Service Tax Brajesh
-
Upload
venkat-reddy -
Category
Documents
-
view
228 -
download
0
Transcript of Service Tax Brajesh
-
8/2/2019 Service Tax Brajesh
1/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 1
SERVICE TAX -- III (Taxable Services & Scope)Topics Covered
Taxable Services - Scope with Specific ExemptionsExemption in respect of services used in relation to export goods
TAXABLE SERVICES-SCOPE WITH SPECIFIC EXEMPTIONS
20.1LEGAL CONSULTANCY SERVICE [w.e.f. 1-9-2009]
[1].Taxable service [SectioIl65(105)(zzzzm)]: Taxable service means any service
provided or to be provided to a business entity,
by any other business entity,
in relation to advice, consultancy or assistance in any branch of law,
in any manner.
Appearance before statutory authorities not covered: However, any service provided by way of
appearance before any court, tribunal or authority shall not amount to taxable services,
Business Entity [Section 65(19b)J: "Business entity" -',
includes an association of persons, body of individuals, company or firm,
but does not include an individual.
[2].Scope based on Department clarification [D.O.F. No. 334/l3/2009-TRU, dated 6-7-2009] :
Since business entity does not include an individual, thus, services provided by an individual
advocate either to an individual or even to a business entity would be outside the scope of the taxable
service.
Similarly, the services provided by a corporate legal firm to an individual ,"",auld also be outside the
purview of taxable service.
[3].Point of Taxation: As per the Point of Taxation Rules, 2011, in case of legal consultancy services
provided by Individuals or proprietary firms or partnership firms, the point of taxation shall be the date on
which payment is received by the service provider.
Illustration 1 - Legal consultancy service: Compute service tax payable by XYZ & Co., a partnership firm of
advocates, from the following information
Value of legal consultancy services provided to individuals 2,00,000
Value of legal consultancy services provided to corporate clients 25,00,000
Gross amount charged in respect of appearance in High Court and supreme Court, 35,00,000
Solution: The service tax payable shall be computed as follows-
-
8/2/2019 Service Tax Brajesh
2/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 2
Value of legal consultancy services provided to individuals
Value of legal consultancy services provided to corporate clients
Gross amount charged in respect of appearance in High Court and Supreme Court
Total Value of taxable services
Service Tax thereon @ 10.3%
Not taxable
25,00,000
Not taxable
25,00,000
2,57,500
Illustration 2- Legal consultancy serviceposition after 1-4-2011-Service Tax payable on receipt basis:
Virat Kohli & Co., a partnership firm, is providing taxable legal consultancy services, for the second consecutive
assessment year. The firm furnishes the following information relating to the services rendered, bills raised,
amount received relating to this service, for the year ended 31.03.2012: (amounts in Rs.)
i. Free services rendered to poor people (Value of the services computed on comparative basis) 40,000
ii. Advance received from clients for which no taxable service has been rendered so far 5,00,000
iii. Service billed to clients: Gross amount (Service tax has been charged separately in all the bills; the firm
follows mercantile system of accounting) 12,00,000
iv. The firm has received the following amounts during the year:
a) Relating to taxable services rendered in March, 2011(excluding service tax at applicable rates and TDS under
section 194-j of IT Act, 1961 to the tune of Rs. 45,320) 5,44,680
b) Relating to taxable services rendered in current year 2011-12(excluding service tax at applicable rates and
TDS under section 194-J of IT Act, 1961 to the tune of Rs.1,20,000)* 9,80,000
(*includes Rs. 50,000 for appearance fee before Labour Court received from another firm) Service tax has
been separately received for applicable items in (iv) above
You are required to complete the value of taxable services for the year ended 31.03.2012 and the Service tax
payable, briefly explaining the treatment of each item above. (Marks 8, CA IPCC May 2010)
Solution : Computation of value of taxable services and service tax payable
i.Free services rendered to poor people (Services provided free of cost i.e. without
consideration cannot be charged to service tax. Hence, the comparative value doesnt haveany relevance)
ii.Advances received from clients for which no taxable service has been rendered so for(Service tax is chargeable on service to be provided. Further, the value of taxable services
includes the amount received before provision of taxable service. It is assumed that the
advance received is exclusive of service tax and service tax has been charged separately.]
iii.Services billed to clients: Gross amount (service tax has been charged separately in all the
bills; the firm follows mercantile system of accounting)- Even if a partnership firm
providing legal consultancy service follows mercantile system of accounting, the point of
taxation is the date of receipt of payment towards taxable services. Hence, this
Rs.
Nil
5,00,000
-
-
8/2/2019 Service Tax Brajesh
3/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 3
information has not relevance for computation of value of taxable service and service tax
thereon.
iv.Receipts during the year:
a) Relating to taxable services rendered in March, 2011: Service tax is payable on receipt
basis. Hence, the amount towards the value of services provided in March 2011 and
received in 2011-12, shall be charged to tax in this year. (544680+45320)
b) Relating to taxable services rendered in current year 2011-12:
Amount received (net of TDS)Add: TDS (TDS made out of the payments is towards taxable services. It forms part ofthe gross amount charged towards taxable services, hence, includible in value of taxable
services)
Less: Fee for appearance before labour court received from another firm- Services
provided by way of appearance before any court are not taxable , hence, excluded.
5,90,000
9,80,000
1,20,000
-50,000
Value of Taxable Service
Service Tax thereon @ 10.3%
21,40,000
2,20,420
20.2 COMMERCIAL TRAINING OR COACHING SERVICE [ w.e.f. 1.07.03]
1) Commercial training or coaching [Section 65(26)]: Commercial training or coaching means-
any training or coaching
provided by a commercial training or coaching centre.
2) Commercial Training or Coaching Centre [Section 65(27)]: Commercial Training or Coaching Centre
means any institute or establishment
Providing commercial training or coaching
For imparting skill or knowledge or lessons on any subject or field other than sports,
With or without issuance of a certificate and
Includes coaching or tutorial classes
but does not include
a) Preschool coaching and training centre or
b) Any institute or establishment which issues any-
- Certificate
- Diploma
- Degree or
- Any educational qualification,
Recognized by law for the time being in force.
3) Taxable Service [Section 65(105)(zzc)]: Taxable Service means any service-
provided or to be provided to any person
by a commercial training or caching centre
in relation to commercial training or coaching.
-
8/2/2019 Service Tax Brajesh
4/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 4
Consideration chargedService Tax Leviable even if chartable /non-profit motive[Explanation, Inserted by
the Finance Act, 2010 W.R.E.F. 1-7-2003]: The expression commercial training or coaching centre shall
include any centre or institute , by whatever name called,-
- Where training or coaching is imparted for consideration
- Whether or not such centre or institute is
- registered as a trust or a society or similar other organization under any law for the time
being in force and
- carrying on its activity with or without profit motive.
4) Exemption to commercial training or coaching, which forms essential part of course leading to issue of
degree recognized by law, if payment not made directly to commercial training/coaching centre
[Notification No. 10/2003-S.T. ,] dated 20-6-2003]: Taxable services provided by a commercial training or
coaching centre to any person, in relation to commercial training or coaching, which-
From an essential part of a course or curriculum of any other institute or establishment,
Leading to issuance of any certificate or diploma or degree or educational qualification recognized by
law for the time being in force,
Is exempt from service tax.
However, this exemption shall not be applicable if the charges for such services are paid by the person
undergoing such course or curriculum directly to the commercial training or coaching centre.
Analysis & Example [Circular No. 59/8/2003-S.T., dated 20-6-2003]: thus, exemption is available only if
the receiver of such service makes payment for the entire course or curriculum to the institute or
establishment issuing such certificate, diploma etc. and not to commercial coaching or training centre.
Example: ICAI hires the services of any other institute say NIIT or others for imparting some part of
training (like language or computer training ) to student undertaking the CA-course or other diploma
courses offered by ICAI. In such a case ICAI will not be chargeable to services tax because it confersqualification recognized by law and at the same time NIIT shall also be exempted from service tax provided
the student makes payment for the entire course or curriculum to ICAI.
5) Exemption to commercial training or coaching provided by vocational/recreational training institute
[notification No. 24/2004-S.T., dated 10-9-2004, as amended w.e.f. 27-2-2010]: the taxable servicesprovided in relation to commercial training or coaching, by,-
a) a vocational training institute ; or
b) a recreational training institute,
to any person, is exempt from service tax.
Computer training instituteNot exempt : However, the taxable services provided in relation to commercial
training or coaching by a computer training institute shall not be exempt.
Terms Defined:
a) Vocational training institute means-
- an industrial Training Institute or an industrial Training Centre
- affiliated to the national Council for Vocational Training,
- offering courses in designated trades as notified under the apprentices Act, 1961.
