BOMBAY CHARTERED ACCOUNTANTS’ SOCIETY

NEGATIVE LIST BASED TAXATION OF SERVICES: IMPORTANT ISSUES
PULOMA DALAL
Chartered Accountant
03 September 2012 At Indian Merchants’ Chamber, Mumbai

METAMORPHOSIS OF THE
SERVICE TAX SYSTEM
After 18 years of its introduction in 1994, service tax has been conceptually transformed from a “selective levy” to “comprehensive levy” w.e.f. July 01, 2012. The metamorphosis of the tax system contains the following significant features:
• Introduction of definitions of “service,” “taxable territory” and “India” • Redefining “charging section” to encompass the concept of “taxable territory” • Introduction of a “Negative List” to replace specified list of taxable services and also specifying “declared services” • Introduction of principles for interpretation of service and taxation of bundled services in place of principles of classification of services
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METAMORPHOSIS OF THE
SERVICE TAX SYSTEM

• Consolidation of all major exemptions under one notification. • Introduction of single set of Place of Provision of Services Rules, 2012 to determine place of provision of service for import and export replacing export rules and import rules. • Providing definitions at multiple places:
– – – – In Finance Act, 1994 (the Act) In Service tax Rules, 1994 In mega Exemption Notification No.25/2012-ST In Place of Provision Rules, 2012 etc
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SELECT ISSUES IN THE NEW “NEGATIVE LIST” BASED TAXATION SYSTEM 1. Declared services 3. Service 2. Bundled Service 4 Puloma Dalal . Interpretation Issues in: – Negative List – Mega Exemption Notification 4.

“SERVICE” 5 Puloma Dalal .

gift or in any other manner – Deemed sale of goods in terms of Article 366(29A) of the Constitution – A transaction only in money (other than activities relating to use of money or conversion of money for which consideration is charged) – A transaction only in actionable claim – Employment contract for service by an employee to an employer – Fees payable to a court or tribunal 6 Puloma Dalal .WHAT IS A ‘SERVICE’ ? • ‘Service’ (as defined by s65B(44)) means: – – – – an activity carried out by a person for another for consideration. and includes a declared service defined by section 66E • 6 transactions do not constitute service: – An activity resulting in transfer of title in goods or immovable property by way of sale.

SERVICE:
“ACTIVITY”

• The term is not defined by the law • The term per se being extremely wide, there are specific inclusions and exclusions provided as all the activities commercial/non-commercial, those in relation to sale, manufacture covered by other legislations cannot be included here. • As per Education Guide issued by the Government, both active and passive activity is covered by the above expression

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Puloma Dalal

SERVICE:
“CARRIED OUT BY A PERSON FOR ANOTHER”
• Only transactions occurring between two persons are covered by the definition • Nobody can provide service to himself
[CCE vs. Nahar Industrial Enterprise Ltd. 2010 (19) STR 166 (P&H)]

• When one renders service to oneself, as in the present case, there is no question of leviability of service tax
[Precot Mills vs. CCE 2006 (2) STR 495 (Tri.-Bang)]

• There should be existence of two side entities for having transaction as against consideration. In a members’ club, there is no question of two sides. Members and club both are same entities
[Saturday Club Ltd. vs. A.C. Service Tax 2006 (3) STR 305 (Cal)]

• If club provides any service to its member, may be as mandap keeper, then it is not a service by one to another as foundation facts of existence of two legal entities in such transaction is missing
[Ranchi Club Ltd. vs. CCE&ST 2012 (26) STR 401 (Jhar)]
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SERVICE:
EXCEPTION: “CARRIED OUT BY A PERSON FOR ANOTHER”

• Service between two establishments of the same person is taxable
In terms of Explanation No.3 & 4 to the definition of service in section 65B(44) – • An unincorporated association or a body of persons as the case may be and its members on the other hand are treated as distinct persons • An establishment of a person in taxable territory and any of his other establishments in a non-taxable territory are considered distinct persons • Whether a service provided by a New York branch to its head office of an Indian company in Mumbai would be considered taxable if other ingredients relating to taxability are fulfilled?
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• Education Guide para 2. something. at the desire of the promisor. or promises to do or abstain from doing. such act or abstinence or promise is called a consideration for the promise".1 therefore refers to the definition of consideration as per the Indian Contract Act. 10 Puloma Dalal . the promisee or any other person has done or abstained from doing. or does or abstains from doing.2.SERVICE: “CONSIDERATION” • This term is not defined in the Act • However. "When. 1872. section 67 dealing with valuation of taxable service has defined consideration in inclusive manner so as to include any amount that is payable for the taxable service provided or to be provided.

present or future 11 Puloma Dalal .SERVICE: “CONSIDERATION” • Legal Rules: – – – – Must move at the desire of the promisor May move from the promisee or any other person May be an act of doing or forbearance May be past.

donation or a grant do not attract service tax.3. CST 2010 (20) STR 475 (Tri. • In relation to grant in-aid received by the company from Government for implementing welfare scheme of Central and State Government for the benefit of poor. vs. APITCO Ltd.-Bang)] • Appeal of the revenue dismissed by the Supreme Court in ST vs. it was held that there did not exist relationship of service-provider and service recipient [APITCO Ltd. gratis payment.2) 12 Puloma Dalal . 2011 (23) STR J94 (SC) • (For illustrations of nature of payments which constitute consideration. see Education Guide para 2.SERVICE: “CONSIDERATION” • As such.

