Hand Book on Service Tax

Tuesday, February 25, 2014

service tax on security agency service

1.1. Definition of security agency service:

As per rule 2(fa) of service tax rule, 1994, security services means services relating to the security of any property, whether movable or immovable, or of any person, in any manner and includes the services of investigation, detection or verification, of any fact or activity.

1.2. Reverse charge mechanism on supply of manpower:

As per notification 30/2012-ST dated 20.6.2012, In respect of services provided or agreed to be provided of supply of manpower service, the liability pay service tax would be as follows:

Taxable Service	Provided by	Provided to	Percentage of service tax payable by the person providing service	Percentage of service tax payable by the person receiving the service
services provided by way of security service	· Individual · HUF · proprietary firm · partnership firm · AOP	· Company · LLP	25%	75%

1.3. Valuation of security services:

As per letter no F. No. B. 11/1/98-TRU dated 7-10-1998 - service tax is leviable on the entire amount charged by the security agency to its clients to whom security guards/personnel have been provided as the bulk of charges represent salary to the employee, employee’s ESI and EPF contribution, income tax deducted at source, payment towards professional tax, labour welfare fund and other non-statutory charges such as bonus, leave and other expenses. The abatement in respect of statutory levies and taxes can be granted provided the same has direct relation with the services rendered to the client, billed to the client and is reimbursable by the client on actual basis. These statutory levies are required to be borne by all types of employers and not just security agencies. Such statutory levies have no direct co-relation with the services rendered to the client. It has been clarified that no abatement in respect of such statutory levies is admissible for the purposes of computing the service tax liability.
As per following judgments, service tax is payable on gross amount charged by security agency to client including salary of gaurds, employer’s ESIC, PF contribution towards labour funds, bonus, leave, uniform etc and amount should be inclusive service tax and back calculation would be made:
·         Ideal security v. CCE (2011) 33 STT 26 (CESTAT)
·         Premier security enterprises v. CCE (2009) 23 STT 418 (CESTAT)
·         Panther Detective services v. CCE (2007) 8 STT 215 (CESTAT)

1.4. Reverse charge on security services provided by police:

Services provided by police to PSU or corporate or sports event held will be taxable as security service and tax will be actually payable on reverse charge by the recipient. (As per CBEC “taxation of service: An Education guide – 20.6.2012)

1.5. Cenvat credit

CCE & C, Guntur v. Hindustan Coca-cola Beverages Pvt Ltd (2009) 15 STR 248 (Cestat, Bangalore) – credit of service tax on security agency services for preventing theft of goods held to be in relation to manufacture and Cenvat credit allowed on such security services.
CCE v. Ultra Tech cement Ltd (2009) 16 STR 611 (Cestat, Mumbai) – security arranged in off factory residential colony which has no nexus with business or manufacturing of excisable goods would not be entitled to avail credit of service tax paid on security services.

1.6. Judgments

Sudharson security Bureau v. CCE (2008) STT 71 (Cestat, Chennai) – expenses like employee’s wages, ESI, PPF subscription etc. and other reimbursement expenses which were incurred by assessee in connection with rendering of security services to clients formed part of value of taxable service for payment of service tax

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service tax on Legal service

1. Legal service

1.1. Definitions

As per mega exemption notification no. 25/2012-ST, Dated 20^th June, 2012:
“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)
“arbitral tribunal” has the meaning assigned to it in clause (d) of section 2 of the Arbitration and Conciliation Act, 1996 (26 of 1996)
“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.
Business entity: As per section 65B(17) of the act, “Business entity” includes an association of persons, body of individuals, company or firm but does not include an individual.

