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PART – II : SERVICE TAX

I. AMENDMENTS BY THE FINANCE ACT, 2008`

Amendments in Chapter V and VA of the Finance Act, 1994
1. 7 new services brought under the service tax net [Section 65]
This year seven services have been brought under the tax net with effect from 16.05.2008.
These services are:
(1) Services provided in relation to information technology software for use in the
course, or furtherance, of business or commerce;
(2) Services provided in relation to management of investment, under unit linked
insurance business, commonly known as Unit Linked Insurance Plan (ULIP)
scheme;
(3) Services provided by a recognised stock exchange in relation to securities;
(4) Services provided by a recognised association or a registered association
(commodity exchange) in relation to sale or purchase of any goods or forward
contracts;
(5) Services provided by a processing and clearing house in relation to processing,
clearing and settlement of transactions in securities, goods or forward contracts;
(6) Services provided in relation to supply of tangible goods, without transferring right
of possession and effective control of the tangible goods;
(7) Services provided in relation to internet telecommunication.
Each of the above mentioned services have been discussed below:
(i) Information technology software services
“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 [Section 65(53a)].
Scope of taxable service shall include service provided or to be provided to any person, by
any other person in relation to information technology software for use in the course, or
furtherance, of business or commerce, including,—
(i) development of information technology software,
(ii) study, analysis, design and programming of information technology software,
(iii) adaptation, upgradation, enhancement, implementation and other similar services
related to information technology software,

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(iv) providing advice. guidance and assistance during the start- up phase of a new system.— (i) management of segregated fund of unit linked insurance business by the insurer shall be deemed to be the service provided by the insurer to the policy holder in relation to management of investment under unit linked insurance business. 85 40 . Unlike the case of traditional life insurance policies. (ii) Investment management services provided under ULIP Unit-Linked Insurance Plan (ULIP) is an insurance product offered by life insurance companies combining both risk cover and benefits of investment.— (a) premium paid by the policy holder for the Unit Linked Insurance Plan policy. consultancy and assistance on matters related to information technology software. premium amount paid under ULIP consists of risk premium and investment component. (v) acquiring the right to use information technology software for commercial exploitation including right to reproduce. The investment risk is borne by the ULIP policyholder. medium and high-risk category or combination thereof. distribute and sell information technology software and right to use software components for the creation of and inclusion in other information technology software products. policyholder of ULIP can choose portfolios for investment with different investment aims such as low. health or other specified purposes. by an insurer carrying on life insurance business. ULIP being a combination product. commonly known as Unit Linked Insurance Plan (ULIP) scheme. including conducting feasibility studies on implementation of a system. ULIP enables the policyholder to take part in the scheme collectively and becoming the beneficiary like mutual funds. Scope of taxable service shall include service provided or to be provided to a policy holder. Illustration Total premium paid for the Unit Linked Insurance Plan Policy = Rs.— For the purposes of this sub-clause. Risk premium may be for life or health or any other authorized purposes. Explanation. (vi) acquiring the right to use information technology software supplied electronically [Section 65(105)(zzzze)]. under unit linked insurance business. and the amount segregated for actual investment. and (b) the sum of premium paid for or attributable to risk cover. specifications for a database design. specifications to secure a database. advice on proprietary information technology software. 10 Amount actually invested = Rs. and (ii) the gross amount charged by the insurer from the policy holder for the said services provided or to be provided shall be equivalent to the difference between. whether for life.100 Risk premium = Rs. in relation to management of investment.

by a recognized stock exchange in relation to assisting. by a recognized association or a registered association in relation to assisting. (v) Processing and clearing house services “Processing and clearing house” means any person including the clearing corporation authorised or assigned by a recognised stock exchange. selling or dealing in securities and includes services provided in relation to trading. recognised association or a registered association to perform the duties and functions of a clearing house in relation to. (vi) Supply of tangible goods services Transfer of the right to use any goods is leviable to sales tax / VAT as deemed sale of goods. (iv) Commodity exchange services Scope of taxable service shall include service provided or to be provided to any person. by a processing and clearing house in relation to processing. Scope of taxable service shall include service provided or to be provided to any person. and payment for. (iii) any other matter incidental to. Scope of taxable service shall include service provided or to be provided to any person. Transaction of allowing another person to use the goods. securities. goods or forward contracts. by any other person in relation to supply of tangible goods including machinery. regulating or controlling the business of the sale or purchase of any goods or forward contracts and includes services provided in relation to trading. by the insurer from the policy holder in relation to management of investment under unit linked life insurance business [Section 65(105)(zzzzf)]. goods and forward contracts [Section 65(86d)]. goods and forward contracts [Section 65(105)(zzzzi)].Gross amount charged for the service provided = Rs. Transfer of right to use involves transfer of both possession and control of the goods to the user of the goods. securities. (ii) the delivery of. processing. clearing and settlement of transactions in securities. or connected with. (iii) in addition to the amount referred to in clause (ii). or connected with. (iii) Stock exchange services in relation to securities Scope of taxable service shall include service provided or to be provided to any person. equipment and 41 . such securities. without giving legal right of possession and effective control. the gross amount charged shall include any amount charged subsequently. clearing and settlement of transactions in goods or forward contracts [Section 65(105)(zzzzh)]. goods or forward contracts including any other matter incidental to. regulating or controlling the business of buying. not being treated as sale of goods. the sale or purchase of securities. whether or not periodically. 5 [100-(10+85)].— (i) the periodical settlement of contracts for. is treated as service. clearing and settlement of transactions in securities [Section 65(105)(zzzzg)]. processing. or relating to. goods or forward contracts and differences thereunder.