government securities etc – constitute sale. units of mutual funds. Accordingly. and not service 13 Puloma Dalal . A mere transfer of custody or possession does not constitute sale – In composite transactions containing both goods and services. sale of shares. Transfer of title in goods or immovable property – An activity that constitutes a mere transfer of title in goods or immovable property by way of sale or gift – The contract of sale includes both a sale and an agreement to sell. depending on the dominant nature of transaction or severability.SERVICE: TRANSACTIONS NOT CONSTITUTING A SERVICE 1. 65B(25)) includes securities. derivatives. sale of goods/immovable property in a composite transaction or a portion thereof would not constitute service – ‘goods’ (as per s.

the sale of goods component is excluded from ‘service’ as it is a declared service – In the other 4 cases.SERVICE: TRANSACTIONS NOT CONSTITUTING A SERVICE 2. deemed sale transactions based on dominant nature theory would not constitute ‘service’ 14 Puloma Dalal . ‘Deemed Sale’ – Article 366(29A) of the Constitution lists 6 transactions of deemed sale: • A sale of goods otherwise than in pursuance of a contract • Transfer of property in goods involved in the execution of works contract • Delivery of goods on hire purchase or payment of installments • Transfer of the right to use goods • Supply of goods by unincorporated association to a member thereof • Catering contracts – A slump sale or transfer of a going concern is exempted vide entry 37 of Notification 25/2012-ST – In case of Works contracts & Catering contracts.

5 for illustrations of money transactions and consideration in relation thereto 15 Puloma Dalal . Transactions only in money – ‘money’ is defined in s.SERVICE: TRANSACTIONS NOT CONSTITUTING A SERVICE 3.8. 65B (33) – Transaction per se in money such as deposits/withdrawals from a bank account does not constitute a service – Where consideration is charged for a money transaction it would constitute ‘service’ – See Education Guide paras 2.1 – 2.8.

or by hypothecation or pledge of movable property. other than a debt secured by mortgage of immovable property. or to any ‘beneficial interest’ in movable property not in the possession either actual or constructive of the claimant.8. which the civil courts recognise as affording grounds for relief. accruing. whether such debt or beneficial interest be existent.8.11 and 2. 2.12 16 Puloma Dalal . right to participate in the lottery [Sunrise Associates (2006) 5 SCC 603] – Also see Education Guide paras 2.8. conditional or contingent – Examples: unsecured debts.SERVICE: TRANSACTIONS NOT CONSTITUTING A SERVICE 4. Transactions in ‘actionable claim’ – Actionable claim means a claim to any debt.8.

9.SERVICE: TRANSACTIONS NOT CONSTITUTING A SERVICE 5.3 and 2. 2.9.4 – Whether non-executive directors receiving remuneration would be treated as payment towards employment? 17 Puloma Dalal . Employment Contracts – See Education Guide paras 2.1.9.

DECLARED SERVICES 18 Puloma Dalal .

65B(44) includes a ‘declared service. • Thus all services listed as declared services are now deemed to be services as they supplement the definition of service • Thus. temporary transfer of intellectual property rights etc. construction of complex including a building or a complex intended for a sale. the law makers have attempted to minimize controversy over the issue of whether these activities constitute services. works contracts. namely: – Double taxation under VAT and service tax of transactions in relation to IT software. design and development of information technology software. there are some issues that have not been addressed under the new system. which contains 9 items. granting or assignment of intellectual property and transferring goods by way of leasing or hiring.’ • Declared services are separately defined in section 66E.DECLARED SERVICES • The definition of service in s. 19 Puloma Dalal . including 5 formerly contentious services: – – – – – renting of immovable property. • However.

LEASING. LICENSING OR ANY SUCH MANNER WITHOUT TRANSFER OF RIGHT TO USE SUCH GOODS.2 for illustrations. Such transactions are outside the scope of declared service – All transactions of leasing and hiring do not result in transfer of right to use goods. It is contended that right to use is not transferred in these transactions and therefore they are declared services on which service tax would be attracted 20 Puloma Dalal .DECLARED SERVICES: TRANSFER OF GOODS BY WAY OF HIRING. – Transactions where transfer of right to use takes place. – See Education Guide para 6.6. they are deemed sale and VAT is attracted.

LICENSING OR ANY SUCH MANNER WITHOUT TRANSFER OF RIGHT TO USE SUCH GOODS. LEASING. No. The service is. 1 Nature of transaction Whether transaction involves transfer of right to use Right to use is not transferred as the car owner retains the permissions and licenses relating to the cab. UOI (2006) 2 STR 161 (SC) to determine whether a transaction involves transfer of right to goods is followed by various High Courts (and also cited in Education Guide) is as follows: Sr. The test laid down by the Supreme Court in Bharat Sanchar Nigam Ltd.DECLARED SERVICES: TRANSFER OF GOODS BY WAY OF HIRING. A car is given in hire by a person to a company along with a driver on payment of charges on per month/mileage basis 21 Puloma Dalal . vs. Therefore possession and effective control remains with the owner (Delhi High Court Judgment in the case of International Travel House in Sales Tax Appeal no 10/2009 refers). therefore covered in the declared list entry.

cranes. maintenance and upkeep of such equipment. etc for use in a particular project where the person to whom such equipment is supplied is subject to such terms and conditions in the contract relating to the manner of use of such equipment. Sr.DECLARED SERVICES: TRANSFER OF GOODS BY WAY OF HIRING. 22 Puloma Dalal . LICENSING OR ANY SUCH MANNER WITHOUT TRANSFER OF RIGHT TO USE SUCH GOODS. 2 Nature of transaction Supply of equipment like excavators. return of such equipment after a specified time. No. Whether transaction involves transfer of right to use The transaction will not involve transfer of right to use such equipment as in terms of the agreement the possession and effective control over such equipment has not been transferred even though the custody may have been transferred along with permission to use such equipment. dump trucks. LEASING. wheel loaders. The receiver is not free to use such equipment in any manner as he likes and conditions have been imposed on use and control of such equipment.

