Service tax on Agriculture related service

1.      Agriculture related service

1.1.     Definition related agricultural service:
Agriculture: As per section 65B(3) of the act, it means the cultivation of plants and rearing of all life-forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products;

Agricultural extension: As per section 65B(4) of the act, it means application of scientific research and knowledge to agricultural practices through farmer education or training;

Agricultural produce: As per section 65B(5) of the act, it means any produce of agriculture on which either no further 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

Agricultural Produce Marketing Committee or Board: As per section 65B(6) of the act, it means any committee or board constituted under a State law for the time being in force for the purpose of regulating the marketing of agricultural produce.

1.2.     Exemption in negative list:

As section 66(d) of the act, following services relating to agriculture or agricultural produce would be exempt:

(i)      agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or 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 the 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;

Vide Finance act, 2013, word ‘seed’ has been removed from the expression ‘seed testing’ in section 66D(d)(i) of the act. As a result of removal of word ‘seed’, testing activities not only directly related to seed testing but also directly related to production of any agricultural produce like soil testing, animal feed testing, testing of samples from plants or animals, for pests and disease causing microbes will be covered by the negative list.

1.3.     Exemption under mega exemption notification
Exemption under mega exemption notification, 25/2012-ST dated 20.6.2012:

·       Construction of storage of agricultural produce: services by way of construction, erection, commissioning, or installation of original works pertaining to post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes would be exempt. (Entry no. 14(d))

·       Construction of mechanized food grain handling system: services by way of construction, erection,     commissioning, or installation of original works pertaining to mechanized food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages would be exempt. (Entry no. 14(e))

·         Job work relating to agriculture: Carrying out an intermediate production process as job work in relation to agriculture, printing or textile processing would be exempt. (Entry no. 30)

·       Transport of agricultural products by rail or a vessel: Services by way of transportation by rail or a vessel from one place in India to another of the agricultural produce would be exempt. (Entry no. 20(h))

·       Transport of agricultural products by GTA: Services provided in respect of following agricultural produce by GTA by way of transport in a goods carriage would be exempt: (Entry no. 21)

o    fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage

o    agricultural produce

o    foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages;

1.4.     Clarification by CBEC
Taxability on activities relating agriculture: As per Guidance notes on service tax issued by CBEC on 20^th June, 2012 following activities relating to agriculture would be taxable / exempt:

·       Pisciculture, sericulture & floriculture: Activities like breeding of fish (pisciculture), rearing of silk worms (sericulture), cultivation of ornamental flowers (floriculture) and horticulture, forestry are included in the definition of agriculture.

·       Plantation crops like rubber, tea or coffee: Such crops are also covered under agriculture produce.

·       Potato chips or tomato ketchup: if such products are manufactured through process which alters the essential characteristic of farm produce. Hence, such potato chips or tomato ketchup would not qualify as agricultural produce.

·       Cleaning of wheat: it would be covered in the negative list entry even if the same is done outside the farm.

·       Shelling of paddy: it 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.

·       Cereals, pulses, copra and jiggery: it would be covered in the ambit of ‘agricultural produce’ even though on these products certain amount of processing is done by a person other than a cultivator or producer.

·       The process of grinding, sterilizing, extraction packaging in retail packs of agricultural products, which make the agricultural products marketable in retail market: such process would not be covered in the negative list.

·       Leasing of vacant land with a green house or a storage shed meant for agricultural produce: it would be covered in the negative list.

·       Services of agricultural Produce Marketing Committees or Boards: Such committees and 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.

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Clarification on Service Tax on Redevelopment and Slum Rehabilitation Project (SRA) and Service Tax on floor rising charges

Commissioner of Service tax, Mumbai has issued circluar to clarify service tax on redevelopment and slum rehabiliation project (SRA) and service tax on floor rising charges. The text of said circular is reproduced herebelow:

F.No.V/St-1/Tech-II/463/11

Mumbai, 31^st August, 2012

Clarification regarding service tax on construction industry – reg.

1.       Service Tax on Redevelopment and Slum Rehabilitation Project (SRA) :

As far as taxability for Redevelopment and SRA Projects is concerned, Board has issued a Circular No. 151/2/2012 ST dated 10^th February, 2012. The clarification given in the said Circular would be applicable up to the period 30^th June, 2012 only. After 1st ^July, 2012, following clarification is issued:

Under section 66E of the finance Act, Construction Service has been notified as a declared service.  Further, the exclusion clause of “intended for personal use of residence’’ as was available in the earlier definition is not available in the present definition. Therefore, it is clarified that even when Construction Service is provided to the existing flat owners or slum owners under a scheme of redevelopment or SRA project, Service tax would be liable to be paid for such services. In other words, even when the construction is made for the existing flat owners or slum owners for which no consideration or part consideration is paid to the developer, still Service Tax would be liable to be paid by the person who undertakes the construction activity. For the purpose of valuation, provision of section 67 and the Service tax Valuation Rules may be referred.