including carrier services of internet traffic by one internet service provider to another internet service provider. under cargo handling service. unloading. by any other person. with or without one or more other services like loading. to any person.— (i) internet backbone services. appliances for use. with or without one or more of other services like loading. 2. equipment and appliances [Section 65(105)(zzzzj)]. packing or unpacking of cargo and includes. unpacking. services provided by a container freight terminal or any other freight terminal. Scope of existing taxable services amended [Section 65] (i) Cargo handling service The definition of cargo handling service has been amended so as to include services of packing together with transportation of cargo or goods. unpacking. including provision of a direct connection to the internet and space for the customer’s web page. (ii) internet access services. in relation to internet telecommunication service [Section 65(105)(zzzu)]. and (b) service of packing together with transportation of cargo or goods. even if the vehicle does not meet the criteria specified for tourist vehicles. audio conferencing and video conferencing. Scope of taxable service shall include service provided or to be provided. as a consequential amendment section 65(109a) (defining telecommunication services) has also been amended so as to substitute the reference to services provided in relation to internet telephony with internet telecommunication service. handling of export cargo or passenger baggage or mere transportation of goods [Section 65(23)]. telephony. for all modes of transport. without transferring right of possession and effective control of such machinery. (vii) Internet telecommunication services Internet telephony services have been substituted by internet telecommunication service and accordingly section 65(57a). (iii) provision of telecommunication services. over the internet [Section 65(57a)].— (a) cargo handling services provided for freight in special containers or for non containerized freight. (ii) Tour operator’s service The definition of tour operator has been amended so as to include services provided in relation to a journey from one place to another in a vehicle having contract carriage permit. Now the new definition reads as follows: 42 . and cargo handling service incidental to freight. but does not include. Now the definition of cargo handling service reads as follows: “Cargo handling service” means loading. including fax. Further. and 65(105)(zzzu) have been amended as follows:- “Internet telecommunication service” includes. unloading. unloading.

or (vi) provision of service on behalf of the client. maintenance of accounts and remittance. or Explanation — For the removal of doubts. sightseeing or other similar services) by any mode of transport. the expression “tour” does not include a journey organised or arranged for use by an educational body. it is hereby declared that for the purposes of this sub-clause. 43 . organised. “Tour operator” means any person engaged in the business of planning. conducted or promoted by the client are covered under the existing definition of business auxiliary service.— For the removal of doubts. the word “any information technology service and” and explanation (b) has been deleted. granted under the Motor Vehicles Act. or Explanation. or (iv) procurement of goods or services. bingo. Now the definition of business auxiliary service reads as follows: “Business auxiliary service” means any service in relation to. organising or arranging tours (which may include arrangements for accommodation. An explanation has been inserted in section 65(19) so as to clarify that services provided in relation to promotion or marketing of games of chance organized. other than a commercial training or coaching centre. (v) production or processing of goods for. in whatever form or by whatever name called. Explanation — For the purposes of this clause. — (i) promotion or marketing or sale of goods produced or provided by or belonging to the client. conducted or promoted by the client. “service in relation to promotion or marketing of service provided by the client” includes any service provided in relation to promotion or marketing of games of chance. evaluation or development of prospective customer or vendor. or (ii) promotion or marketing of service provided by the client. lotto. it is hereby declared that for the purposes of this sub-clause. covered by a permit. public relation services. or on behalf of the client. 1988 or the rules made thereunder. imparting skill or knowledge or lessons on any subject or field [Section 65(115)]. inventory management. scheduling. (iii) Business auxiliary service Services provided in relation to promotion or marketing of service provided by the client is leviable to service tax under business auxiliary service. which are inputs for the client. payments. including lottery. such as billing. or (vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi). (iii) any customer care service provided on behalf of the client. and includes any person engaged in the business of operating tours in a tourist vehicle or a contract carriage by whatever name called. other than a stage carriage permit. “inputs” means all goods or services intended for use by the client. whether or not conducted online. Also from sub-clause (vi) of section 65(19). issue or collection or recovery of cheques. management or supervision.