DECLARED SERVICES: TRANSFER OF GOODS BY WAY OF HIRING. No transfer of goods as effective control and possession is not transferred (Ahuja 4 Hiring out of vehicles where it is the responsibility of the owner to abide by all the laws relating to motor vehicles Hiring of audio visual equipment where risk is of the owner Goods Agency v State of UP Motor Vehicles (1997) 106 STC 540) No transfer of right to use goods as effective control and possession is not transferred 5 23 Puloma Dalal .(State Bank of India v. No. LEASING. State of Andhra Pradesh). Sr. 3 Nature of transaction Hiring of bank lockers Whether transaction involves transfer of right to use The transaction does not involve the right to use goods as possession of the lockers is not transferred to the hirer even though the contents of the locker would be in the possession of the hirer. LICENSING OR ANY SUCH MANNER WITHOUT TRANSFER OF RIGHT TO USE SUCH GOODS.

[K. It was held that goods were made available 24 hours a day throughout the contract.DECLARED SERVICES: TRANSFER OF GOODS BY WAY OF HIRING. LICENSING OR ANY SUCH MANNER WITHOUT TRANSFER OF RIGHT TO USE SUCH GOODS. there is transfer of right to use the goods. C. • Consider the following decisions: – Buses were hired by State Transport Corporation (STC) and were to be run by STC as per the agreement and direction of an officer. tankers and cranes were made available by owner to ONGC under contract for operational charges as agreed. Method and manner of using the goods was decided by ONGC. Behera vs. State of Orissa (1991) 83 STC 325 (Orissa)] – Trucks. Transportation was held as sale within its extended meaning. ONGC (2010) 31 VST 337 (Gau)] 24 Puloma Dalal . general control and possession of the bus vested in the corporation. trailers. [Deepak Nath vs. LEASING. Providing the driver by the owner notwithstanding there was a transfer of the right to use bus for consideration and effective control. even though the staff remained under his control.

S. Article 366(29A)(d) would show that the tax is not on the delivery of goods used but on the transfer of the right to use goods regardless of when or whether goods are delivered for use. the Hon. LICENSING OR ANY SUCH MANNER WITHOUT TRANSFER OF RIGHT TO USE SUCH GOODS. Lamba & Sons vs.DECLARED SERVICES: TRANSFER OF GOODS BY WAY OF HIRING. the right to use goods arises only on the transfer of such right to use goods: The contract involved provision of transportation service for shipping RMC by hiring specifically designed transit mixers. High Court laid down interalia the following principles while holding that the tax is not on use of goods but on account of transfer of right to use of goods. In other words. LEASING. • In G. This is subject to the condition that goods are in existence for use. The effective control of running the mixers and the disciplinary control remained with the contractor agreeing to provide the above service. P. A. State of AP 2012 TIOL-49-HC-AP-CT . 25 Puloma Dalal .

• G. In putting the property in transit mixers to economic use of the [lessee]. method. exclusive right to use goods along with permits. LICENSING OR ANY SUCH MANNER WITHOUT TRANSFER OF RIGHT TO USE SUCH GOODS. permits and insurance are taken in their names and they renew them. licenses etc. licenses. The existence of goods is identified and transit mixers operate and are used for the business of the [lessee]. LEASING. However. it would be under the general control over the goods.DECLARED SERVICES: TRANSFER OF GOODS BY WAY OF HIRING. Although the drivers are appointed by the [lessor]. Lamba & Sons vs. State of AP 2012 TIOL-49-HC-AP-CT: Delivery of goods is not a condition precedent but one of the elements of the transaction.] The entire use in the property in goods is to be exclusively utilized for a period under contract by lessee. modalities and time of the use of goods is decided by the [lessee]. vests in the [lessee]. Effective control does not mean always physical control and even if the manner. their roster fixed by them. the [lessors] nowhere figure 26 Puloma Dalal . the product is delivered to customers of [lessees. During the period of contract. S.

DECLARED SERVICES: TRANSFER OF GOODS BY WAY OF HIRING. “It thus conclusively leads to the conclusion that lessor transferred the right to use the goods to the lessee” • Considering various cases. LEASING. LICENSING OR ANY SUCH MANNER WITHOUT TRANSFER OF RIGHT TO USE SUCH GOODS.’ or in the absence of it a ‘declared service’? 27 Puloma Dalal . does it appear feasible for an assessee to determine whether the transaction has resulted in the transfer of right to use and therefore is a ‘deemed sale.