1.2. Mega Exemption Notification

As per entry no. 6 of mega exemption notification no. 25/2012-ST dated 20.6.2012, following Services are exempt from service tax-

(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

1.3. Reverse charge on legal consultancy services:

As per Notification No. 30/2012 – ST dated 20-06-2012, service tax in respect of services of an Arbitral Tribunal or an individual advocate or a firm of advocates by way of legal services provided or to be provided shall be payable as follows:

Taxable Service	Provided by	Provided to	Percentage of service tax payable by the person providing service	Percentage of service tax payable by the person receiving the service
services provided by an arbitral tribunal	Arbitral tribunal	Any business entity	NIL	100%
services provided by individual advocate or firm of advocate by legal services	Individual advocate or firm of advocate	Any business entity	NIL	100%

1.4. Taxability of the service

The individual advocates or a partnership firm of advocates providing legal service are not liable to pay service tax under any circumstance and in case of service provided to the business entities having turnover above Rs. 10 Lakhs in the preceding financial year, such business entities are only liable to pay tax.
However, for legal service provided or agreed to be provided to business entities located outside India where place of provision of service is within the taxable territory, the advocate or firm of advocates is liable to pay tax.

1.5. Basis of payment of service tax
A proviso to Rule 6 of Service tax Rules, 1994, in case of individuals and partnership firms whose aggregate value of taxable services provided from one or more premises is less than Rs. 50 lacs in the previous financial year, the service provider shall have the option to pay tax on taxable services provided or agreed to be provided by him up to a total of Rs. 50 lacs in the current financial year, on the basis of receipt of payment.

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service tax on intellectual property right

1. Intellectual property right

1.1. Meaning of intellectual property:

The Term ‘intellectual property right’ has not been defined in new section of 65B Interpretation of finance act 1994. In old section 66(55a) defines “intellectual property right” as under –

‘Intellectual property right’ means any right to intangible property, namely, trade marks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright.

Further, as per old section 66(55b) defines ‘intellectual property service’ as (a) transferring, temporarily; or (b) permitting the use or enjoyment of, any intellectual property right;’;

As per MF(DR) circular no. B2/8/2004-TRU dated 10-9-2004 - Intellectual property emerges from application of intellect, which may be in the form of an invention, design, product, process, technology, book, goodwill etc. In India, legislations are made in respect of certain Intellectual Property Rights (i.e.IPRs) such as patents, copyrights, trademarks and designs. The definition of taxable service includes only such IPRs that are prescribed under law for the time being in force. As the phrase ‘law for the time being in force’ implies such laws as are applicable in India, IPRs covered under Indian law in force at present alone are chargeable to service tax and IPRs like integrated circuits or undisclosed information (not covered by Indian law) would not be covered under taxable services.

As per circular no. 80/10/2004-S.T dated 17.09.2004, a permanent transfer of intellectual property right does not amount to rendering of service. On such transfer, the person selling these rights no longer remains a ‘holder of intellectual property right’ so as to come under the purview of taxable service. Thus, there would not be any service tax on permanent transfer of IPRs.

1.2. Declared service

As per section 66E(c) of the act, temporary transfer or permitting the use or enjoyment of any intellectual property right would be constitute as declared service.

1.3. Mega Exemption Notification

As per entry no. 15 of mega exemption notification 25/2012-ST dated 20-6-2012, 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 or artistic works or exhibition cinematograph films in a cinema hall or a cinema theatre would be exempt from service tax.

Vide Finance act, 2013, temporary transfer or permitting the use or enjoyment of a copyright relating to cinematographic films was fully exempt so far; now, this exemption will be restricted to exhibition of cinematograph films in a cinema hall or a cinema theatre.

Cess paid on import of technology: As per Notification No.14/2012 - Service Tax, dated 17.03.2012, the taxable service involving import of technology would be exempt from so much of the service tax leviable thereon under section 66B of the said Act, as is equivalent to the amount of cess payable on the said import of technology under the provisions of section 3 of the Research and Development Cess Act, 1986.

1.4. Point of taxation of IPR

As per Rule 8 of point of taxation rule, 2011, in respect of royalties and payments pertaining to copyrights, trademarks, designs or patents, where the whole amount is not ascertainable at the time when service was performed. In such case, point of taxation would be date of payment or invoice is issued by provider, whichever is earlier.