irrespective of the transfer of possession or control of the said immovable property. The amended definition is given below: 44 . The new section reads as follows: Scope of taxable service shall include service provided or to be provided to any person. (v) Foreign exchange broker’s service Services provided by foreign exchange brokers as an intermediary in relation to purchase or sale of foreign currency on a commission/brokerage basis was chargeable to service tax as they indicate the consideration (commission) for the services provided explicitly. explanation 2 has been inserted. and includes any person who. Section 65(105)(zzk) has been substituted by a new section 65(105)(zzk). Now section 65(12). while acting on behalf of another person — (i) deals with goods or services or documents of title to such goods or services. the explanation occurring at the end has been numbered as explanation 1 and after the explanation as so numbered. it is hereby declared that for the purposes of this clause “commission agent” means any person who acts on behalf of another person and causes sale or purchase of goods. other than a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern referred to in sub-clause (zm). (iv) Renting of immovable property service In the definition of renting of immovable property service provided under section 65(90a). but does not include any activity that amounts to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act. and includes services as a commission agent. for a consideration. The new explanation clarifies that “renting of immovable property” includes allowing or permitting the use of space in an immovable property. including an authorised dealer in foreign exchange or an authorised money changer. Explanation — For the removal of doubts. or (ii) collects payment of sale price of such goods or services. (vi) Banking and other financial services The definition of “banking and other financial services” given in section 65(12) has been amended by the Finance Act. 2008 so as to bring the money changer and authorised dealer of foreign exchange in the net of service tax. by a foreign exchange broker. Whereas money changers/authorised dealers of foreign exchange providing same services may not necessarily indicate the consideration explicitly and escape service tax. or provision or receipt of services. or (iv) undertakes any activities relating to such sale or purchase of such goods or services [Section 65(19)]. and 65(105)(zzk) have been amended to bring money changer and authorised dealer in the net of service tax. or (iii) guarantees for collection or payment for such goods or services.

(b) foreign exchange broking and purchase or sale of foreign currency. transfer of money including telegraphic transfer. namely :— (i) financial leasing services including equipment leasing and hire-purchase. (v) advisory and other auxiliary financial services including investment and portfolio research and advice. (iii) the lease payment is calculated so as to cover the full cost of the asset together with the interest charges. “purchase or sale of foreign currency. and purchase or sale of foreign currency. safe deposit locker. depository and trust services. (iii) securities and foreign exchange (forex) broking. or has the option to own. and (vii) banker to an issue services. Here. demand draft. Here. custodial. pension fund management. whether or not the consideration for such purchase or sale. including money changing” includes purchase or sale of foreign currency. including money changing. mail transfer and electronic transfer. and (viii) other financial services. bill discounting facility. operation of bank accounts. 45 . other than those covered under sub-clause (a). safe vaults. overdraft facility.“Banking and other financial services” means — (a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern. providing bank guarantee. is specified separately. advice on mergers and acquisitions and advice on corporate restructuring and strategy. including money changing provided by a foreign exchange broker or an authorised dealer in foreign exchange or an authorised money changer. and (iv) the lessee is entitled to own. cheque. the asset at the end of the lease period after making the lease payment. (vi) provision and transfer of information and data processing. “financial leasing” means a lease transaction where- (i) contract for lease is entered into between two parties for leasing of a specific asset. letter of credit and bill of exchange. lending. all forms of fund management. namely. (iv) asset management including portfolio management. (ii) such contract is for use and occupation of the asset by the lessee. issue of pay order. (ii) merchant banking services. as the case may be.