State of Andhra Pradesh (2002) 178 ELT 22 (SC).DECLARED SERVICES: INFORMATION TECHNOLOGY SOFTWARE • Information Technology Software is defined in section 65B(28) and also defind by Central Excise Tariff Act for the purpose of Heading 8523. Thus. This was raised to 12% wef 01/03/2008. 27 for Chapter Heading 8523 in the Exemption Notification No. “customized software” is excisable goods but exempted under Notification issued under the Central Excise Act. the Education Guide has clarified that sale of pre-packaged or canned software is in the nature of goods and such ‘sale’ is not part of declared service. Chapter Heading 8524 covered software and the prescribed rate was 8%.No. • Placing reliance on Tata Consultancy Service vs. • Customized software is exempted at S. • Prior to 2007.6/2006-CE of 01/03/2006. 28 Puloma Dalal . in Chapter 85 almost the same way.

vs. stored and processed.DECLARED SERVICES: INFORMATION TECHNOLOGY SOFTWARE • Can the transaction be both goods and service? Consider the following: “transaction cannot be for both goods and services.” “Software whether customized or non-customized. transferred. 2009 (233) ELT 56 (Mad)] 29 Puloma Dalal . it will also be goods for the purpose of sales tax. [Infosys Technologies Ltd.” [Bharat Sanchar Nigam Ltd. UOI 2006 (2) STR 161 (SC)] “If the software whether customized or non-customized satisfies the rule as ‘goods’. delivered. would become goods provided it satisfies the attributes of the goods mainly (a) its utility. (b) capability of being bought and sold and (c) capability of being transmitted.

transaction would be of service and not a sale. the question of deeming sale did not arise and in that sense.DECLARED SERVICES: INFORMATION TECHNOLOGY SOFTWARE • While examining whether software supplied by the dealer members to the customers consequent upon end user license agreements amounted to deemed sale or service. UOI 2010 (20)STR (Mad)] • Does licensing of software constitute a transfer of right to use software? Depending on the answer. it was held that to bring the deemed sale under Article 366(29A)(d) of the Constitution. [Infotech Software Dealers Association vs. is it a ‘good’ or a ‘service’? Would it make a difference if it is transferred electronically? Does the means of transfer alter the characteristic of the transaction? • Does the uncertainty on account of the conflict lead to the conclusion that the safer recourse is dual taxation? 30 Puloma Dalal . there must be a transfer of right to use any goods and if no goods were transferred.

intangible property. patents etc are treated as ‘goods’ • Under the old regime. including trademark. • Whether continuing service tax on temporary transfer etc of intellectual property rights alongside the levy of VAT is legally correct?” 31 Puloma Dalal .DECLARED SERVICES: INTELLECTUAL PROPERTY RIGHT • Post amendment of Central Sales Tax Act 1956. from 10-9-04. the definition of ‘sale’ was enlarged to incorporate transactions included in Article 366(29A) of the Constitution • Thus. for the purpose of the said Article 366(29A) r/w Article 286(3) of the Constitution. transfer or permitting the use or enjoyment of any intellectual property was subjected to service tax.

However. [Association of leasing & Financial Service Companies vs. there are two different and distinct transactions viz. 32 Puloma Dalal .5. by fiction of law.1 provides that not the delivery of goods on hire purchase. it is considered ‘sale’ • Consider the following: • In equipment leasing hire purchase agreements. is chargeable to service tax. UOI 2010 (20) STR 417 (SC)] • Citing the above decision. processing fee. the Education Guide states that financial services that accompany a hire purchase agreement would be treated as declared service. but the activity or service provided in relation to such delivery of goods is a declared service • Hire Purchase Contract does not involve transfer of title to the goods. the financing transaction where interest represents consideration and other charges like lease management fee. documentation charge etc.DECLARED SERVICES: HIRE PURCHASE OR SYSTEM OF PAYMENT BY INSTALLMENTS • The Education Guide para 6.

he enters into an arrangement which is in the form of a hirepurchase agreement with the financier. State of Kerala 17 STC 480 and held that service tax is not leviable on hire purchase finance and observed. Pune 2007 (7) STR 423 (Tri. namely.-Mum) upheld by the Supreme Court at 2008 (10)STR 433 (SC)]. splitting of the service and supply of goods is constitutionally permitted only in case of the latter two. vs. Is the levy of 10% on the value of hire purchase contracts legal? 33 Puloma Dalal . • Above all. but in substance evidences a loan transaction subject to hiring agreement under which the lender is given the license to seize goods”. vs. a distinction was drawn between hire purchase transaction and hire purchase finance relying upon the Supreme Court’s decision in Sundaram Finance Ltd. “a transaction in which the customer is the owner of the goods and with a view to finance his purchase. CCE.DECLARED SERVICES: HIRE PURCHASE OR SYSTEM OF PAYMENT BY INSTALLMENTS • In this case. hire purchase contracts. works contracts and catering contracts. [Bajaj Auto Finance Ltd. in terms of BSNL v UOI (2006) 2 STR 161 (SC) out of three types of composite contracts.

DECLARED SERVICES: REFRAINING FROM. such forfeited deposit would represent consideration for the agreement that was entered into for provision of service.1 • Whether various other transactions such as forfeiture of any security deposit or advance for non-fulfillment of commitment would also be covered by this declared service? Education Guide at 2.3.2 has stated that since service becomes taxable on an agreement to provide a service. TOLERATING OR DOING AN ACT • An activity of: – Agreeing to the obligation to refrain from an act – Agreeing to the obligation to tolerate an act or a situation – Agreeing to the obligation to do an act. • Consideration paid for a non-compete agreement is intended to be covered as declared service as per Education Guide para 6.7. • Is this in contradiction with the definition of service? 34 Puloma Dalal .