2.       Service Tax on floor rising charges:

 As per your letter, it has been mentioned that many builders charge additional amount    known as “floor rise charges” in addition to the normal sale price of a flat. It is also mentioned in your letter that the said charges are recovered for additional construction cost for floor rise because the construction cost increases as per the increase in the floor. On this issue, it is clarified that since the floor rise charges are recovered on account of additional construction cost, it would be treated as part of the consideration for sale of flat in terms of provisions of section 66F (Naturally Bundled Services). Consequently, the floor rise charges would be eligible for the abatement of 75% in terms of Notification No. 26/2012 ST. However , it is clarified that this clarification is limited to floor rise charges only and not for other components of erstwhile definition of “Preferential Location Service” which cover many other services. 

(Sushil Solanki)

Commissioner

Service Tax -I : Mumbai

service tax on banking and financial service

1.      Banking and financial service

1.1.     Definition:

Finance act, 1994 has stated following definition relating to banking and financial services:

As per section 2(14) of the act "authorised dealer of foreign exchange" shall have the meaning assigned to "authorised person" in clause (c) of section 2 of the Foreign Exchange Management Act, 1999

As per section 2(30) of the act, "interest" has the meaning assigned to it in clause (28A) of section 2 of the Income-tax Act, 1961

As per section 2(33) of the act, "money" means legal tender, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any similar instrument but shall not include any currency that is held for its numismatic value;

As per section 2(42) of the act, "Reserve Bank of India" means the bank established under section 3 of the Reserve Bank of India Act, 1934.

As per section 2(43) of the act, "securities"(1) has the meaning assigned to it in clause (h) of section 2 of the Securities Contract (Regulation) Act, 1956;

Mega exemption notification no. 25/2012-ST, dated 20^th June, 2012, “banking company” has the meaning assigned to it in clause (a) of section 45A of the Reserve Bank of India Act, 1934.

As per notification no - 26/2012, Service Tax, 20^th June, 2012 - “chit” means a transaction whether called chit, chit fund, chitty, kuri, or by whatever name by or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical installments over a definite period and that each subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to a prize amount.

As per Place of provisions of rule, 2012, "non-banking financial company" means-

(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

1.2.     Exemption on transaction relating to banking and financial service:

As per section 66D(b) negative list of services, services provided by Reserve Bank of India would be exempt from service tax.

As per section 66D(n) –negative list of services, following activities would be exempt from service tax: 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.

Examples on the above negative 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.

Further, as per entry no. 29 of mega exemption notification 25/2012-ST, dated 20^th June, 2012, services provided by a business facilitator or a business correspondent to banking company or an insurance company, in a rural area would be exempt from service tax. (“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)

1.3.     Valuation of service

Options for determination of service tax on sale and purchase of foreign exchange to others:

Option1 : Service tax on value of service: As per Rule 2B of service tax (Determination of Value) Rules, 2011 and text of Guidance notes on service tax issued by CBEC on 20^th June, 2012 valuation would be done in following manner:

·         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).

·         Manner to determine value 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.

·      Manner to determine value of taxable service 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.

Option 2: Composition scheme: As per Rule (7B) of service tax Rules, person liable to pay service tax has option to pay service tax at following rates, instead of full rate of service tax:

·        0.12 per cent. of the gross amount of currency exchanged for an amount upto rupees 100,000 subject to the minimum amount of rupees 30; and

·         Rupees 120 and 0.06 per cent. of the gross amount of currency exchanged for an amount of rupees exceeding rupees 100,000 and upto rupees 10,00,000; and

·       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

The person providing the service shall exercise above option for a financial year and such option shall not be withdrawn during the remaining part of that financial year.

Service tax on services provided in relation to Chit funds: As per notification no. 26/2012-ST dated 10-6-2012, service tax would be payable on 70% of amount charged subject to Cenvat credit on input, input services and capital goods is not availed.

1.4.     Place of provision of service

As per rule 9 of place of provisions rules, 2012, place of provision of services in case of Services provided by a banking company, or a financial institution, or a non-banking financial company, to account holders shall be the location of the service provider.

CBEC has provided following clarification in Text of Guidance notes on service tax issued by CBEC on 20^th June, 2012:

Meaning of “account holder”: “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).

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.

Services that are not provided by a banking company or financial institution to an account holder, in the ordinary course of business, and consequently not to be covered under this 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.