-
8/2/2019 Service Tax Brajesh
5/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 5
[Authors Note: the list figuring under Schedule I of the apprentices Act covers engineering as
well as non-engineering skills/trades.]
b) recreational training institute means
- A commercial training or coaching centre
- Which provides training or coaching relating to recreational activities such as dance. Singing,
martial arts or hobbies.
c) computer training institute means a commercial training or coaching centre which provides coaching or
training related to computer software or hardware.
6) Exemption to approved Modular Employable Skill Courses [Not. No. 23/2010-ST dated 29-4-2010]:
Taxable service in the nature of commercial training or coaching services provid.
In relation to Modular Employable Skill courses approved by the National Council of Vocational
Training,
By a Vocational Training Provider registered under the Skill Development Initiative Scheme with the
Directorate General of Employment and Training, Ministry of Labour and Employment, Government ofIndia,
is exempt from service tax.
7) Clarification on scope [Circular No. 59/8/2003-S.T., dated 20-6-2003]A. Institutes preparing student for Competitive Exams-Covered : Commercial coaching and training services
provided by institutes that prepares applicants for Board examinations and competitive exams like
entrance examinations for Indian Institute of TechnologyJoint Entrance Examination/Pre Medical Tests, Civil Services exams etc. are chargeable to service tax.
B. Service tax leviable on postal coaching : the coaching provided by postal means would also be covered
under the service tax and the charges, including the postal charges collected for rendering this service
would be subjected to service tax.
C. Institutes providing commercial coaching in addition to recognized degree coursesNot liable toservice tax: some institute like colleges, apart from imparting education for obtaining recognized
degrees/diploma/certificates, also impart training for competitive examination, various entrance tests etc.
by definition, such institutes or establishments, which issue a certificate, diploma or degree recognized by
law, are outside the purview of commercial training or coaching institute. Thus, even if such institutes
or establishments provide training for competitive examinations etc., such services rendered would be
outside the scope of service tax.
D. Individuals going to houses to impart tution/coachingNot liable to service tax: Service tax is oninstitutions/ establishment, hence, only those service providers are covered under service tax who have
some establishment for providing commercial coaching or training i.e. institutional coaching or training.
Thus, individuals providing services at the premises of a service receiver are not covered under service
tax. However, if coaching or training centre provides commercial coaching by sending individuals to the
premises of service receivers, such services would be chargeable to tax, as in this case, the individuals arerendering services on behalf of an institution.
E. Free summer training /in house training provided by employers to their employees-Not covered under
service tax: In case employers provide any free training themselves, no service tax is chargeable.
However if an employer hires an outside commercial coaching or training center for imparting some
training to its employees, then the payment made by the said employer to such coaching centre will be
chargeable to service tax.
8) Service tax liability of educational institution [Circular No. 107/1/2009-S.T., dated 28-1-2009]:A. Post School Formal EducationUniversities, Deemed Universities, Recognized Colleges & Autonomous
Colleges- Not covered under this service: the following viz.-
-
8/2/2019 Service Tax Brajesh
6/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 6
a. Universities established or incorporate by or under a Central or State Act; or
b. Deemed Universities i.e. institution for higher education deemed to be university; or
c. College or institution run by a trust, a registered society or a body corporate or body incorporated
under Central or State Act recognized by the UGC as an institution affiliated to or form asconstituent member with a university, providing education up to bachelors degree, masters degree
or diploma of a duration of minimum one academic year; or
d.
Autonomous colleges, who develop and submit new courses of study for approval by theuniversity and who are fully responsible for the conduct of examination, but, where the degree
continues to be awarded by the university, are not covered under this service, as all these
institutions or establishment issue degree/diploma or certificate, etc. recognized by the law for thetime being in force. They are specifically excluded from the definition of commercial training or
coaching centre.
B. Post School Professional Education Institutes recognized by All India Councils, not covered:
a. Derecognized Institutes liable to service tax: For recognition of professional courses, a number
of professional councils (such as all India Council for Technical Education-AICTE, Medical
Council of India-MCI, Indian Council for Agricultural ResearchICAR, Bar Council of IndiaBCI) have been created through independent Acts. The institutions or the establishments within
their Ambit must abide by the rules framed by them and in case of default, the councils have thepower to derecognize an institution or establishment cannot be regarded as issuing any certificate
or diploma or degree or any educational qualification recognized by the law for the time being in
force and the courses conducted would fall under the ambit of commercial training or coachingcenters and would be charged to tax.
b.
c. Unapproved technical/management institution (except deemed universities) -Liable to tax:
A technical institution or establishment (which is otherwise recognized being a university, or
affiliate college)not having AICTE approval cannot be called to be the one issuing any certificate
or diploma or degree or any educational qualification recognized by the law for the time being in
force and thus be within the ambit of service tax. However Deemed to be University are not
required to obtain the approval of AICTE to start any programme in technical or managementeducation, hence, they will be outside the scope of service tax.
d. Similar would be the situation in case of other Statutory Councils.e. Recognition to change as per the changes in law: Since the concept of recognition of an
educational qualification in India is dynamic in nature (i.e. the degree/diploma/certificate aninstitute or establishment may be recognized by the law at one time and not recognized at other,
due to change in legal provisions) the taxability of the courses conducted would depend on the
legal status of such institute or establishment at the point of time when such service is provided
(i.e. course is conducted). It cannot be said that once recognized an institute or establishment
would remain so even in future or was so in the past.
f. Foreign Courses conducted by private institutes in collaboration with foreign universitiestaxable: -Sometimes, private institutes conduct courses and issue diplomas or certificates in
collaboration with certain foreign institutes universities. In many cases private enterprises
conduct campus interviews of the students of such institutes and offer them jobs. Such
certificates/diploma cannot be called as the one recognized by the law for the time being inforce unless such a diploma/certificate has been specifically recognized by the statutoryauthorities such as UGC, AICTE. Consequently, such institutes would not fall under the
exempted category and would be subjected to tax.
C. Personality Development InstitutesLiable to service tax: Institutes that offer general course on
improving communication skills, personality development, how to be effective in group discussions or
personal interview, general grooming and finishing etc. are not covered by any of the exemption
pertaining to vocational training institutes. Hence, they are liable to service tax.
-
8/2/2019 Service Tax Brajesh
7/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 7
9) Non-Profit/charitable organization covered if consideration charged [D.O.F. No. 334/1/2010-TRU, dated
26-2-2010]: the Explanation to section 65(105)(zzc) clarifies that the word commercial means any
training or coaching that is provided for a consideration irrespective of the presence or absence any profit
motive. Thus, if any consideration is charged by charitable/non-profit organization. It shall also be liable to
service tax.
Circular No.
127/09/2010-ST, dated16-8-2010
Commercial training and coaching-Donation is not consideration:
Question: Whether donations and grants-in-aid received from different sourcesby a chartable Foundation imparting free livelihood training to the poor and
marginalized youth, will be treated as consideration received for suchtraining and subjected to service tax under commercial training or coachingservice?Clarification: Unless the link or nexus between and the taxable activity can be
established, the amount cannot be subjected to service tax. Donation or grant-
in-aid is not specifically meant for the charitable cause carried out by the
registered Foundation. Between the provider of donation/grant and the trainee
there is no relationship other than universal humanitarian interest. In such a
situation, service tax is not leviable, since the donation or grant-in-aid is not
linked to specific trainee or training.
Fast Arithmetic v. ACCEx. [2010] 17 STR 158 (Tri.-Bang.): Mental arithmetic programme Abacus isrecreational in nature, hence, exempt from service tax.
T.Q. 1. Explain the term Vocational Training Institute Under the provisions of service Tax. (CA IPCCNov. 2009, 2Marks)
T.Q.2. Explain the term Commercial training or Coaching centre. (CA IPCC May 2010-2 Marks )
Illustration 3- Commercial Training or Coaching: BSB Trainers Ltd., a commercial training or coaching centre,
collected an aggregate sum of Rs. 100 Lakhs during the year from various services as follows-
A. Commercial training or coaching in the field of arts and science: Rs. 24 Lakhs (no certificate was issued
on completion of the training);B. Commercial training or coaching in the field of commerce : Rs. 18 lakhs (a certificate was awarded to
each trainee after completion of the training );
C. Commercial training or coaching in the field of sports: Rs. 12 lakhs;
D. Coaching /Training for preparing kids for admission to school : Rs. 16 lakhs:
E. Coaching /Training for preparing school going students for admission to big schools: Rs. 17 Lakhs;
F. Receipts from sale of prospectus /application forms to trainees : Rs. 5 Lakhs (assume Rs. 2 lakh relates tonon-taxable /exempt services)
G. Charges for mess facility provided to trainee (optional), where food was provided to the trainees who
opted for the facility : Rs. 8 lakhs.The above charges include value of purchased books supplied to the students/trainees. The value of books
supplied may be assumed to be 20% of the gross fees. All bills of purchased of books are available.