renders any advice. Now the amended definition reads as follows:- “Management. Explanation . or (c) maintenance or repair including reconditioning or restoration. 2008 has substituted explanation given in this clause by a new explanation. maintenance or repair” means any service provided by— (i) any person under a contract or an agreement. the words “to a client” have been substituted by the word “to any person”.(vii) Consulting engineer’s service Consultancy services in the field of computer software engineering has been included within the scope of taxable services provided by a consulting engineer and the word “to a client” has been substituted by the word “to any person” by amending the definition of taxable consulting service provided under sub – clause (g) of clause (105) of section 65. consultancy or technical assistance in the disciplines of both computer hardware engineering and computer software engineering shall also be classifiable under this sub-clause.— (a) management of properties. It has also been clarified that for the purposes of this sub-clause.For the purposes of this clause. 46 . services provided 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 [Section 65(105)(g)]. maintenance or repair services. Now the amended definition of “consulting engineer” given in section 65(31) and scope of taxable service read as follows: "Consulting engineer" means any professionally qualified engineer or any body corporate or any other firm who. The Finance Act. either directly or indirectly. maintenance or repair service Section 65(64) defines taxable management. Also in the definition of “consulting engineer” given in section 65(31). consultancy or technical assistance in any manner to any person in one or more disciplines of engineering – Section 65(31). excluding a motor vehicle. or (ii) a manufacturer or any person authorised by him. by a consulting engineer in relation to advice. whether immovable or not.— (a) “goods” includes computer software. in relation to. whether immovable or not. or servicing of any goods. Scope of taxable service shall include service provided or to be provided to any person. (b) “properties” includes information technology software. (viii) Management. (b) maintenance or repair of properties.

Now the amended definition is as follows: "Technical testing and analysis" means any service in relation to physical. biological or any other scientific testing or analysis of goods or material or information technology software or any immovable property. It is clarified that technical testing and analysis includes testing and analysis undertaken for the purpose of clinical testing of drugs and formulations. 2008 has amended the said clause by substituting the words ‘‘process or material or information technology software’’ for the words ‘‘process or material’’.(ix) Mandap keeper’s service Section 65(105)(m) defines taxable mandap keeper’s services. by a mandap keeper in relation to the use of mandap in any manner including the facilities provided or to be provided to such person in relation to such use and also the services. chemical. The Finance Act. identification of a disease. temporarily or otherwise. 2008 has amended the said clause by inserting the words “information technology software or” after the words ‘‘goods or material or’’. 47 . 2008 has amended the said sub-clause by substituting the word “any person” and “such person” for the word “a client” and “the client”. if any. but does not include any service in relation to inspection and certification of pollution levels. (xii) Manpower recruitment agent’s service Section 65(68) defines manpower recruitment or supply agency. including functionality or utility or quality or safety or any other characteristic or parameters. (x) Technical testing and analysis service Section 65(106) defines taxable technical testing and analysis services. (xi) Technical inspection and certification service Section 65(108) defines taxable technical inspection and certification services. directly or indirectly. to any other person. Now the amended definition is as follows: “Manpower recruitment or supply agency” means any person engaged in providing any service. The Finance Act. in any manner for recruitment or supply of manpower. provided or to be provided as a caterer. prevention of any disease or disorder in human beings or animals. The Finance Act. wherever they occur. but does not include any testing or analysis service provided in relation to human beings or animals. 2008 has amended the said clause by substituting the words “to any other person” for the words “to a client”. Now the amended definition reads as follows: Scope of taxable service shall include any service provided or to be provided to any person. The Finance Act. but does not include testing or analysis for the purpose of determination of the nature of diseased condition. Now the amended definition is as follows: "Technical inspection and certification" means inspection or examination of goods or process or material or information technology software or any immovable property to certify that such goods or process or material or immovable property qualifies or maintains the specified standards.

(15) Underwriter’s services – Section 65(105)(z). Now the amended definition reads as follows: "On-line information and database access or retrieval" means providing data or information. (xiv) Scientific or technical consultancy service Section 65(92) defines scientific or technical consultancy. either directly or indirectly. The words “to any person” substituted for the words “to a client” in 22 services In the case of following services. (16) Scientific or technical consultancy services – Section 65(105)(za). to any person. by a scientist or a technocrat or any science or technology institution or organization. (11) Real estate agent’s services – Section 65(105)(v). (10) Practising company secretary’s services – Section 65(105)(u). (12) Security agency’s services – Section 65(105)(w). (8) Practising chartered accountant’s services – Section 65(105)(s). the words “to any person” shall be substituted for the words “to a client”:- (1) Advertising agency services – Section 65(105)(e). to any person. in electronic form through a computer network. (5) Architect’s services – Section 65(105)(p). 3. (18) Video – tape production services – Section 65(105)(zi). (9) Practising cost accountant’s services – Section 65(105)(t). 2008 has amended the said clause by substituting the words “to any person” for the words “to a client”. (4) Manpower recruitment or supply agnecy’s services – Section 65(105)(k). retrievable or otherwise. (2) Custom house agent’s services – Section 65(105)(h). (3) Clearing & forwarding agent’s services – Section 65(105)(j).Section 65(105)(y). The Finance Act. (17) Convention services – Section 65(105)(zc). (6) Interior decorator’s services – Section 65(105)(q). in one or more disciplines of science or technology. (14) Market research agency’s services . 2008 has amended the said clause by substituting the words “to any person” for the words “to a customer”. consultancy or scientific or technical assistance rendered in any manner. Now the amended definition is as follows: "Scientific or technical consultancy" means any advice. The Finance Act. (7) Management or business consultant’s services – Section 65(105)(r). 48 .(xiii) On-line information and database access and/or retrieval services Section 65(75) defines on-line information and database access or retrieval. (13) Credit rating agency’s services – Section 65(105)(x).