1.5.     Cenvat credit restriction

As per rule 6(3B) of Cenvat credit rule, 2004, a banking company and a financial institution including a non-banking financial company, engaged in providing services by way of extending deposits, loans or advances, shall pay for every month an amount equal to fifty per cent. of the CENVAT credit availed on inputs and input services in that month.

1.6.     Records of banking and financial institutions

As per rule 4A of service tax rule, 1994, if provider of taxable service is a banking company or a financial institution including a non-banking financial company providing service to any person, then:-

·         Within 45 days the invoice, bill or challan, as the case may be, is to be issued

·         an invoice, a bill or, as the case may be, challan shall include any document, by whatever name called, whether or not serially numbered, and whether or not containing address of the person receiving taxable service.

1.7.     Relevant notifications and circulars:

Taxability on transaction relating banking and financial services clarified in CEBEC’s Taxation of service: An Education Guide issued on 20^th June, 2012:

·         Transaction in Commercial Paper (CP) or Certification of Deposit (CD): Transaction like Issue, subscription or trading in CP and CD would be outside ambit of definition of ‘Service’.

·         Invoice discounting or cheque discounting or any other similar form of discounting: Such discounting would be exempt from service tax only to the extent consideration is represented by way of discount.

·         Transaction in Repos and reverse repos: Such transaction would be outside ambit of definition of ‘service’.

·         Transaction in forward contracts in commodities and currencies or future contracts: Such transaction would be outside ambit of definition of ‘service’.

·         Charges for making drafts, letter of credit issuance charges relating to CP/ CDs: Such charges would be chargeable to service tax subject to other element of taxability are present.

·         Service charges or administration charges received in addition of interest on a loan, advance or a deposit: Such charges would be chargeable to service tax subject to other element of taxability are present.

·       Service charges, service fees, documentation fees, broking fees or such like fees or charges charged on forward contract, future contracts, repos/reverse repos, CD, CPs: Such charges would be chargeable to service tax subject to other element of taxability are present.

·     Late payment of dues on credit card outstanding: Charges for late payment of dues on credit card outstanding would be chargeable to service tax. Further, credit extended after due date of payment on credit card will not amount to loans and advances but the same would be considered in nature of consideration for the services rendered for using the convenience of using the services by way of a credit card and hence taxable.

·      Pre-closer charges, commitment charges, fore-closer charges, charges for pre-payment of loan, reset or restructuring loan charges: Such charges would be chargeable to service tax subject to other element of taxability are present.

·        Sale and purchase of foreign exchange: sale and purchase of foreign exchange between banks or authorized dealers of foreign exchange or between banks and such dealers would be exempt from service tax. However, services provided by banks or authorized dealers of foreign exchange by way of sale of foreign exchange to general public would not be exempt under negative list of services.

1.8.     Judgments

·         Madhav Nagrik Sahkari Bank v. CCE (2012) 35 STT 154 (CESTAT) - Cooperative banks are subject to service tax.

·         Punjab national Bank v. CCE, Chandigarh (2009) 14 STR 465 (Cestat, New delhi) service of MICR (magnetic ink character recognition) for cheque clearing was held as taxable service.

·         State bank of India v. CST, Kolkata (2009) 16 STR 640 (Cestat, Kolkata) – cheque processing services are liable to service tax.

·         Housing Development Finance corporation ltd v. CST, Ahmedabad (2012) 34 STT 129 (Cestat, Ahmedabad) - reset charges and pre-payment charges can be considered as cost incurred by borrow and the same were liable to service tax.

Hand Book on Service Tax: Steps to determine taxable services

Hand Book on Service Tax: Steps to determine taxable services: The drill to identify whether you are providing taxable service is very simple. Pose the questions listed in Step 1 and Step 2 below- ...

Steps to determine taxable services

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:

Sr.No	Question	Answer
	1	2
1	Am I doing an activity (including, but not limited to, an activity specified in section 66E of the Act) for another person*?	Yes
2	Am I doing such activity for a consideration?	Yes
3	Does this activity consist only of transfer of title in goods or immovable property by way of sale, gift or in any other manner?	No
4	Does this activity constitute only 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	No
5	Does this activity consist only of a transaction in money or actionable claim?	No
6	Is the consideration for the activity in the nature of court fees for a court or a tribunal?	No
7	Is such an activity in the nature of a service provided by an employee of such person in the course of employment?	No
8	Is the activity covered in any of the categories specified in Explanation 1 or Explanation 2 to clause (44) of section 65B of the Act	No

[*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  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-

Sr.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 territory?	Yes
3	Is this activity entirely covered in any of the services described in the negative list of services specified in section 66D of the Act?	No

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’.