The Negative List and Exemption Notification: INTERPRETATION ISSUES 35 Puloma Dalal .

vs.INTERPRETATION ISSUES: NEGATIVE LIST V/S EXEMPTION NOTIFICATION • • • Negative list is a new concept and an exception to the charge itself Whereas Exemption Notification is not an executive act but a claim of delegated or conditional legislation (UOI v Jalyan Udjog (1993) 68 ELT 9( SC)) Therefore. • Therefore. equating Negative List with Exemption Notification may not be correct. Ltd. In case of Magus Construction Pvt. items listed in the Negative List should be capable of being effectuated and unduly strict construction may narrow its compass. Negative List should be interpreted along the lines that a charging section is interpreted. there is a need to examine principles governing interpretations of exemption notification and follow a well-balanced approach based on facts of each case or situation. Prima facie. the court laid stress on making distinction between comprehensive approach and selective approach and observed that: • • “under the concept of comprehensive approach all services are taxable and it is the system of selective approach which India has adopted. This distinction needs to be kept in mind when we proceed further”. UOI 2008 (11) STR 225 (Gau). when conceptual shift is made to what is globally known as catch all model. 36 Puloma Dalal .

• Benefit of exemption cannot be claimed on the basis of equality. • Assessee has an option to follow a beneficial notification when more than one notification applies • Notification has to be read as a whole • Burden of proving the eligibility falls on the assessee 37 Puloma Dalal . • An item not covered in exclusion clause does not necessarily mean it is included. fulfillment of conditions may be viewed liberally • The Department cannot add any condition on presumed legislative intent.INTERPRETATION: GENERALLY FOLLOWED PRINCIPLES • Objective or context – relevant and a guiding factor • Eligibility to be construed strictly.

the exemption clause therein may be construed literally. In order to avail the benefit of exemption.” 38 Puloma Dalal . being an exception to taxation. • In Tata Iron & Steel Co. (2005) 4 SCC 272 (SC). therefore deserves a strict construction. although construction of a condition thereof may be given a liberal meaning if the same is directory in nature. the eligibility criteria provided in the Notification has to be fulfilled. Ltd. whereas the eligibility clause in relation to an Exemption Notification is given strict meaning wherefor the Notification has to be interpreted in terms of its language. An eligibility criteria. Once an assessee satisfies the eligibility clause. has to be construed strictly.INTERPRETATION: GENERALLY FOLLOWED PRINCIPLES CASE LAW ILLUSTRATIONS • It is well settled law that exemption. the Supreme Court held that – “The principles as regards construction of an exemption notification are no longer res integra.

2010 (260) ELT 3 (SC). A provision providing for an exemption.INTERPRETATION: GENERALLY FOLLOWED PRINCIPLES CASE LAW ILLUSTRATIONS • Similarly. some latitude can be shown. though at times. the Supreme Court held that – “The law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. the non-compliance of which would not affect the essence or substance of the notification granting exemption.” 39 Puloma Dalal . in CCE New Delhi vs. concession or exception. Hari Chand Shri Gopal. If exemption is available on complying with certain conditions. as the case may be. has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the Statute and the object and purpose to be achieved. if there is a failure to comply with some requirements which are directory in nature. the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly.

(2009) 236 ELT 625 (SC) • CC v Tullow India Operation Ltd. 96 ELT 214: “A particular item not expressly excluded from exemption notification. the express language of the exemption notification has to be given its due effect” • CC vs. (2005) 189 ELT 401 (SC) 40 Puloma Dalal .INTERPRETATION: GENERALLY FOLLOWED PRINCIPLES CASE LAW ILLUSTRATIONS • Gujarat State Fertilizer Company vs. is not necessarily to be treated to have been included therein” Also refer to • CCE v Parental Drug (India) Ltd. Ltd. CCE 1997 (91) ELT 3 (SC): “It is now well settled by a catena of decisions of this court that for deciding whether an exemption notification gets attracted on the facts of a given case. Perfect Machine Tool Co.

Issues with select items in THE NEGATIVE LIST 41 Puloma Dalal .

butter. harvesting. fuel. Himalayan Co-op. should services of storage for these products be included in the “Negative List”? Consider the following decision: CCE vs. Ltd. for food.SELECT ITEMS IN THE NEGATIVE LIST: ISSUES AGRICULTURE • Services relating to agriculture or agricultural produce by way of: Agricultural operations directly related to production of any agricultural produce including cultivation. [Section 66D(d)(i)] • • • Do agricultural operations have to be carried out in the farm only? Is the activity of ‘dairying’ and ‘pisciculture’ covered by the expression “agricultural operations”? Which other activities would be covered by the expression. 1997 (96) ELT 214 (SC) apply to the facility of cold storage? 42 Puloma Dalal . Milk Product Union Ltd. raw material or other similar products?” If agricultural produce includes various dairy products like milk. cheese etc. plant protection or seed testing. threshing. “rearing of all life-forms of animals except rearing of horses. Perfect Machine Tools Co. fibre. • • • 2000 (122) ELT 327 (SC) Should the decision in Collector of Customs vs..

commodity futures are trading in goods also clarified by the Education Guide paras 4.3 and 4.9 • Do ‘goods’ sold by way of electronic transfer or internet download amount to trading in goods? 43 Puloma Dalal .5.1.5. 4.SELECT ITEMS IN THE NEGATIVE LIST: ISSUES: TRADING OF GOODS • Trading of goods in common parlance would mean buying and selling of goods. – Forward contracts. consignment agent etc.5.2. clearing and forwarding agent. not covered – clarified by the Government in Education Guide para 4.14. • Is it a service at all to be included in Negative List? – Ancillary service of a commission agent.