(The above-mentioned amendments in respect of all the above services are effective from 16. (2) Air travel agent’s services – Section 65(105)(l). (14) Travel agent’s services (other than air/rail travel agents) – Section 65(105)(zzx). gross amount charged for the taxable service to include any amount credited or debited to any account of the person liable to pay service tax [Section 67] The definition of “gross amount charged” given in explanation (c) to section 67 has been modified. where the transaction of taxable service is with any associated enterprise. (10) Errection. commissioning or installation services – Section 65(105)(zzd). (13) Survey and exploration of mineral services – Section 65(105)(zzv). in the books of account of a person liable to pay service tax. (21) Outdoor catering – Section 65(105)(zzt).2008) 5. (3) Photography services – Section 65(105)(zb).05. and any amount credited or debited. maintenance or repair services – Section 65(105)(zzg). (20) Event management services – Section 65(105)(zu). The words “to any person” substituted for the words “to a customer” in 14 services In the case of following services. as the case may be. to any account. (7) Beauty parlour’s services – Section 65(105)(zq). (11) Management. credit card. (9) Rail travel agent’s services – Section 65(105)(zz). (4) On – line information and database access and/or retrieval services – Section 65(105)(zh). (19) Sound recording services – Section 65(105)(zj). The amended definition of gross amount charged reads as follows: “Gross amount charged” includes payment by cheque. whether called “suspense account” or by any other name. (5) Banking and other financial services – Section 65(105)(zm). (6) Authorised service station’s services – Section 65(105)(zo). (8) Dry cleaning services – Section 65(105)(zt). deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment. (22) Pandal or shamiana services – Section 65(105)(zzw).” Also a new clause (7b) has been inserted in section 65 which defines “associated enterprise” as follows: 49 . In case of associated enterprise. (12) Transport of goods by road (by a goods transport agency) services – Section 65(105)(zzp). 4. the words “to any person” shall be substituted for the words “to a customer”:- (1) Courier services – Section 65(105)(f).

and the training and other conditions required to be fulfilled. and authorise a Service Tax Return Preparer to act as such under the Scheme. (4) The Scheme framed by the Board under this section may provide for the following.— (a) “Service Tax Return Preparer” means any individual. A new scheme for submission of returns through service tax return preparers introduced [New section 71] The Finance Act. Consequently section 94 has also been amended to provide that rules for framing the scheme for filing service tax returns through service tax return preparers shall be laid before each house of Parliament. by a person to act as a Service Tax Return Preparer.2008) 50 . namely:— (a) the manner in which and the period for which the Service Tax Return Preparer shall be authorised under sub-section (1).2008) 6. (3) For the purposes of this section. specified by the Scheme for the purposes of this section. (e) the circumstances under which the authorisation given to a Service Tax Return Preparer may be withdrawn. (f) any other matter which is required to be. (b) the educational and other qualifications to be possessed. frame a Scheme for the purposes of enabling any person or class of persons to prepare and furnish a return under section 70. The provisions of section 71 are as follows: (1) Without prejudice to the provisions of section 70. or may be. the Board may. who is required to furnish a return required to be filed under section 70. who has been authorised to act as a Service Tax Return Preparer under the Scheme framed under this section. by notification in the Official Gazette. (b) “person or class of persons” means such person. (c) the code of conduct for the Service Tax Return Preparer.05. “Associated enterprise” has the meaning assigned to it in section 92A of the Income tax Act.05. as may be specified in the Scheme. (2) A Service Tax Return Preparer shall assist the person or class of persons to prepare and furnish the return in such manner as may be specified in the Scheme framed under this section.” (Effective from 10. (Effective from 10. (d) the duties and obligations of the Service Tax Return Preparer. 1961. 2008 has inserted a new section 71 to provide for the scheme for submission of Returns through service tax returns prepares.