Compute the value of taxable service under commercial Training or Coaching Service Covered u/s 65(105)(ZZC) of the Finance Act, 1994 and service tax payable under this service only.
Solution: the service tax liability is computed hereinbelow (amounts in Rs.)-
-
8/2/2019 Service Tax Brajesh
8/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 8
Total Receipts of the year
Less: Commercial training or coaching in the field of arts and scienceTaxable servicemay be provided with or without issuance of certificate, hence, covered.
Less: Commercial training or coaching in the field of commerce- Liable to tax, issuance
of certificate doesnt affect the charge of service tax.
Less: Commercial training or coaching in the field of sports - It is specifically excludedfrom the definition of 'commercial training or coaching centre'
Less: Coaching/Training for preparing kids for admission to schools - It is 'preschool
coaching or training', hence, excluded from the levy of service taxLess: Coaching/Training for preparing school g6ing students for admission to big
schools -This is not covered by 'preschool coaching or training', as the children are
already school going students. Hence, liable to service tax.
Less: Receipts from Sale of prospectus/ application form to trainees - These receipts are
related to provision of commercial training or coaching service. Hence, they are liable to
tax.However, sale of prospectus related to non-taxable/exempt services is not liable to
tax.
Less : Charges for mess facility provided to trainees - For charge of service tax, there
should be a nexus between the amount collected and services rendered. The Messcharges collected cannot be considered as receipt for rendering the service of
'Commercial Training and Coaching' and, hence, they could not be subject to service
tax.Gross Taxable Fees (inclusive of value of books)
Less: Value of goods I.e. books sold to the students is exempt under Notification No.12/2003. 'Sale' cannot be charged to service tax. Hence, 20% of the taxable fees shall be
claimed as deduction, as the evidence i.e. bills of the books are available. [621akh
20%]
Taxable Value under 'Commercial Training or Coaching Service'
Service Tax thereon@10%
Add: EC and SHEC @ 3%
Total Service Tax payable thereon
1,00,00,000
Liable to
service tax
Liable to
service tax
-12,00,000
-16,00,000
Liable to
service tax
-2,00,000
-8,00,000
62,00,000
-12,40,000
49,60,000
4,96,000
14,880
5,10,880
Illustration 4 - Commercial Training or Coaching: B2V Education Ltd. collected an aggregate sum of Rs. 100
lakhs during the year from various services as follows-
a. Receipts from running hobby classes: Rs. 8 lakhs ; 3
b.Receipts from running dance classes: Rs. 5lakhs;
c. Receipts from a college affiliated to University of Rajasthan for B.A. and M.A. Course: Rs. 30 lakhs;
d.Receipts from an Industrial Training Institute affiliated to National Council for Vocational Training
from courses in designated trades: Rs. 12lakhs;
e.
Receipts from providing training in computer software and hardware: Rs. 15 lakh ;f. Receipts from a unit registered as Vocational Training Provider in relation to Modular Employable
Skill Courses approved by National Council for Vocation Training: Rs. 9lakh;
g.Home tuition facility where the individuals were sent to the premises of students: Rs. 4lakh; .
h. Postal Coaching Receipts: Rs. 6 lakh ;
i. Receipts from organising a course affiliated to a foreign university: Rs. 11 Lakh.
Compute the value of taxable service under 'Commercial Training or Coaching Service' covered u/s 65(105)(zzc)
of the Finance Act, 1994 and service tax payable under this service only.
Solution: the service tax liability is computed hereinbelow (amounts in Rs.)-
-
8/2/2019 Service Tax Brajesh
9/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 9
Total Receipts of the year
Less: Receipts from running hobby classes is exempt under recreational traininginstituteReceipts from running dance classes is exempt under 'recreational training institute
Less: Receipts from college affiliated to University of Rajasthan - It results in
issuance of BA/MA degree, which is recognized by the law. Hence, not taxable.
Less: Receipts from an Industrial Training Institute affiliated to National Council for
Vocational Training from courses in designated trades - EXEMPTLess: Receipts from providing training in computer software and hardware - Notexempt.
Less: Receipts from unit registered as Vocational Training Provider in relation to
Modular Employable Skill Courses approved by National Council for Vocation
Training - Exempt.
Less: Home tuition facility where the individuals were sent to the premises ofstudentsliable to service tax.
Less: Postal Coaching Receipts - Liable to service tax
Less: Receipts from organizing a course affiliated to a foreign university - The
course is not recognized by the law in force in India. Hence, liable to service tax.
Taxable Value
Service Tax there on @10%
Add: EC and SHEC @ 3%
Total Service Tax payable thereon
1,00,00,000
-8,00,000
-5,00,000
-30,00,000
-12,00,000
Taxable
-9,00,000
Taxable
Taxable
3,60,000
3,60,000
10,800
3,70,800
20.3 INFORMATION TECHNOLOGY SOFIWARE SERVICE [W.E.F.16-S-2008]
1)
Information technology software [Section 65(53a)]: Information technology software means-
any representation of instructions, data, sound or image, including source code and object code
recorded in a machine readable form, and
capable of being manipulated or providing interactivity to a user
by means of a computer or an automatic data processing machine or any other device or equipment ;
2) Taxable service [Section 65(105)(zzzze)] : Taxable service means any service -
provided or to be provided to any person, by any other person
in relation to information technology software
[This expression omitted by Finance Act, 2010 w.e.f. 1-7-2010. Hence, IT 'software services provided in,all cases i.e. whether or not used in the course or furtherance of business or commerce shall be liable toservice tax.]
Including,-
a) Development of information technology software,
b) Study, analysis, design and programming of information technology software,
c) Adaptation, up gradation, enhancement, implementation and other similar services related to
information technology software,
-
8/2/2019 Service Tax Brajesh
10/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 10
d) Providing advice, consultancy and assistance on matters related to information technology software,
including conducting feasibility studies on implementation of a system, specifications for a database
design, guidance and assistance during the start-up phase of a new system, specifications to secure a
database, advice on proprietary information technology software,
e) providing the right to use
- information technology software for commercial exploitation including right to reproduce,
distribute and sell information technology software and- software. components for the creation of and inclusion in other information technology
software products,
f) providing the right to use information technology software supplied electronically
3) Packaged or Canned software - Exemption from Service Tax [Notification No. 53j201()"S.T., dated 21-12-2010 and Circular No. 15 j2011-Cus., 18-3-2011] :
"Packaged software or canned software" means a software developed to meet the needs of variety of
users, and which is intended for sale or capable of being sold off the shelf.
Exemption from service tax if excist/customs duty paid on retail sale price-basis [Notification No.
53/2010-S.T., dated 21-12-2010] : The taxable service referred to in section 6S(10S}(zzzze}(v} (item (e)
of the definition given above) of the Finance Ad, 1994 ("providing right to use software, etc."), for
packaged or canned software is exempt from service tax if
a) the said goods have been charged to central excise duty or additional customs duty based on the value
computed u/s 4A of the Central Excise Act, 1944 (i.e. Retail Sale Price or MRP -based excise duty in
case of packaged caImed software sold in retail) ;
b) i. the appropriate duties of excise on such value have been paid by the manufacturer, duplicator or the
person holding the copyright to such software, as the case may be, in respect of software manufactured
in India; or
ii. the appropriate duties of customs including additional duty of customs on such value, have been paid
by the importer in respect of software which has been imported into India; or
c) a declaration is made by the service provider on the invoice relating to such service that no amount inexcess of the retail sale price declared on the said goods has been recovered-from the customer.
Packaged or Canned Software not covered by RSP-based excise duty [Circular No. 15/2011-Cus,.18-3-
2011]: If the packaged or canned software is not liable to excise duty based on Retailsale price, then, the
aforesaid exemption shall not apply and service tax under the category Information Technology
Software Service would be levied on such lithe value representing consideration for transfer of right to
use such packaged/ canned software". .
4) Electronic Delivery of Software - Taxable [CBECl : Software and upgrades of software are also
supplied electronically, known as digital delivery. 5 such supply ofIT software electronicallyshall be covered within the scope of the service.
Illustration 5- Information Technology Software service: M/s. Oracle Companies provided the
provided the following services during the year-
A. Design and programming of new information technology software for customers: Rs. 100
lakhs (out of which Rs. 20 lakhs is towards the IT software used by the customers for their
personal use)
B. Up gradation of softwares installed in the earlier years: Rs. 25 lakhs;
C. Consultancy in the matter of software analysis and implementation Rs. 16 lakhs;
D. Consultancy in the matter of hardware selection: Rs. 17 Lakhs
-
8/2/2019 Service Tax Brajesh
11/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 11
E. Electronic Supply (paid download) of information technology software : Rs. 10 Lakhs;
F. Repair of information technology software : Rs. 12 lakhs
G. Testing and Analysis of Information Technology Software: Rs. 11 Lakh.
Compute the value of taxable service under 'Information Technology Software Service' coveredu/s 65(105) (zzzze) of the Finance Act, 1994 and service tax payable under this service only.