SELECT ITEMS IN THE NEGATIVE LIST: ISSUES: RENTING OF RESIDENTIAL DWELLING FOR USE AS RESIDENCE • Although residential dwelling is not defined in law. • Under the earlier regime.” if they are not covered by entry no. would typical lodges providing cheaper accommodation on a monthly basis be covered by the above expression “residential dwelling. • Given these facts. dwelling means a place of living for an indefinite or a long period. in terms of decided cases. • Would “service apartments” provided to corporate bodies for the strict use of residence by their employees under leave & license arrangements qualify under the above entry in the Negative List? 44 Puloma Dalal .25/2012-ST? (Exemption is available to hotel accommodation having a tariff below rupees one thousand per day or equivalent).18 in exemption notification no. hotel accommodation service introduced from 01/05/2011 was described as short-term accommodation service. The period of occupation in order to be covered by this entry was stated as less than 3 months.

• Education Guide para 4. universities or institutions which lead grant of qualifications recognized by law would be covered.12.SELECT ITEMS IN THE NEGATIVE LIST: ISSUES: EDUCATION AS A PART OF A CURRICULUM FOR OBTAINING A QUALIFICATION RECOGNIZED BY ANY LAW FOR THE TIME BEING IN FORCE • Interpretation of the phrase “recognized by any law for the time being in force” is challenging as no explanation or definition is provided by the law.1 reads as follow: “What is the meaning of 'education as a part of curriculum for obtaining a qualification recognized by law'? It means that only such educational services are in the negative list as are related to delivery of education as 'a part' of the curriculum that has been prescribed for obtaining a qualification prescribed by law. Conduct of degree courses by colleges.” 45 Puloma Dalal . It is important to understand that to be in the negative list the service should be delivered as part of curriculum. Training given by private coaching institutes would not be covered as such training does not lead to grant of a recognized qualification.

SELECT ITEMS IN THE NEGATIVE LIST: ISSUES: EDUCATION AS A PART OF A CURRICULUM FOR OBTAINING A QUALIFICATION RECOGNIZED BY ANY LAW FOR THE TIME BEING IN FORCE • Can any of the following decisions hold good in terms of the new system? • “Education has a larger scope. CST 2008 (10) STR 202 (Tri. mind and intellect”. Education is a broader term which is a process of development of personality of body. Primary object of GLIM is to impart education. Refrain of the several judicial authorities cited is that profit motive characterizes a commercial concern”.-Bang) • “We find that education in the instant case is not business. Magnus Society 2009 (13) STR 509 (Tri. Education may include coaching or training and not vice versa. Profit making is not its main motive.Chennai) • Others: • Administrative Staff College of India 2009 (14) STR 341 (Tri. Great Lakes Institute of Management vs.-Bang) • Malappuram District Parallel College Association 2006 (2) STR 321 (Ker) 46 Puloma Dalal .

or (3) a course run by an institute affiliated to the National Skill Development Corporation set up by the Government of India. approved by the National Council of Vocational Training.” • Consider recently issued Circular No.. or (2) a Modular Employable Skill Course.)] • “The company is engaged into commercial pilot training……… The training does not directly result into an employment or even enable trainee to undertake selfemployment” [CAE Flight Training (India) Pvt.- “(1)a course run by an industrial training institute or an industrial training centre affiliated to the National Council for Vocational Training offering courses in designated trades notified under the Apprentices Act. Such training imparted is a vocational training and would be eligible for the benefit of exemption under the relevant notification” [Pasha Educational Training Institute 2009 (14) STR 481 (Tri.164 dated 28/08/2012 • “The training shall be considered as commercial training or coaching because the institute imparts skill or knowledge on the subject of insurance…. 1961 (52 of 1961). Ltd. 2010 (18) STR 785 (AAR)] 47 Puloma Dalal . Union Ministry of Labour and Employment. 65B(11) means.SELECT ITEMS IN THE NEGATIVE LIST: ISSUES: EDUCATION AS PART OF AN APPROVED VOCATIONAL COURSE Approved vocational education course as defined in s. run by a person registered with the Directorate General of Employment and training.

SELECT ITEMS IN THE NEGATIVE LIST: ISSUES EXTENSION OF DEPOSITS. LOANS OR ADVANCES (where consideration is represented by way of interest or discount) • Whether premium paid on redemption of debenture issued at par would qualify to be considered interest? • Whether foreclosure/pre-closure charge recovered by a bank when a loan account is paid up earlier than its term? 48 Puloma Dalal .

Notification 25/2012-ST MEGA EXEMPTION 49 Puloma Dalal .