1.5. Clarification from CBEC

Production of alcoholic beverages under the Brand Licensing Arrangement (C.B.E &C letter 249/1/2006-CX 4 dated 27.12.2006) - Many alcoholic beverages bear brand names. The Brand Owners (hereinafter called the BO), which includes Indian subsidiaries of International brand owners, hold the intellectual property rights over such brand names. The Licensee (who holds the license by the State Government to manufacture such alcoholic beverages) manufactures alcoholic beverages under authority to use such brand name granted by the BO. The BO may also provide technical staff/assistance to maintain required quality. The alcoholic beverages, so manufactured are directly sold (after paying State excise duty) by license/manufacturer and not with the BO, who is paid an agreed sum for grant of permission to use such brand name and the technical know-how. In such cases the BO provides taxable service, namely ‘Intellectual Property Service’ to the licensee/manufacturer. The tax is chargeable on the gross amount charged by the BO from the licensee/manufacturer.

1.6. Cases relating to IPR

· Hero Honda Motors v. CST (2012) 35 STT 417 (CESTAT) - permission given to oil company to use his trade mark on oils, lubricants and greases manufactured by the oil company would IPR service.

· CIT v. Sun TV Ltd (2007) 161 Taxman 351 (Del HC) – right to telecast TV program in foreign countries is ‘sale of goods’.

· SPS Jayam & Co V. Registrar, TNTST (2004) 137 STC 117 (Mad HC) – Trade mark is intangible goods and transfer of right to use trade mark is deemed sale.

· Kreem Foods v. State of Kerala (2009) 24 VST 333 (Ker HC) – Trade mark is goods and allowing franchisee to use trade mark is transfer of right o use goods and hence is deemed sale.

CIT v. Giza Impex (2008) 166 Taxman 30 (Mad HC) – Master copies of film songs and music are ‘goods’.To join google group regular updates or query on service tax send mail to handbookonservicetax@gmail.com

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service tax on hiring of goods

1. Hiring of goods

1.1. Declared service:

As per section 66E(f) of the act, transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods would be constitute as declared service.

1.2. Clarification from CBEC

CBEC has clarified in Guidance notes on service tax issued on 20^th June, 2012 on Transfer of right to use goods: ‘Transfer of right of goods’ involves transfer of possession and effective control over such goods. (State of Andhra Pradesh vs. Rashtriya Ispat Nigam Ltd [Judgment dated 6/2/2002 in Civil Appeal no. 31 of 1991]. Further as per Bharat Sanchar Nigam Limited vs. Union of India [2006 (2) STR 161 (SC)] test to determine ‘transfer of right to use goods’:

· There must be goods available for delivery;

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

· 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 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.

· Examples on transaction not involve transfer of right to use:

o A car is given on hire by a person to a company along with a driver on payment of charges on per month/mileage basis

o Supply of equipment like excavators, wheel loaders, dump trucks, cranes, etc for use in a particular project where the person to whom such equipment is supplied, is subject to such terms and conditions in the contract relating to the manner of use of such equipment, return of such equipment after a specified time, maintenance and upkeep of such equipment.

o Hiring of bank lockers

o Hiring out of vehicles where it is the responsibility of the owner to abide by all the laws relating to motor vehicles

o Hiring of audio visual equipment where risk is of the owner

1.3. Exemption on hiring services:

As per entry no. 22 of mega exemption notification no. 25/2012-ST dated 20-6-2012: 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

1.4. Cenvat credit on goods used in providing hire service:

CBEC letter no. 137/120/2008-CX4 dated 23-10-2008: Cenvat credit of excise duty / CVD paid on goods used in providing service of ‘supply of tangible goods’ would be eligible.

1.5. Judgments on hire of goods:

· Viceroy hotels v. CTO (2011) 43 VST 424 (AP HC DB), audio visual equipment given on hire for conference under effective control of person hiring the equipment would be transfer of right to use the good and VAT is payable

· Tamil nadu v. Essar Shipping Ltd (2012) 47 VST 209 (Mad HC): Time charter-party agreement to hire out vessels to charters is not transfer of right to use goods. Hence, service tax would be required to pay.

· State of Tamil nadu v. Elcome Surveys P. Ltd (2012) 47 VST 258 (Mad HC): Physical possession and effective control of Off-shore equipment was with hirer; however hirer has no right to use equipment on its own. Hence, there is no transfer of right to use goods and service tax would apply.