Solution: The service tax li9bility is computed here in below (amounts in Rs.)
Design and Programming of new information technology software forcustomersTaxable (in view of amendment by Finance Act, 2010, the ITsoftware service shall be taxable irrespective of whether it is used forpurpose of business /commerce. Hence, personal use is also covered.)
Add: Up gradation of software installed in the earlier yearsCovered underthis service
Add: Consultancy in the matter of hardware selectionNot covered underthis service, as this service relates to software only
Add: Electronic supply (paid download) of information technology softwareCovered
Add: Electronic supply (paid download) of information technology softwareCovered
Add: repair of information Technology Software- Not covered any point ofIT software service under section 65(105) (zzzze)
Add: testing and Analysis of information Technology softwarenot coveredany point of IT software service under section 65(105)(zzzze)
1,00,00,000
25,00,000
16,00,000
Not coveredhere
10,00,000
Not coveredhere
Taxable Value 1,51,00,000
Service Tax there on @ 10% 15,10,000
45,300Add: EC and SHEC @ 3%
Total Services Tax payable thereon 15,55,300
20.4 CARGO HANDLING SERVICE [w.e.f. 16.08.2002]
1) Cargo handling service [Section 65(23)] : Cargo handling service means-a) Loading, unloading, packing or unpacking or cargo and
b) Includes
I. Cargo handling services provided for freight in special containers or for non-Containerized
freight,
Service provided by a container freight terminal or any other freight terminal for all modes of
transport , and
Cargo handling service incidental to freight ; andII. Service of packing
Together with transportation of cargo or goods,
With or without one or more of other services like loading, unloading, unpacking,
c) But does not include
I. Handling of
Export cargo or
Passenger baggage or
II. Mere transportation of goods.2) Taxable Service [Sec. 65(105)(zr)]: Taxable service means any service provided or to be provided
-
8/2/2019 Service Tax Brajesh
12/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 12
to any person by a cargo-handling agency
in relation to cargo handling services.
3) Services for agricultural produce & cold-storage goods - Exempt [Not. No. 10j2002-S.T., dated 1-82002]The taxable service provided to any person by a cargo handling agency in relation to, -
Agricultural produce* or
Goods intended to be stored in a cold storage,
Is fully exempt from service tax.
Agriculturalproduce [Service Tax (Removal of Difficulty) Order, 20021: Agricultural produce means- any produce resulting from cultivation or plantation, on which
either no further processing is done or
such processing is done by the cultivator like tending, pruning, cutting, harvesting, drying which does not
alter its essential characteristics but make it only marketable and
includes all careals, pulses, fruits, nuts and vegetables, spices, copra, sugarcane, jiggery, raw vegetable
fibres such as cotton, flax, jute, etc., indigo, unmanufactured tobacco, betel leaves, tendu leaves, rice,
coffee and tea
but does not include manufactured products such as sugar, edible oils, processed food, processed tobacco.4) Exemptions in respect of service provided to GTA [Notification No. 1/2009-S.T., dated 5-1-2009} : If
this service is provided to a goods transport agency (GTA) for use in GTA service it will be exempt
subject to specified conditions
5) GTA Service v. Cargo Handling [Circular No. 1 04/7/2008-S. T., dated 6-8-2006]:
Transportation with Packing/Unpacking, etc. : If the essential/predominant character of services
provided is transportation of goods by road in a goods carriage and packing is undertaken as an
integral part of the service provided, then, such service provided by a person registered as GTA who
issues consignment note therefor, shall be taxable as GTA only. The charges inclusive of packing
shall be taxable as GTA service
Packing/Unpacking, etc. with Transportation : However, since transportation is not essential character
of cargo handling service but only incidental to the cargo handling service, hence, if essential
character is not transportation but transportation is merely incidental to packing, etc., then, charges
(inclusive of transportation) will be taxable as Cargo Handling Service.
Mete transportation of goods is not taxable here; it is already taxable as CTA.
6) Clarifications on Scope of Taxable Service [F. No. Bl1/1/l002-TRU,dated 1-8-2002]: Means of transport & Examples: Cargo handling implies handling (activity of packing, unpacking,
loading & unloading) of goods meant to he transported by any means of transport-a lion namely truck,rail, ship or aircraft. Few examples of cargo handling agencies are Container Corporation of India, InlandContainer Depot (lCD)1 Container Freight Stations (CFS), etc.
Export after transshipment - Services, not taxable: All goods meant for export are excluded from thislevy. In case where goods are transhipped at a place other than the place of packing before reaching the
place of export (say, goods are packed at Agra for transportation to Bhopal where it is transshipped andultimately reaches Mumbai, from where it is exported), then, cargo handling service at Agra would alsonot be taxable, as the same is provided in relation to export cargo, of the fact that it reaches the place ofexport after transshipment.
Unaccompanied baggage also not covered: Passenger baggage has been excluded from levy of servicetax Unaccompanied baggage of a passenger will also not be leviable to service tax.
Charges recovered from CHAs also taxable: If Container Freight Stations (CFSs) recover any charges forhandling import cargo, not from the importer directly, but, from the Customs House Agent (CHA), then,such charges would also be liable to tax.
Auction. of abandoned cargo - Not covered here: Auction of abandoned cargo by Cargo HandlingAgency is not 'cargo handling service'. The same is not covered here. (Note: Presently, the auction
-
8/2/2019 Service Tax Brajesh
13/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 13
services are covered under 'separate service'). Marketing of cargo for airlines - Not covered here: Some cargo handling agencies also act as
marketing agents for individual airlines for which they get a commission on the freight. Marketing orcanvassing for cargo for airlines is not' cargo handling service'
Handling of. Empty Containers - Not covered : CFSs also sometimes undertake storing/ washing/repairing and handling of empty containers for tl,e shipping lines for which they charge the shippinglines. Empty containers cannot be treated as cargo. Therefore, the said activities do not come within the
purview of cargo handling services. Individuals undertaking loading/unloading of cargo - Not covered: If someone hires labour/
labourer for loading or unloading of goods in their individual capacity, such labour/ labourer,
acting in individual capacity, would not be liable to service tax as a cargo handling agency.7) Rake handling charges - Includible in taxable Value: Since loading & unloading activities are
integral part of cargo handling service, therefore, rake handling charges, which consist of loading
and unloading expenses, shall be includible in the value liable to service tax. - Ridhi SidhiTransport/v. CCEx. [2008112 STR 555 (Tri. - Bang.).
Illustration 6 - Cargo Handling : M/ s. Krishna & Co., a sole proprietary firm presents the followinginformation of the services provided by it during the year (all amounts in addition to each other)
I. Charges of loading, unloading, packing and unpacking of cargo: Rs. 5 lakhs
II. Packing together with transportation of cargo: Rs. 4 lakhs ;
III. Handling of export cargo: Rs. 2 lakhs
IV. Handling of passenger baggage & unaccompanied baggages: Rs. 2lakhs + Rs. 1 lakh ;
V. Transportation of goods along with packing thereof (consignment note issued): Rs. 2
lakhs;
VI. Handling of goods stored in cold storage: Rs. l lakh;
VII. Transportation of goods along with packing thereof (consignment note issued): Rs. 2
lakhs;
VIII. Handling of goods stored in cold storage: Rs. l lakh;
IX. Marketing of cargo for various airline companies: Rs. 3 lakhs ;
X. Handling of empty containers: Rs. 40,000 ;
XI. Rake Handling Charges: Rs. 31akhs ;
Compute the value of taxable service under 'Cargo Handling Service' falling u/s 65(105)(zr); and theservice tax, if any, payable thereon by M/ s. Krishna & Co for cargo handling service only.