25 lakh in the preceding year. the limit is Rs. (For F. Whether charitable institutions registered under 12A and 10(23C) do not qualify under the said entry? • “Charitable activities” as defined in clause (K) of the Notification includes: Advancement of any other object of general public utility upto a value of Rs. 2012-13. the expression. 1961 are exempt at entry 4. interest income and other income not relating to the above activity also form part of the determining rupees 25 lakh? Further.EXEMPTIONS: SELECT ENTRIES UNDER NOTIFICATION 25/2012-ST • Charitable institutions registered under section 12AA of Income Tax Act.25 lakh in a financial year provided the value of such activities does not exceed Rs.Y. “any other object of general public utility” also is a subject matter of interpretation.18.” 50 Puloma Dalal .5 lakh). Would voluntary contribution. although “general public” at (q) in the said notification is defined as “the body of people at large sufficiently defined by some common quality of public or impersonal nature.

• Training or coaching in recreational activities continues to enjoy exemption (entry 8). The religious place like temple may be otherwise meant for the general public but the surrounding area forming part of the temple property is used for any wedding function. Does it necessarily mean education is exempted under section 66D at entry (l)? Clarification is required to avoid dispute in this regard. Would it qualify for exemption? The term ‘precinct’ is not defined. would it still be considered recreational activity? • Services provided by way of auxiliary educational services or renting of immovable property to only an education institution is exempted in respect of education exempt (entry 9).EXEMPTIONS: SELECT ENTRIES UNDER NOTIFICATION 25/2012-ST • Renting of precincts of religious place meant for general public is exempt at entry-5. The terms “educational institution” and “education exempted from service tax” are not defined in the Notification 25/2012 or in the Act. 51 Puloma Dalal . If a person undergoes training and coaching to become a professional singer or a dancer.

) • Both the decisions had different conclusions. residential complex is defined as any complex comprising of a building or buildings having more than one single residential unit. for residential purpose for one family. • Single residential unit means a self-contained residential unit which is designed for use. In the former it was held that if there were more than 12 units in a residential colony. 52 Puloma Dalal . it was held otherwise. CCE 12 STR 603 (Tri. • In turn.EXEMPTIONS: SELECT ENTRIES UNDER NOTIFICATION 25/2012-ST • Single residential unit otherwise than as a part of residential complex is exempt (entry 12(f)). • Whether construction of an individual house in a society or a residential colony or in any closed complex would qualify for exemption? The following decisions may be considered: – In re Hare Krishna Developers 10 STR 357 (AAR) – Macro Marvel Projects vs. it would mean residential complex whereas in the latter case. fully or principally.

BUNDLED SERVICES 53 Puloma Dalal .

BUNDLED SERVICES • What does a bundled service mean? Bundled service means a bundle of provisions of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services (Explanation in s. 66F) 54 Puloma Dalal .

Place of Provision Rules.BUNDLED SERVICES PRINCIPLES OF INTERPRETATION (S. Reverse charge Notification . – Example: Transportation of goods by inland waterways is in the Negative List – Agent booking for such transportation is not covered by this. Service Tax Rules etc 55 Puloma Dalal . main service shall not include reference to a service which is used for providing main service. description or classification of a service is required because it still exists in: Negative List of services. CENVAT Credit Rules. Abatement Notification. – Under the Negative-List regime. List of declared services. Exemption Notification. 2004. – Example: In the context of a real estate agent. 2012. 66F) • Unless otherwise specified reference to a service i. immovable property related service is a more specific description than service of an intermediary.e. • Most specific description shall be preferred over general description.

66F) • While determining the taxability of a bundled service. the rules stated below are subject to the rule that specific description prevails over general description. it shall be treated as service attracting highest rate of service tax. – Example: A hotel providing breakfast or airline providing meal on board are naturally bundled to include accommodation or transportation by air with a catering service. it would be treated as a single service. – If various elements of a bundled service are naturally bundled in the ordinary course of business.BUNDLED SERVICES PRINCIPLES OF INTERPRETATION (S. 56 Puloma Dalal . – If bundled services are not naturally bundled in the ordinary course of business.

a host of services are provided by shipping lines and freight forwarders. whether other services could be treated as incidental? • In case of multi-modal transport service providers. which mode gives the essential character to the bundled service? 57 Puloma Dalal . If freight per se does not attract service tax.BUNDLED SERVICES GREY AREAS • Along with service of transportation of goods by waterways or air.

BUNDLED SERVICES: GUIDANCE ON UK VAT: MULTIPLE/COMPOSITE SUPPLIES • Identifying whether a particular transaction is a single or multiple supply: – – – – What does the recipient receive for the consideration? How is the supply advertised? Is there a contract/agreement which describes the supply? Is the other component one which enhances the principal or one which stands on its own as sought by the recipient? – What does the invoice show? 58 Puloma Dalal .

ancillary or incidental to overall supply. 59 Puloma Dalal .like ancillary services alongside the main service • Indicators of single supply. – Perception of consumer/receiver – Majority service providers of a specific service providing similar bundled service – Nature of service . – – – – – Manner of invoicing (underlying component rather than description) Advertisements as package Non-availability of separate components Ordinary/frequent business practice Separate elements integral.BUNDLED SERVICES: GUIDANCE ON UK VAT: MULTIPLE/COMPOSITE SUPPLIES • How to determine when services are bundled in the ordinary course of business or adopted as frequent a business practice.

