-2007]

52.

08/2007- Service Tax dated 01-03-2007. [G.S.R.162(E) dated 01-03-2007]

53.

22/2006- Service Tax, dated 31-05-2006. [G.S.R.328(E) dated 31-05-2006]

54.

06/2006- Service Tax, dated 01-03-2006. [G.S.R.120(E) dated 01-03-2006]

55.

04/2006- Service Tax, dated 01-03-2006. [G.S.R.118(E) dated 01-03-2006]

56.

01/2006- Service Tax, dated 01-03-2006. [G.S.R.115(E) dated 01-03-2006]

57.

29/2005- Service Tax, dated 15-07-2005. [G.S.R.477(E) dated 15-07-2005]

58.

21/2005- Service Tax, dated 07-06-2005. [G.S.R.363(E) dated 07-06-2005]

59.

17/2005- Service Tax, dated 07-06-2005. [G.S.R.359(E) dated 07-06-2005]

60.

08/2005- Service Tax, dated 01-03-2005. [G.S.R.142(E) dated 01-03-2005]

61.

34/2004- Service Tax, dated 03-12-2004. [G.S.R.789(E) dated 03-12-2004]

62.

33/2004- Service Tax, dated 3-12-2004. [G.S.R.788(E) dated 3-12-2004]

63.

29/2004- Service Tax, dated 22-09-2004. [G.S.R.632(E) dated 22-09-2004]

64.

24/2004- Service Tax, dated 10-09-2004. [G.S.R.598(E) dated 10-09-2004]

65.

17/2004- Service Tax, dated 10-09-2004. [G.S.R.591(E) dated 10-09-2004]

66.

14/2004- Service Tax, dated 10-09-2004. [G.S.R.588(E) dated 10-09-2004]

67.

13/2004- Service Tax, dated 10-09-2004. [G.S.R.587(E) dated 10-09-2004]

68.

16/2003- Service Tax, dated 11-07-2003. [G.S.R.542(E) dated 11-07-2003]

69.

14/2003- Service Tax, dated 20-06-2003. [G.S.R.505(E) dated 20-06-2003]

70.

13/2003- Service Tax, dated 20-06-2003. [G.S.R.504(E) dated 20-06-2003]

71.

12/2003- Service Tax, dated 20-06-2003. [G.S.R.503(E) dated 20-06-2003]

72.

10/2003- Service Tax, dated 20-06-2003. [G.S.R.502(E) dated 20-06-2003]

73.

18/2002- Service Tax, dated 16-12-2002. [G.S.R.823(E) dated 16-12-2002]

74.

16/2002- Service Tax, dated 02-08-2002. [G.S.R.546(E) dated 02-08-2002]

75.

10/2002- Service Tax, dated 01-08-2002. [G.S.R.538(E)dated 01-08-2002]

76.

4/2000- Service Tax, dated 31-07-2000. [G.S.R.643(E) dated 31-07-2000]

77.

3/2000- Service Tax, dated 06-07-2000. [G.S.R.588(E) dated 06-07-2000]

78.

2/2000- Service Tax, dated 01-03-2000. [G.S.R.210(E) dated 01-03-2000]

79.

22/1997- Service Tax, dated 26-06-1997. [G.S.R. 348(E) dated 26-06-1997]

80.

12/1997- Service Tax, dated 14-02-1997. [G.S.R.74(E) dated 14-02-1997]

81.

03/1994- Service Tax, dated 30-06-1994. [G.S.R.555(E) dated 30-06-1994]

2. This notification shall come into force on the 1st day of July, 2012.

[F.No. 334 /1/ 2012-TRU]

Service tax on staff benefits and employment

DRAFT CIRCULAR

F.No 354/127/2012-TRU

Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs
Tax Research Unit

146 North Block, New Delhi
Dated 27th July 2012

Subject: – Draft Circular on leviability of service tax on staff benefits and employment related transactions- reg

Subsequent to the operationlisation of the Negative List, a number of issues have been raised in relation to the manpower supply or the services provided by the directors of a company or by the employer to the employees. These issues have been examined and are proposed to be clarified as follows:

A. Scope of manpower supply

2. After the operationlisation of the Negative List, the erstwhile definition of the manpower recruitment or supply agency is no more applicable. Thus, the words manpower supply would have to be given their natural meaning. The manpower supply is understood to mean when one person provides another person with the use of one or more individuals who are contractually employed or otherwise engaged by the first person. The essence of the employment should be that the individuals should be employed by the provider of the service and not by the recipient of the service.