· Alpha Clays v. State of Kerala (2004) 135 STC 107 (Ker HC): Machinery has been provided with men to carry out specified work would be a service contract. It would not be consider as ‘hire charges’

State of Andhra Pradesh v. Prakash Arts (2008) 18 VST 39 (AP HC): Hire charges for advertisement hording is lease of immovable property and not transfer of right to use goodsTo join google group regular updates or query on service tax send mail to handbookonservicetax@gmail.com

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service tax on Job work

1. Job work

1.1. Meaning of Job work:

As per section 2(n) of Cenvat Credit rules, 2004, “job work" means processing or working upon of raw material or semi-finished goods supplied to the job worker, so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for aforesaid process and the expression "job worker" shall be construed accordingly.

1.2. Negative list entry:

As per section 66D(f) of Act, any process amounting to manufacture or production of goods is not taxable service. Accordingly, if ant job work carried out which amounts to manufacture or production of goods; in such case such activity would be exempt from service tax.
“Process amounting to manufacture or production of goods” (section 65B(40) of act) means a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 or any process amounting to manufacture of 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 for the time being in force.

1.3. Mega Exemption Notification

Exemption to job work under mega exemption notification no. 25/2012-ST, dated 20.6.2012: Following activities carrying out an intermediate production process as job work would be exempt from service tax:

(a)     Job work in relation to agriculture, printing or textile processing;
(b)     Job work of diamonds and gemstones: Job work in relation to 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;
(c)     Job work on goods liable for Excise duty: Job work in relation of any goods on which appropriate duty is payable by the principal manufacturer. ((1) 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. (2) Principal manufacturer means any person who gets goods manufactured or processed on his account from another person)
(d)    Job work on parts of cycle or sewing machines up to Rs. 150 lacs: Job work in relation of 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.

For query on service tax send mail to handbookonservicetax@gmail.com

service tax on Hiring of goods

1. Hiring of goods

1.1. Declared service:

As per section 66E(f) of the act, transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods would be constitute as declared service.

1.2. Clarification from CBEC

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 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.
·         Examples on transaction not involve transfer of right to use:
o    A car is given on hire by a person to a company along with a driver on payment of charges on per month/mileage basis
o    Supply of equipment like excavators, wheel loaders, dump trucks, cranes, etc for use in a particular project where the person to whom such equipment is supplied, is subject to such terms and conditions in the contract relating to the manner of use of such equipment, return of such equipment after a specified time, maintenance and upkeep of such equipment.
o    Hiring of bank lockers
o    Hiring out of vehicles where it is the responsibility of the owner to abide by all the laws relating to motor vehicles
o    Hiring of audio visual equipment where risk is of the owner

1.3. Exemption on hiring services:

As per entry no. 22 of mega exemption notification no. 25/2012-ST dated 20-6-2012: 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

1.4. Cenvat credit on goods used in providing hire service:

CBEC letter no. 137/120/2008-CX4 dated 23-10-2008: Cenvat credit of excise duty / CVD paid on goods used in providing service of ‘supply of tangible goods’ would be eligible.

1.5. Judgments on hire of goods:

·         Commissioner, VAT v. International Travel house Ltd (2009) 25 VST 653 (Del HC), Cabs hired by company but control and possession was with service provider. Service tax would be required to pay and not VAT.
·         Tamil nadu v. Essar Shipping Ltd (2012) 47 VST 209 (Mad HC): Time charter-party agreement to hire out vessels to charters is not transfer of right to use goods. Hence, service tax would be required to pay.
·         State of Tamil nadu v. Elcome Surveys P. Ltd (2012) 47 VST 258 (Mad HC): Physical possession and effective control of Off-shore equipment was with hirer; however hirer has no right to use equipment on its own. Hence, there is no transfer of right to use goods and service tax would apply.
·         Alpha Clays v. State of Kerala (2004) 135 STC 107 (Ker HC): Machinery has been provided with men to carry out specified work would be a service contract. It would not be consider as ‘hire charges’
·         State of Andhra Pradesh v. Prakash Arts (2008) 18 VST 39 (AP HC): Hire charges for advertisement hording is lease of immovable property and not transfer of right to use goods.

For query on service tax send mail to handbookonservicetax@gmail.com