Solution: It must be noted that only an individual providing any cargo handling service in his individual
capacity is not liable to service tax. However, in this case, M/ s. Krishna & Co. is a sole proprietary
firm (which is different from individual acting in individual capacity). Hence, M/s. Krishna &Co. is a
cargo handling agency liable to tax. The relevant issues are answered herein below-
Charges of loading, uploading, packing and unpacking of cargo-Covered u/s 65(23)
Packing together with transportation of cargoCovered u/s 65(23)
5,00,000
4,00,000
-
8/2/2019 Service Tax Brajesh
14/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 14
Handling of export cargo - Excluded from section 65(23) 0
Handling of passenger baggage & unaccompanied baggages - Excluded ul s 65(23) 0
Transportation of goods along with packing thereof (since consignment note issued, hence,
covered by GTA service, not this service)
0
Handling of goods stored in cold storage - EXEMPT 0
Marketing Ofcargo for various airline companies - NOT amounts to cargo handling 0
Handling of empty containers - Empty containes are not Icargo', hence, excluded. 0
Rake Handling Charges 3,00,000
Taxable Value
Service tax thereon @ 10.3%12,00,000
1,23,600
Illustration 7-Cargo Handling Service : Calculate the value of taxable service under Cargo handling
services of Cargo Ltd., providing brief reasons where required with suitable assumptions based on the
following information' for the month of April, 2011 - (Similar RTF May 2011)i. Total amount charged for all services 40
ii. Receipts for services in relation to export cargo and handling of passenger baggage
included in (i) above 13
iii. Charges for storage and cleaning of empty containers of shipping lines included in (i) above 10 10
iv. Charges for packing and transport of Cargo included in (i) above 3
v. Charges for handling of agricultural produce included in (i) above 2
vi. Charges for transportation of Cargo included in (i) above 5
Solution: The computation of value of taxable service under Cargo Handling Services is as follows
Total amount charged for all services
Less: Receipts for services in relation to export cargo and handling of passenger
baggage (it is specifically excluded from the scope of taxable service in definition
u/s 65(23))
Less: Charges for storage and cleaning of empty containers of shipping lines
(Activity of storing/washing/repairing and handling of empty containers for the
shipping lines is not cargo handling services, as empty containers cannot be
treated as cargo)
Less: Charges for packing and transport of Cargo (Charges for packing together
with transportation of cargo is classifiable as cargo handling service in view of
section 65(23) hence, the same need not be deducted)
Less: charges for handling of agricultural produce (Cargo handling service for
agricultural produce is exempt from service tax, hence, excluded here.)
Less: Charges for transportation of cargo (mere transportation of cargo is not
40,00,000
13,00,000
10,00,000
2,00,000
5,00,000
-
8/2/2019 Service Tax Brajesh
15/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 15
cargo handling service, hence, excluded u/s 65(23))
Value of Cargo Handling Service
10,00,000
20.5 CUSTOMS HOUSE AGENT'S SERVICE [w.e.f. 15-06-1997]
[1].Customs house agent [Section 65(35)] : Customs house agent means-
a person licensed , temporarily or otherwise, 3
under the regulations made under sub-section (2) of section 146 of the Customs Act, 1962 (i.e. the
Customs House Agents Licensing Regulations, 2004).
[2].Taxable service [Section 65(105)(h)]: Taxable service means any service-
Provided or to be provided to any person by a custom house agent
In relation to
the entry or departure of conveyances or
the import or export of goods.
[3].Scope : the The activity of CHA relates to the entry or departure of conveyances or import or
export of goods at any Customs station. Therefore the activity of the CHA is limited to the
Customs Station; it cannot extend beyond it. Hence, only the CHA services relating to import/
export of goods and documentation relating to customs clearance are taxable under this service.
Other Services provided by a CHA cannot be taxed under this service. - DHL Lemuir Logistics
Pvt. Ltd. v. CST [2010117 STR 266 (Tri.-Bang.)
[4].Clarification on Valuation Issues [Circular No. 119/13/2009-S.T., dated 21-12-2009]:
The activities of a QIA pertaining to customs formalities in relation to the entry or departure of
conveyance or the import or the export of goods, is subjected to service tax under CHA services.
Sometimes, the CHA also arrange services for packing, unpacking, loading, unloading, bringing or
-
8/2/2019 Service Tax Brajesh
16/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 16
removing the goods to or from the customs area, vessels or aircrafts for their customers (i.e. importers or
exporters). These services are provided by different agencies. Normally the OIAs initially pay the service
charges to these agencies and later recover these charges from the customer along with their own charges.
Similar arrangement can occur for payment of statutory levies like Custom Duties, Port charges, Cesses
etc. leviable on the said goods.
Rule 5 of the Service Tax Valuation Rules, 2006 provides that expenditure or costs incurred by the
service provider as pure agent alone will be eligible for exclusion from taxable value. Accordingly, in
respect of GIA, the exclusion should be allowed to all such charges from the taxable value of CHA
services, where all the following conditions are satisfied, -
i. the activity / service for which such charge is made, should be in addition to CHA service;
ii. there should be arrangement between the customer & the CHA which authorizes or allows the
CHA to : (a) arrange for such activities/ services for the customer; and (b) make payments to
other service providers on his behalf;
iii. CHA does not use such service for his own benefit or for benefit of his other customer;
iv.
CHA recovers reimbursements on' actual'. basis'. If reimbursement is not, on 'actual basis', then,whole of the reimbursement for such activity/service would be included in value.
v. CHA should provide evidence to prove nexus between other services (including statutory levies,
charges by carriers and custodians, insurance agencies, etc.) and reimbursable amounts. It is not
necessary that such evidence should bear the name or address of the customer. Any evidence like
BE No./Container No./BL No/ packing lists is acceptable.
vi. Each charge for separate activities /services is to be covered either by a separate invoice or by a
separate entry in a common invoice (showing charges against each entry separately).
vii. Other miscellaneous or out of pocket expenses charged by CHA would not be excluded.
Illustration 8 - CRA: M/ s. Govindam Clearing Agencies, a Customs House Agent licensed under
Customs Act, had total gross receipts of the year from various services of Rs. 50 lakhs, which
includes
i. Reimbursement of freight charged by airlines: Rs. 10 lakhs (actual basis);
ii. Reimbursement of Customs Duty: Rs. 4lakhs (actual basis);
iii. Reimbursement for various taxable services paid for by the CHA on behalf of its customers : Rs.
61 lakhs (actual Rs. 4.5lakhs, exclusive of -service tax) ;
iv. Charges for warehousing the goods, after getting customs clearance, in warehouse owned by M/s.
Govindam Clearing Agencies: Rs. 7.5 lakhs;
v. Charges for Transporting the goods from owned warehouse to place of customers: Rs. 3.5lakhs ;
Compute the value of taxable service under 'Customs House Agent Service' falling ul s 65(105)(h) ; and the
service tax, if any, payable thereon by M/s. Govindam Clearing Agencies for CHA service only.
Solution: The relevant issues are answered herein below-Total Gross Receipts of the year from various services
Less: Reimbursement of freight charged by airlines - CHA acts as pure agent, as
reimbursement claimed on actual basis - Excluded assuming separately shown in
invoice
Less: Reimbursement of customs duty - CHA acts as pure agent, as reimbursement
claimed on actual. basis, hence, excludible assuming separately shown in invoice
Less: Reimbursement of various other taxable services - CHA has charged amount in
50,00,000
-10,00,000
-4,00,000
0
-
8/2/2019 Service Tax Brajesh
17/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 17
excess of what has been actually incurred. Hence, fully includible in value.
Less: Charges for warehousing the goods (CHA services extend only to the customs
station. Since warehouse is owned by the CHA, the CHA may be liable under 'Storage &
Warehousing Service', but, not under this service in any case)
Less: Transportation of goods from warehouse owned by CHA to customer's premises
(CHA services extend only to the customs station. Hence, charges for transportation aftercustoms clearance do not fall under this service. They may fall under other service(s)).
Taxable Value
Services Tax thereon @ 10.3%
-7,50,000
-3,50,000
25,00,000
2,57,500
20.6 PRACTICING CHARTERED ACCOUNTANTS [w.e.f. 16.10.1998]
[1].Practicing Chartered Accountant [Section 65(83)] : Practicing Chartered Accountant means -
A person who-Is member of the institute of Chartered Accountants of India andIs holding a certificate of practice granted under the Chartered Accountants Act, 1949 and
Includes any concern engaged in rendering services in the field of chartered accountancy.
[2].Taxable services [section 65(105) (s)]: Taxable service means any service-
Provided or to be provided to any person by a Practicing Chartered Accountant
In his professional capacity.
In any manner.
[3].Exemption to representation before statutory authorities in course of proceedings initiated underlaw [Not. No. 25/2006-S.T,! dated 13-7-2006] : Taxable services provided or to be provided-
by a practicing chartered accountant, in 1-ds professional capacity, to a client
relating to representing the client before any statutory authority
in the course of proceedings initiated under any law for the time being in force,
by way of issue of notice, is exempt from the whole of service tax leviable thereon.
Point of Taxation : As per the Point of Taxation Rules, 2011, in case of Chartered Accountants
servicft provided by Individuals or proprietary firms or partnership firms, the point of taxation
shall be the date on which payment is received by the service provider.