3. There could be certain contracts in which such manpower is made available to execute another independent contract by the service provider. For example, a person may agree to carry out construction or a manufacture for another in which certain manpower may be engaged. As long as such manpower is not placed operationally under the superintendence or control of the recipient, it shall not be a case of manpower supply, though it will continue to be judged independently whether it comprises any other taxable service.

4. There are also cases of secondment whereby certain staff belonging to an organization is placed at the disposal of a subsidiary company or any other associate company. Such cases will be covered by the definition of manpower supply as the contractual employment continues to be with the parent company.

B. Joint Employment

5. There can also be cases where staff is employed by one or more employers who normally share the cost of such employment. The services provided by such employee will be covered by the exclusion provided in the definition of service. However, if the staff has been engaged by one employer and only made available to other for a consideration, it shall not be a case of joint employment.

6. Another arrangement could be where one entity pays the salary and other expenses of the staff on behalf of other joint employers which are later recouped from the other employers on an agreed basis on actuals. Such recoveries will not be liable to service tax as it is merely a case of cost reimbursement.

C. Directors

7. Services of a director on the board of a company have now become taxable. A director may be appointed either in an individual capacity or to represent an entity (including government) who has either invested in the company or is otherwise authorized to nominate a director. When a director receives payment in his personal capacity, the same is liable to be taxed in the hands of the director. However, where the fee is charged by the entity appointing the director and is paid to such entity, the services shall be deemed to be supplied by such an entity and not by the individual director. Thus in the case of Govt. nominees, the services shall be deemed to be provided by the Govt. and liable to be taxed under the exclusion sub- (iv) of clause (a) of section 66D of the Finance Act, 1994 i.e. support services by Government to business. Such services are liable to be taxed on reverse charge basis.

D. Treatment of supplies made by the employer to employees

8. A number of activities are carried out by the employers for the employees for a consideration. Such activities fall within the definition of “service” and are liable to be taxed unless specified in the Negative List or otherwise exempted.

9. One of the ingredients for the taxation is that such activity should be provided for consideration. Where the employees pays for such services or where the amount is deducted from the salary, there does not seem to be any doubt. However, in certain situations, such services may be provided against a portion of the salary foregone by the employee. Such activities will also be considered as having been made for a consideration and thus liable to tax. Cenvat credit for inputs and input services used to provide such services will be eligible under extant rules. The said goods or services would now not be construed to be for personal use or consumption of an employee per se and rather shall be a constituent to the taxable service provided to an employee. The status of the employee would be as a service recipient rather than as a mere employee when consuming such output service. The valuation of the service so provided by the employer to the employee shall be determined as per the extant rules in this regard.

10. However, any activity available to all the employees free of charge without any reduction from the emoluments shall not be considered as an activity for consideration and will thus remain outside the purview of the service tax liability (facilities like crèche, gymnasium or a health club which all employees may use without any charge or reduction from the salary will be outside the tax net). However the Cenvat credit for such inputs and input services will be guided by the extant rules.

11. Moreover, it would need to be seen whether the services provided by the employer are otherwise covered by the Negative List or exempt. For example, the services of food and catering provided by the employer in a canteen would normally fall outside the tax net unless such canteen has both the facility of air-conditioning as well as license to serve liquor (S. No. 19 of the Mega exemption). Likewise, services provided by way of guest house will also not be liable to tax if the tariff for such unit of accommodation is below Rs.1000 per day or equivalent (S. No. 18 of the Mega exemption). Similarly, services of telephone and motorcar for personal use will be covered by the service tax.

E. Treatment of reimbursements made by the employer to the employee.

12. Provision of service by an employee to the employer in the course of or in relation to his employment is excluded from the definition of the “service”. Thus reimbursements of expenditure incurred on behalf of the employer in course of employment would not amount to a “service” per se and hence are non-taxable.

F. Treatment of supplies and reimbursements made by the employer to ex-employees/ pensioners.

13. The supplies made by the employer to the ex-employees or pensioners will be of same status as those to an employee and thus would accordingly attract taxability as per discussion in D above. The reimbursements to pensioners will also be treated at par with those of current employees when such reimbursements arise out of the initial employment contract or are in relation to that employment.

14. Chambers, trade, industry and field formations are requested to go through the draft Circular and offer their comments, views and suggestions. It is requested that comments, views and suggestions on the same may be forwarded to the undersigned on or before 24th August 2012. The same may also be emailed to shobhit.jain@nic.in

(Dr Shobhit Jain)

OSD TRU