htm 60 Puloma Dalal .BUNDLED SERVICES: GUIDANCE ON UK VAT: MULTIPLE/COMPOSITE SUPPLIES • Multiple supply = more than one supply for a single payment where the components are separate. principal supplies in themselves • Indicators of a multiple supply – – – – – Separate pricing/invoicing Components are available separately Existence of a time differential between parts of the supply Components are not interdependent/connected More than one supplier for different parts of the service http://www.gov.uk/manuals/vatscmanual/VATSC80000.hmrc.

it is a question of law as applied to the facts whether a supply is multiple or composite. the question must be answered by the application of common sense to the substance and reality of the matter. • Secondly. Commissioners of Customs and Excise v MD and RW Jeffs (trading as J & J Joinery) [1995] STC 759 61 Puloma Dalal .BUNDLED SERVICES: GUIDANCE ON UK VAT: MULTIPLE/COMPOSITE SUPPLIES • Firstly. in certain cases it may be difficult on a practical level to apportion the consideration between the various elements in a supply and this may indicate that this is rather a composite supply. • Thirdly.

– The question in this case was about whether this was a single or multiple supply and whether the package was an exempt supply of insurance or a taxable supply of ‘convenience’ .BUNDLED SERVICES: GUIDANCE ON UK VAT: MULTIPLE/COMPOSITE SUPPLIES • Landmark case: Card Protection Plan v Commissioners of Customs and Excise (Case C-349/96) [1999] STC 270 – The service provided was an assistance package to customers in case of the loss of personal items . such as medical. but also including keys. passports or insurance documents. where the loss occurred away from the customer’s home. 62 Puloma Dalal .mainly credit cards.the customers would be paying for someone else to cancel their cards/order new cards etc. The insurance provider was the Continental Assurance Company. They also provided an insurance-backed indemnity for fraudulent use of the cards and other forms of assistance.

why objectively people are likely to want to join it. it was to obtain insurance cover against loss arising from the misuse of credit cards or other documents – The other features of the scheme. 63 Puloma Dalal . such as card registration and obtaining replacement cards. the financial protection against loss of the card. or in other words. were found to be ancillary to the main objective of the scheme i.e.BUNDLED SERVICES: GUIDANCE ON UK VAT: MULTIPLE/COMPOSITE SUPPLIES • Landmark case: Card Protection Plan v Commissioners of Customs and Excise (Case C-349/96) [1999] STC 270: The Court’s decision: – The court considered that if anyone asked what the essential feature of the scheme or its dominant purpose was. Card Protection Plan was deemed to be making a single supply of exempt services. – Accordingly.

An ancillary service is defined as something that does not constitute for customers an aim in itself but is a means of better enjoying the principal service supplied The fact that a single price is charged is not decisive. to those services 64 Puloma Dalal . if appropriate. If the circumstances indicate that customers intend to purchase two or more distinct services a single price will not prevent these being treated as separate supplies with different liabilities applying.BUNDLED SERVICES: GUIDANCE ON UK VAT: MULTIPLE/COMPOSITE SUPPLIES • Landmark case: Card Protection Plan v Commissioners of Customs and Excise (Case C-349/96) [1999] STC 270: THE ECJ’s GUIDANCE – No definitive guidelines possible: fact-based inquiry – Regard must be given to all the circumstances in which that transaction takes – – – – place Each supply of a service must normally be regarded as distinct and independent A supply that comprises a single service from an economic point of view should not be artificially split There is a single supply in cases where one or elements are to be regarded as ancillary services.

gas and electricity were an integral part of the deal. A customer going into the launderette with a pile of dirty washing had in mind to depart with a parcel of clean clothes. these transport services being bought in from third parties. The provision of water. return transport between certain distant pick-up points and the hotel. was a travel agent and not merely a hotel proprietor.BUNDLED SERVICES: GUIDANCE ON UK VAT: CASE LAW EXAMPLES • In Mander Laundries (unreported): – the proprietor of a launderette argued that the money he received from operating his shop should be apportioned between the standard rated laundering facilities and the zero-rated supply of water. habitually offers his customers in addition to accommodation. Thus it was a composite supply for VAT purposes. and a coach excursion during their stay. in return for a package price. In Commissioners of Customs and Excise v Madgett & Baldwin (trading as Howden • Court Hotel) [1998] STC 1189 – The European Court of Justice found that an hotelier who. gas and electricity. 65 Puloma Dalal . – The tribunal rejected this argument.

They had to be supplied to the patient to get better. – The court found that care and treatment in a hospital involved multiple supplies. The supply of the drugs and the prostheses were part of the treatment that were not optional. these were separate supplies. here there was no dominant supply. – The Court of Appeal said that it was necessary to determine whether one element of the transaction was so dominated by another element so as to lose a separate identity as a supply for fiscal purposes. and the drugs were physically and economically dissociable from other items charged for. 66 Puloma Dalal . In such a case. However.BUNDLED SERVICES: GUIDANCE ON UK VAT: CASE LAW EXAMPLES • In Commissioners of Customs and Excise v Wellington Private Hospital Ltd [1997] STC 445 – The question was whether the supply of drugs in a private health hospital and the supply and fitting of prostheses were an integral part of the exempt supply of health care. a patient paid separately for the drugs. the dominant element was the only supply. Thus. In addition.

THANK YOU 67 Puloma Dalal .