Illustration 9 - Chartered Accountancy : M/ s. SB & Co., Chartered Accountants, is run by Mr. SB, a
chartered accountant, who is a sole-proprietor. He collected the following charges during the year
i. Routine visit to tax-office for tax-related clarification or work: Rs. 5 lakhs ;
ii. Filing of returns and other documents (manual as well as e-filing) : Rs. 6lakhs ; (iii) Providing
coaching to students of CA/CS/ICWA courses: Rs. 7lakhs;
iii. Providing coaching to students of CA/CS/ICWA courses : Rs. 7 lakhs ;
iv. Fees for drafting appeal and representing the client before Commissioner (Appeals) (the show-
cause notice was represented before adjudicating authority by some other Chartered Accountant)
:-Rs. 10 lakhs ;
v. Audit of accounts of a client located outside India: Rs. 15 lakhs;
-
8/2/2019 Service Tax Brajesh
18/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 18
vi. Fees for drafting reply to show-cause notices and representing the client in the matter of service
tax/income-tax and other laws: Rs. 25lakhs;
vii. Fees for carrying out statutory audit and certification: Rs. 5.5lakhs ;
viii. Fees for carrying out management audit and internal audits: Rs. 4 lakhs.
ix. Charges for routine accounting work of clients (other than clients whose accounts were audited
by SB & C6.), carried out by staff: Rs. 8 lakhs ;
Compute the value of taxable service under 'Chartered Accountancy Service' falling u/s 65(105)(s); and theservice tax, if any, payable thereon by M/ s. SB & Co. for this service only.Solution: The relevant issues are answered herein below
Routine visit to tax-office for tax-related clarification or work - Liable to service
tax, as falls within the 'professional capacity' of chartered accountant. Further, not
exempt as doesn't relate to representation before any statutory authority in course
of proceedings initiated by way of any show-cause notice/ order, etc.
Filing of returns and other documents (manual as well as e-filing) - Taxable
Providing coaching to students of CA/CB/ICWA courses - Not taxable under this
service, as not provided in professional capacity as a chartered accountant
Fees for drafting and filing appeal before Commissioner (Appeals) - Though there
is no notice issued in case of appeals filed by the clients when the proceedings are
initiated with filing of appeal, however, so long as representation is before a
statutory authority for the purpose of statutory proceedings (viz. appeal, etc.), the
exemption is admissible
Audit of accounts of a client located outside India (It amounts to export of taxable
service, assuming that all other conditions are fulfilled. Hence, exempt)
Fees for drafting reply to showcause notice and representing the client in the
matter of service tax/incometax and other laws- EXEMPT
Fees for statutory audit , certification, management and internal
audit(5.5.+4lakhs)
Charges for routine accounting work of clients (other than clients whose accounts were
audited by SB& Co.), carried out by staff - Not in 'professional capacity' of a chartered
accountant as work is done by staff, hence, not covered under this service
5,00,000
6,00,000
not taxablehere
Export
Exempt
9,50,000
Not taxable
here
Taxable Value
Service Tax thereon @ 10.3%
20,50,0002,11,150
Illustration 10 Practicing Chartered Accountant's services - Position on or after 1-4-2011 - Point of
Taxation Rules, 2011: Rajul is a qualified Chartered Accountant He acquired the certificate of
practice from the ICAI in March, 2011. For the quarter ended in June, 2011, his receipts are asfollows:-
Particulars Amount (Rs.)
-
8/2/2019 Service Tax Brajesh
19/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 19
Certification of documents under Export and Import Policy of Government of India 2,00,000
Preparation of the financial statement of ABC Ltd. 5,00,000
Representation of the client before ITAT in April 2011 50,000
Receipts for tax consultancy provided in the month of March, 2011 10,000
Using the above information, calculate the value of taxable serVices for the quarter ended on June,
2011.
(SimilarRTP May 2011)
Solution:Calculation of the value of taxable services for the quarter ended on June, 2011 : In this case,
the sums given in the question are "receipts" of the assessee. Assuming that the receipts are inclusive of
service tax, the service tax is to be computed by making backward calculations as given below
Particulars
Certification of documents under Export & Import Policy of
Govt of India - Services provided in professional capacity by
a Chartered Accountant - Liable to Service Tax [Value =
2lakh x 10.3 + 110.3]
Preparation of the financial statement of ABC Ltd. - Services
provided in professional capacity by a Chartered Accountant
Liable to Service Tax [Value = 5lakh x 10.3 + 110.3]
Representation of the client before ITAT - Taxable services
provided by a practising Chartered Accountant in his
professional capacity, to a client, relating to representing the
client before any statutory authority in the course of
proceedings initiated under any law for the time being in
force, by way of issue' of notice, is exempt.
Receipts for tax consultancy provided in the month of
March, 2011 - As per the Point of Taxation Rules, in the case
of Chartered Accountant's services provided by an
individual, the point of taxation is the date of receipt of
payment. Hence! even though the services were provided in
March, ~Ol1, it will be liable to tax in Quarter ending June,
2011 i.e. in the quarter of the receipt.
Total
Receipts
(inclusive
of tax)
2,00,000
5,00,000
Exempt
Taxable
Value (Rs.)
1,81,324
4,53,309
0
Service Tax @
10.3%(Rs)
18,676
46,691
0
6,43,699 66,301
20.7 CONSULTING ENGINEERS SERVICES [w.e.f. 07.07.1997]
[1].Consulting Engineer [Section 65(31) :] Consulting Engineer Means any professionally qualified engineer or any body corporate or any other firm
who, either directly or indirectly, renders any advice, consultancy or technical assistance
any manner to any person
-
8/2/2019 Service Tax Brajesh
20/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 20
in one or more disciplines of engineering.
[2].Taxable service [Section 65(l05)(g)] : Taxable service means any service- provided or to be provided to any person, by a consulting engineer
in relation to advice, consultancy or technical assistance in any manner
in one or more disciplines of engineering including the discipline of computer hardware
engineering.
Advice in relation to hardware and software engineering, both - Classifiable under this service only [ExplanationJ:
For the purposes of the above, services provided by a consulting engineer -
in relation to advice, consultancy or technical assistance
in the disciplines of both computer hardware engineering and computer software engineering
shall also be classifiable under this service.
[3].R&D Cess paid on transfer of technology - Deductible from service tax [Exemption Not. No.18/2002-S.T., dated 16-12-2002] : Taxable services provided by a consulting engineer to any
person on transfer of technology is exempt from service tax leviable thereon to the extent of the
amount of cess paid on the said transfer of technology u/ s 3 of the Research and Development
Cess Act, 1986.[4].Service relating to computer hardware and software engineering - Classificatiol1 [M.F. (D.R.)
Letter D.O.F. No. 334/1/2008-TRU, dated 29-2-20081:
Advise/Consultancy in the discipline of computer hardware engineering is leviable to service tax
under Consulting Engineering service in view of section 65(105)(g).
Consultancy service, covering both hardware and software engineering consultancy, shall be
classifiable under 'Consulting engineer's service' as per Expl. to section 65(105)(g).
Advise/Consultancy in relation to computer software/information technology software isleviable to service tax under Information Technology Software Service, not in this service.
[5].Departmental clarifications on scope of this service:
Self-employed engineers - Liable to service tax [Circular No. 96f7/2007-S.T., dated 23-8-2007] :
Consulting engineers include self-employed professionally qualified engineer, whether or not
employing others for assistance. Services provided by such self-employed professionally
qualified engineer is liable to service tax under consulting engineer service.
All types and stages of engineering consultancy covered (Trade Notice No. 53-C.E. (STI/97,
dated 4-7-19971: The services pertaining to structural engineering works or civil/ mechanical/
electrical engineering works or relating to construction management are also covered. The scope
of the services include wide range of services from feasibility study to post-operation and
management and troubleshooting and technical services.
[6].Valuers of property - Covered under this service: Valuers of plant and machinery being professionallyqualified engineers are to be regarded as 'consulting engineers' and valuation is to be regarded
as advice in the nature of 'engineering advice' on the basis of knowledge of engineering. - Dr.
V. Shanmughavel v.'CCEx.[2001]131ELY14 (Mad.).
Illustration 11 - Give four illustrations to explain the scope of service rendered by a consulting engineer-
Ans: Consulting engineer service would include
i. Design engineering
ii. Pre design services /project report
-
8/2/2019 Service Tax Brajesh
21/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 21
iii. Supervision or construction and project management
iv. Feasibility study
v. Supervision of commissioning and initial operation
vi. Post operation and management
vii. Trouble shooting and technical services including establishing system and procedures for an
existing plant.Illustration 12Service tax: The value of service provided by a consulting engineer is Rs.10,00,000 He
has paid Rs50,000 as cess under section 3 of the Research and Development Cess Act, 1986. What is the
amount of service tax payable by him?
Ans: A consulting engineer is granted exemption by way of deduction of the amount of Research and
Development Cess paid by him from the amount of service tax payable by him. Therefore, service tax
payable = 10.3% of Rs. 10 lakhs - 50,000 = Rs. 53000.
Illustration 13 Consulting Engineers: M/s. Tenalirama & Co., is a firm of professional qualified
engineers of various disciplines, registered under Service tax law. The firm had a total gross receipts ofRs. 75 lakhs during the year, which includes the following-
i. Consultancy in the field of mechanical and applied engineering: Rs. 15lakhs (40% of the work
was done by hired engineers who charged an equivalent sum along with service tax) ;
ii. Consultancy in the field of hardware engineering: Rs. 7 lakhs;
iii. Consultancy in the filed of software engineering: Rs. 9 lakhs ;
iv. Consultancy in the field of hardware as well as software engineering: Rs. 8 lakhs
v. Charges for valuation of plant, machinery and property: Rs. 6 1akhs;
vi. Consultancy in relation to setting up of a power project: Rs. 15.5 lakhs ;
Given that the firm has paid a sum of Rs. 1 lakh u/s 3 of Research & Development Cess Act, 1986 in
relation to services pertaining to transfer of technology included hereinabove.
Compute the value of taxable service under 'Consulting Engineer Service' falling u/s 65(105)(g) ; and
the service tax, if any, payable thereon by Mis. Tenalirama & Co. for this service only.
Solution: The relevant issues are answered hereinbelow
-
8/2/2019 Service Tax Brajesh
22/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 22
Total gross receipts of the year
Less: Consultancy in the field of mechanical and applied engineering - Covered under
this service. Further, charges paid for sub-contracting cannot be excluded from value
of taxable service, however, the same will be eligible for CENV AT Credit.
Less: Consultancy in the field of hardware engineering - Taxable under this service
Less: Consultancy in the filed of software engineering - Not taxable under this
service, taxable as 'Information Technology Software Service'
Less: Consultancy in the field of hardware as well as software engineering -
Classifiable and taxable under this service only
Less: Charges for valuation of plant, machinery and property- Valuation amounts to
engineering advice hence, classifiable and taxable under this service.
Less: Consultancy in relation to setting up of a power project-Classifiable and taxable
under this service, as it is also a form of engineering.
Taxable Value
Service Tax thereon @ 10.3%
Exemption in respect of R&D Cess paid on transfer of technology
Net service tax payable
75,00,000
Taxable
Taxable
-9,00,000
Taxable
Taxable
Taxable
66,00,000
6,79,800
1,00,000
5,79,800
Illustration 14- Consulting Engineer's services: Mr. Ramesh, a consulting engineer provides the following
particulars in respect of various services rendered by him during the quarter ending December 2010:
No. Particulars Rs.
(i) Professional advice to one of his friend 45,000
(ii) Consultancy services in computer hardware engineering 35,000
(iii) Technical assistance in computer software engineering 25,000(iv) Advice in relation to metallurgical engineering 10,000
(v) Professional advice to his friend free of charge
Rs. 5,000 has been paid by him as cess payable under section 3 of the Research and Development Cess Act,1986 in respect of the above-mentioned services. Compute the service tax payable by Mr. Ramesh for thequarter ending December, 2010. Service tax has been charged separately by Mr. Ramesh and is not includedin any of the receipts mentioned above. Mr. Ramesh is not entitled to the benefit of small service provideravailable under Notification No. 6/2005 ST dated 01.03.2005.
Will your answer be different if the above services are rendered by AB Ltd. , a consulting engineering company?
-
8/2/2019 Service Tax Brajesh
23/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 23
(Similar RTP May 2011)
Solution: Computation of service tax payable:-
Consulting Engineer's Services:
Professional advice to one of his friend - Advice to friend is taxable as service rendered to
any person is taxable
Consultancy services in computer hardware engineering - Covered under this service
Technical Assistance in relation to computer software/information technology software is
leviable to service tax under Information Technology Software Service, not in this service
Advice in relation to metallurgical engineering. - Advice in relation to any branch of
engineering is taxable
Professional advice to his friend free of charge - Services rendered free of charge are
not liable to service tax
45,000
35,000
Not
Covered
10,000
Not taxable
Taxable Value of Consulting Engineers Service 90,000
Service Tax thereon @10.3%
Less: Exemption in respect or R&D Cess paid on transfer of technology this exemption
is granted in respect of the service tax; not the value of the service
Net service tax payable on consulting Engineers Service (A)
Tax on Information Technology Software Service : Technical Assistance in relation tocomputer software engineering tax = 10.3% of 25,000 (B)
9,270
5,000
4,270
2,575
Total Service =(A)+(B) 6,845
If the services are rendered by AB Ltd., a consulting engineering company: The answer will not be different as
consulting engineer inter alia means any body corporate as well.
20.8 MANPOWER RECRUITMENT OR SUPPLY AGENCY'S SERVICE [w.e.f. 07.07.1997]
[1].Manpower recruitment or supply agency [Section 65(68)] : Manpower recruitment or supply agencymeans any person engaged in providing
any service, directly or indirectly, in any manner
for recruitment or supply of manpower,
temporarily or otherwise
to any other person.
[2]. Taxable service [Section 6S(10S)(k)] : Taxable service means any service provided or to be provided to any person by a manpower recruitment or supply agency
in relation to the recruitment or supply of manpower,
-
8/2/2019 Service Tax Brajesh
24/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 24
temporarily or otherwise, in any manner.
[3].Recruitment or supply of manpower - Scope [Explanation to Section 65(105)(k)] : For the purposes ofthis service, recruitment or supply of manpower includes services in relation to-
pre-recruitment screening,
verification of the credentials and antecedents of the candidate and
authenticity of documents submitted by the candidate.[4].Exemptions in respect of service provided to GTA [Notification No.1/2009-S.T., dated 5-1-2009] : If
this service is provided to a goods transport agency for use in GT A service, it will be exempt subject
to specified conditions. For details, refer the 'Transport of goods by road service',
[5].CBEC Clarifications [Master Circular No. 96/7/2007-S.T., dated 23-8-2007}: Campus Recruitment fees - Taxable: Educational institutes such as IITs and IIMs charge a fee fro
prospective employers like corporate houses/MNCs, who come to the institutes for recruiting candidates
through campus interviews. Such institutes fall under this service and are liable to service tax on services
provided by them relation to campus recruitment.
Temporary supply of manpower- Taxable:
Business/Industrial organizations engage services of manpower recruitment or supply agencies for
temporary supply of manpower which is engaged for a specified period or for completion of particular
projects or tasks.
In these cases of supply of manpower, individuals are contractually employed by the m anpower
recruitment or supply agency. The agency agrees for use of the services of an individual, employed by
him, to another person for a consideration. Employer-employee relationship in such case exists between
the agency and the individual and the individual and not between the individual and the person who uses
the services of the individual
Such supply agencies are liable to services.
[6].Scope a/Taxable Service [Trade Notice No. 53-CE (service Tax)/97, dated 4-7-1997]:
Manpower Recruitment : It shall include the services provided by an agency from the primary stage of
building a database of manpower for different categories of personnel employment, whether white collar or
blue collar, whether for employment in India or overseas determining manpower requirement for the client
preliminary identification; short listing and screening of . prospective candidates, providing specialists for
interviewing prospective candidates, arranging for their interviews at each stage; placing advertisements for
recruitment of manpower in the print or electronic media etc. In short, service tax on manpower recruitment
agency shall cover within its fold the entire gamut of services provided by a manpower recruitment agency
to a client from the incipient. stage of selecting/ identifying manpower required for any prospective
employment, till the stage of actual selection for the same.
Services to Prospective Candidates - Taxable :. In certain cases, a person approaches a manpowerrequirement agency for being employed in a suitable positions abroad, as normally happens in case ofemployment in Gulf countries. Such services provided to the prospective candidate for employment isalso covered under service tax.
[7].Value [Letter F.No. B1/6/2005-TRU, dated 27-7-2005] : Service tax is to be charged on the full amountof consideration for the supply of manpower, whether full-time or part-time. The value includes
recovery of staff costs from the recipient e.g. salary and other contributions. Even if the .arrangement
does not involve the recipient paying these staff ,costs to the supplier (because the salary is paid directly
to the individual or the contributions are paid to the respective authority) these amounts are still part of
the consideration and hence form part of the gross amount.
-
8/2/2019 Service Tax Brajesh
25/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 25
[8].Direct hiring of Contractual Labour - No service, not taxable [Letter F.No. Bl/6/200STRU, dated 277-2005] : Hiring of skilled artisans for making jewellery is not service. When the artisans are hired by any
organization or business, directly, without engaging the services of any other person in any manner, in
such cases, the artisans are contractually employed by the company. There is no intermediary and hence
no consideration is paid to or payable to any intermediary.
Illustration 15 - Manpower Recruitment or Supply Agency: MI s. Superior Manpower Services Pvt. Ltd. (SMSPL)
received an aggregate sum of Rs. 105 lakhs from the following services provided by it (all information to be
assumed to be in addition to the other)
i. Temporary supply of various employees hired by it (i .e. hired by M/s. SMSPL) to various industries for
carrying out various assignments : Rs. 15 lakhs (Salaries amounting to Rs. 20 lakhs to various categories of
labour was directly paid by the industries). This includes a sum of Rs. 2 lakhs charged from a goods
transport agency, which paid a salary of Rs. 3 lakhs directly.
ii. In some other cases, the employees of M/ s. SMSPL were permanently transferred as employees of its
clients on the first day of the year itself. For the said purpose, SMSPL charged an employee transfer fee of
Rs. 5 lakhs. The clients paid a salary of Rs. 30 lakhs to employees during the year.
iii. SMSPL runs a job-search engine whereby it maintains database of all prospective candidates for the variousposts in various companies. It collected an aggregate of Rs. 10 lakhs from various companies for providing
access to such data.
iv. When the companies selected a few candidates, SMSPL was asked to verify the credentials and history of
such candidates and also examine the authenticity of the documents submitted by them for which SMSPL
charged a sum of Rs. 13 lakhs ;
v. M/s. SMSPL owns a premises where the prospective employers come, conduct the interviews and make
selections. M/s. SMSPL provides services in relation thereto. A total recruitment fees of Rs. 31 lakhs was
charged. for the employers and an equivalent sum of Rs. 31 lakhs (equal to one months salary of the
employees) was charged for the candidates selected.
Compute the value of taxable service under 'Manpower Recruitment & Supply Service' falling u/ s 65(105) (k) ; and
the service tax, if any, payable thereon by M/ s. SMSPL for this service only.
Solution: The relevant issues are answered hereinbelow-
Temporary supply of labour/employees of the manpower agency (M/s. SMSPL) is liable to 30,00,000
service tax. The salaries paid to such labour forms part of the value of taxable service even if
directly paid by the client. However, such services provided to goods transport agency are
exempt. Hence, taxable amount =:=[(15 - 2) + (20 - 3)] = 30 lakhs .
Permanent Transfer of Employees - In case of permanent transfer of employees, the 5,00,000
employer-employee relationship between SMSPL and the employees came to an end. Hence,salaries paid to such employees by their actual employers cannot be a subject matter of service
tax. However, employee transfer fee is a consideration for service provided by M/ s . SMSPL to
its clients and is, therefore, liable to service tax.
Providing access to prospective-employees related data is covered by this service 10,00,000
Services by way of verifying credentials/ antecedents (history) of prospective candidates and 13,00,000
authenticity of documents submitted by them is taxable under this service .
-
8/2/2019 Service Tax Brajesh
26/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 26
Providing campus for recruitment and charging fees therefore is liable to service tax under this
service. Both, the prospective employers and the candidates, are service receivers for the
manpower recruitment agency. Hence, consideration charged from both of them shall be
liable to service tax. [31 + 31 = 621akhs]
62,00,000
Taxable Value 1,20,00,000
Service Tax thereon @ 10.3% 12,36,000
Illustration 16 -Manpower Recruitment& Supply Agency: Anthrix Consultants is engaged in providing
manpower recruitment and supply agency's services. For the financial year 2010-11, its receipts are as
follows-
Particulars Amount (Rs.)
Pre-recruitment screening of the prospective candidates 12,00,000
Verification of the credentials of the candidates 7,00,000
Supply of contractual employees to big business houses 15,00,000
Manpower recruitment services provided to Sindhu Transporters 2,25,000
- a goods transport agency
On the basis of the above information, compute the service tax payable by Anthrix Consultants under the
category of Manpower Recruitment and supply agency services for the financial year 2010-11.
Note: Anthrix Consultants enjoys a good reputation among its clients. Resultantly, its aggregate value of taxable
services amounted to Rs. 23lakh in the financial year 2009-10. Further, the amount of service tax has been
charged separately. (Similar RTF May 2011)
Solution : Since the aggregate value of taxable services provided during the financial year 2009-10 amounted toRs. 23 lakh i.e. exceeding Rs 10 lakh, hence, M/s. Anthrix Consultants is not eligible for small service provider
exemption under Not. No. 6/2005-ST. the relevant computation are-
Pre-recruitment screening of the prospective candidates Specifically covered
Verification of the credentials of the candidates-Specifically covered
Supply of contractual employees to big business house covered in this service
Manpower recruitment services provided to Sindhu Transporter, a GTA- such
services provided to a GTA are exempt from service tax.
12,00,000
7,00,000
15,00,000
Exempt
Taxable ValueService Tax [email protected]%
34,00,0003,50,200
EXEMPTION IN RESPECT OF SERVICES USED IN RELATION TO EXPORT GOODS
20.9 EXEMPTION IN RESPECT OF CERTAIN SPECIFIED SERVICES USED FOR EXPORT GOODS
[Notification No. 17/2009-S.T., dated 7-7-2009]
[1].Exemption to specified services used for export goods: The taxable services specified below, as are
received by an exporter of goods and used for export of goods, are exempt from service tax u/s 66 and
-
8/2/2019 Service Tax Brajesh
27/28
ACCOUNTING ACADEMY Prof. Farooq Haque
Page | 27
66A subject to the conditions specified in notification-
a) General insurance services in relation to insurance of said goods.
b) Port services in respect of the export of said goods.
c) Technical testing and analysis service in relation to technical testing and analysis of said goods.
d) Technical inspection & certification service in relation to inspection & certification of export goods.
e) ) Other port services in respect for export of said goods.
f) Transport of goods by road and Transport of goods in container by rail : (i) Service provided for
transport of said goods from inland container depot to port of export; (ii) Service provided to an
exporter in relation to transport of export goods directly from the place of removal, to inland container
depot or port or airport, as the case 'may be, from where goods are exported.
(Alternatively exemption is available for 'Transport of goods by road' under N at. No. 18/2009) (g)
g) Cleaning activity service : Specialized cleaning services namely disinfecting, exterminating,
sterilizing or fumigating of containers used for export of said goods provided to an exporter.
h) Storage & warehousing service: Service provided for storage and warehousing of said goods.i) Courier Agency's Service in relation to transportation of time-sensitive documents, goods or articles
relating to export, to a destination outside India.
j) Customs House Agent's Service in relation to export goods exported by the exporterk) Banking and other financial services: (i) Service provided in relation to collection ofexport bills; (ii)
Service provided in relation to export letters of credit such as advising commission, advising
amendment, confirmation charges; (iii) Service of purchase or sale of foreign currency, including
money changing provided to an exporter in relation to export goods
l) Foreign exchange broking by Individuals: Service of purchase or sale of foreign currency including
money changing provided to an exporter in relation to export goods,
m) Supply of tangible goods for use service in relation to goods exported by the exporter.
n) Clearing and Forwarding Agent's service in relation to export goods exported by the exporter,
o) Taxable under 'any category of service Payment of, service tax paid on services commonly known as
terminal handling charges,
p) Transport of coastal goods or good's through national/inland waterway: Service provided for
transport of export goods through national waterway, inland water and coastal shipping.
q) Airport Services in respect for export of said goods.
General Conditions governing exemption: Exemption shall be governed by following conditionsa) the exemption shall be claimed by the exporter for the specified service received and used by him
for export of the said goods;
b) the exemption claimed by the exporter shall be provided by way of refund of service tax paid on the
specified service used for export of the said goods;
c) the exporter claiming the exemption has actually paid the service tax on the specified service to its
provider;
d) no CENV AT credit of service tax paid on the specified service used for export of said goods hasbeen taken under the CENV AT Credit Rules, 2004.
-
8/2/2019 Service Tax Brajesh
28/28
ACCOUNTING ACADEMY Prof. Farooq Haque
20.10 EXEMPTION TO GOODS TRANSPORT AGENCY SERVICE AND FOREIGN COMMISSION
AGENT SERVICE RECEIVED BY EXPORTERS [Notification No. ISj2009-S.T., dated 7-7-2009] :
The taxable services specified below, as are received by an exporter of goods and used for export of goods,
are exempt from service tax u/ s 66 and 66A subject to the conditions specified in the Notification
[1].Transport of goods by road: (i) Service provided to an exporter for transport of the said goods byroad from any container freight station or inland container depot to the port or airport, as the case maybe, from where the goods are exported; or (ii) Service provided to an exporter in relation to transport
of said goods by road directly from their place of removal, to an inland container depot, a containerfreight station, a port or airport from where the goods are exported.
[2].Business Auxiliary Services: Service provided by a commission agent located outside India and
engaged under a contract or agreement or any other document by the exporter in India, to act on behalfof the exporter, to cause sale of goods exported by him.
T.Q.3. Whether export service provided by Service Provider is excluded for the purpose of Paymentof Service Tax? (CA IPCC Nov. 2009, 3 marks)
[Hint: Yes. Export of services is exempt from payment of service tax if services are exported inaccordance with the Export of Services Rules, 2005.
However, service provided to an exporter is not excluded for the purpose of payment of service tax.The person liable to pay service tax u/ s 68(1) or 68(2) shall pay service tax as applicable on thespecified services provided to the exporter and used for export of such goods, and such person shallnot be eligible to claim exemption for the specified services. In other words, the service provider isrequired to pay service tax and the actual exporter shall claim refund of service tax paid on servicesreceived by him.]